The Economy of Things is the result of the emergence and combination of two fields; the Internet of Things and Distributed Ledger Technology. So to understand the Economy of Things, it first makes sense to jog our memory of the Internet of Things and DLT.
The Internet of Things
Put simply, the IoT is the internet as you and I use it — to connect and exchange information — but for things. Things are devices, sensors and machines that send and receive information via the internet. Nowadays things are everywhere. In your living room you can have smart lights, speakers, a smart TV — even curtains. Walk outside and cars, street lights, cameras, doorbells and parking places are considered ‘smart’. Smart homes are a thing. Smart cities are a thing. You get the idea.
The number of things in the world is forecast to almost triple from roughly 9 billion in 2020 to over 25 billion by 2030. In 2019 the IoT market stood at $250bn, by 2027 it is predicted to hit over $1400bn. The IoT is here, and it’s here to stay. It is valuable because it saves us time and energy. It automates processes in life and business and allows for certain tasks to be done faster and better than we ever could.
Here’s a simple example which I’ll refer back to throughout this article; Alice needs to charge her electric car. Thanks to connected sensors at charging stations which monitor if stations are occupied or not, she can be guided to the closest available charging station directly, instead of having to look for one herself.
Distributed Ledger Technology
The second main ingredient of the Economy of Things is Distributed Ledger Technology. DLT is basically an elaborate database. It’s a new way of storing and exchanging information. But when information is the lifeblood of the world, even a tiny shift is significant. And this is no tiny shift.
Ledgers are the systems by which people establish who owns what and who owes what to whom. They are the basis of accounting and they always have been. Distributed Ledger Technology distributes the ledger among all those using it, putting the responsibility to maintain and validate it in the hands of all stakeholders instead of third parties like banks and institutions. The result is a decentralized data registry system where transactions are instant, transparent and incorruptible.
Why is this significant? This new way of storing, sending and receiving value is permeating every nook and cranny of the digital world. With regards to the IoT and EoT, the connotations are so huge because DLT makes three extremely interesting applications possible; Decentralized Platforms & Marketplaces, Self-Sovereign Identity and Cryptocurrency.
DLT makes it possible for people and organisations to come together to create, maintain and govern decentralised platforms and marketplaces. Think of an online platform you use. Facebook, for example. The Facebook company built the platform, own the platform, maintain it, and profit from it. A decentralised Facebook platform would be built, owned, maintained and profited from by everyone with a stake in it or an interest in it running smoothly. Neutral digital environments.
Not only does this allow us to build fairer and more inclusive systems, organisations and markets, it allows us to build transparent and secure ones too. Transparent because all stakeholders are involved in maintaining and validating it, secure because there is no single point of attack. We can therefore build an IoT that won’t be monopolised like the internet was.
Apply this concept to the example of Alice looking for a charging station. If all charging stations created by all the different manufacturers and operators are part of a decentralized platform then Alice has hundreds more charging stations to choose from. It will be more likely she’ll find one faster and closer, and she’ll be a lot less worried about not finding one in the first place.
Self-Sovereign Identity (SSI) is a fancy way of saying a digital identity which you own and control. You might have a Facebook profile, but you don’t own it and you only control it as much as Facebook thinks you can and should. SSIs make it possible for people and for things to own and control our own digital identities and data.
In the Economy of Things, machines, sensors and vehicles will have their own SSIs granting them sole ownership of their identities and full control over how their data is shared and used. It is an all important layer of security and flexibility, allowing them to reveal only the necessary data for any particular interaction or transaction, without having to rely on third parties.
You can think of SSIs as digital representations of things existing in a parallel meta-verse. Let’s think back to Alice. In the EoT, Alice, her car and the charging station all have digital representations of themselves existing on the decentralised charging platform. When real Alice in her real car pulls up to a real charging station, the digital car verifies and authenticates itself and pays the digital charging station.
Why? Processes in the digital world can happen much faster and smoother than in the real world. Our digital counterparts can prove their authenticity instantly, allowing them to seamlessly interact and transact in their environments directly and completely autonomously. It’s many times faster, more flexible and there are tonnes of benefits to using digital currencies over traditional currency, as we’ll soon see.
Back in the real world, Alice sees nothing. The whole process is instant, secure and fully automated.
With decentralised platforms providing a solid backbone for provision of services, and SSIs as secure digital identities for things to be able to use these platforms and services, the missing link is a means of transaction — a currency — and that’s what DLT is best known for.
Cryptocurrencies (also known as tokens) come in many shapes and sizes and serve different purposes. A token for the Economy of Things has certain constraints which dictate if it’s a good option or not.
Things need to be able to send high volumes of micro-transactions to each other, to entities and to people. You might not care about those 1c and 2c coins, but things in the EoT will care about 0.01s of a cent.
- Low Transaction Fees
One of the biggest blockers in the way of micro-transactions is fees. High fees charged by intermediaries for facilitating transactions can make micro-transactions non-viable.
- Peer-to-Peer (Direct)
Digital currencies exist on a distributed ledger where there is no need for intermediaries to validate transactions and charge fees for it. No intermediaries = no fees = micro-transactions possible. Importantly, making payments directly also means transactions can be instant.
So what does this mean for Alice? The whole process of charging her car — from authentication to payment — is instant, secure and fully automated. There are no pending settlements either and since the transaction was peer-to-peer it did not pass through any financial institutions charging a fee to verify the transaction — meaning Alice also has some extra pocket change.
The Economy of Things
If the Internet of Things refers to things becoming contextually aware and connected, then the Economy of Things refers to those devices now being able to autonomously monetise and trade the value they create.
It is the liquefaction of all the value being created by the IoT so that it can be traded, instantly and securely, in secure, open ecosystems and markets. Through this process, even more value can be created as all connected things can now autonomously communicate, find and purchase what they need in new digital marketplaces.
In the Internet of Things devices, machines and vehicles connect and exchange data. These physical things are being turned into digital assets that monetize and trade all kinds of value autonomously, securely and without intermediaries — Transforming the Internet of Things into the Economy of Things.
The Economy of Things will allow things to exist in a parallel universe in order to take complexity away from us here in the physical world. This ‘complexity’ can be virtually anything. From trading energy for money, exchanging currencies, authentication, verification, and so much more.
The IoT vs. the EoT
To clearly see the impact of this shift from IoT to EoT, let’s compare Alice’s charging errand pre-IoT (I know EV charging didn’t exist back then, it’s just a thought experiment) vs. in the IoT vs. in the EoT vs. in 2030.
Alice has to manually look for available charging stations one by one. She must also ensure the charging station is compatible with her car and that she has verified with the provider or she’ll need to go through yet another long registration process. When she finds one she must physically verify with it and pay by card.
Alice’s app tells her where compatible stations are and if they’re available or not. Authentication, verification and payment processes are the same as the pre-IoT example.
Alice can visit any available charging station. Her car autonomously verifies and authenticates itself instantly, and then pays for the (cheaper) electricity.
In the future, Alice will be a passenger in her own fully-autonomous car. Given that her car not only drives itself around but also has a secure digital identity, it might even have a name — Caren? While she works, Caren will earn money for Alice, working as an autonomous, on-demand taxi and delivery service. Whenever Caren needs a charge, she’ll roll up to a charging station, authenticate and pay, and a robotic arm will hook her up to the charger. Caren will be waiting to pick Alice up after work and take her home, where the charging station in her driveway has been selling the energy that her solar panels generated to other Carens, e-bikes and drones.