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IAA caught up with Stefan Ferber, CEO of Bosch Software Innovation as he stopped off in Singapore as part of his travels across the Asia Pacific region, which is seeing increased adoption of IoT with more projects coming online.

IAA: Why is Blockchain becoming important for IoT?

Stefan Ferber (SF): Bosch is associated with its strategy around IoT. Trust, security, and privacy are important principles for Bosch. The trust part, in particular, as you can only deliver if you have the organisational and technical means behind it.

Sometimes in a very distributed world when machines talk to each other, it is very difficult to get organisational trust installed because if you have organisational trust a public key infrastructure system is used and there is encryption for that, etc. We have experts for this and even bought a company to increase our capability in this area. However good we are in this area we know it is not enough because once machine become agents by themselves you have to install contracts between them. That is why we have tapped into this topic of ledgers. This is not about the currency aspect of the Blockchain but much more about the distributed ledger aspect. We have been working at this for four years, and since that time we have come up with some projects.

For example, if you buy a used car, the trust issue is how old is it and is the mileage you see really the actual mileage taken by the vehicle. We have a project with Tuv, which is the authority in Germany taking care of vehicle inspections, to make sure that the mileage has not been tampered with. This is a good example, where it is difficult to get organisations trust because you do not know how many people have been interfering with it.

We used the Ethereum Blockchain as a first step to build a contract between these parties. We learned that traditional Blockchain Technology is expensive in terms of compute. We would say it is the most expensive, slowest database in the world, which is ok if you do not have trust at all. If we can find a smarter and more computationally efficient way then we will be better off. It is probably the only way you can go.

Battery life is important, particularly as devices are becoming more mobile. Organisational trust is difficult to get, which is why we looked at IOTA. We are part of the IOTA community. We believe in a lot of the concepts of IOTA, particularly distributed ledgers. However, we also know that not everything IOTA is up to is of a standard that we want to have. We invest more in our own research and development, and we are very happy that the community is open to that.

IAA: Tell me more about the Trusted IoT Alliance, which I understand you to be a founding member?

SF: We set up the Trusted IoT Alliance to promote business use cases for the technology in the space that we are interested in. This is because we see a lot of traction in the typical financial market, but we want to develop an ecosystem that is looking at this from the point of view of how ‘things’ interact with each other. To make this happen, we need other companies to be involved as well. We also have to push security and to take such requirements into account. We have a lot of support for this alliance.

IAA: How is blockchain changing business models?

SF: In regards to the Blockchain aspect, it is based on decentralisation, so you do not need a single centre of trust. You have a distributed element which has produced much innovation with several platforms available to build on top of. We could shop today at Amazon for most of our goods if we chose to. If you have a distributed element, such as Blockchain, you do not need a central element for that. You can basically make P2P transactions.

Having said all that there is still an element of central trust behind such a platform. For instance, you have to trust the code that is used to run the ecosystem, though this is transparent and is open source. In this case, we trust the developers who put the code together and that the code does what the developers say it does. The mode is transparent, but still, we do not know how this will relate to regulatory trust.

The disruptive part for a bank, notary, or a lawyer, which is basically a trusted third party, and acts as a trustee for both sides are now distributed in an organisation, and in the end, the trustee is the organisation, the foundation of the community that provides the technology.

For IoT, I believe it is a little different. For device manufacturers, like Bosch, the disruptive part is that the service becomes more important. As such, it is not important to buy a product anymore. In a sharing economy or a service economy, you pay to use a machine by the hour, for example. It is pay per use, so you do not buy a dishwasher anymore, for instance, you simply pay for how often you use it. If you have a second apartment because you travel a lot, then you pay less, but if your family use it more often, then you pay more. This would mean a change in business model for device manufacturing. We see some system integrators or service companies buy products and offer a service, for instance, ride-sharing companies.

Riding-sharing companies do not buy the cars, but they use the infrastructure of the cars somebody else owns, to offer a service on top of their infrastructure. The margin for providing such services is much better.

The companies that provide the real hardware and do the difficult engineering work have a lower margin and the companies who provide the services on top make the bigger margin. That is why we have device manufacturers tapping into the service business too.

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