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Internet of Things and Blockchain: the engines behind Web3

July 25, 2022

12 min

Internet of Things and Blockchain: the engines behind Web3

Since its inception, the Internet has been characterised by the inevitable process of evolution: innovation mainly concerns integration with other technologies, such as blockchain.

Today, we are witnessing the crucial transition from Web 2.0, a phase dominated by social networks (Facebook) and Big Tech (Google, Amazon, Apple, Microsoft), to Web 3.0. Ideas surrounding decentralisation, content ownership and Edge Computing have initiated a new trend, the Internet of Things (IoT). The IoT can be conceived as a network of ‘smart’ devices, sometimes supported by the computing and storage capabilities of the Cloud. In this article, we will try to understand what role could cryptocurrencies play in this application of Web 3.0?

What is the Internet of Things (IoT)

The Internet of Things (IoT) can be defined as a network of physical objects, connected through the Internet and exchanging information that is collected and/or processed. One can guess that the term IoT encompasses very different ‘things’, so it is not easy to find a precise answer to the question ‘what is the Internet of Things’. 

An example might help us: ‘smart cars‘ are vehicles with integrated sensors, devices and application software that can constitute an IoT system if connected to the Cloud via the Internet. Our cars already have ‘smart’ elements: they constantly monitor any operating parameter and analyse it to recommend interventions (so-called ‘predictive maintenance‘). In addition to diagnostic tools, smart cars integrate smartphones and other devices, via Bluetooth, USB, and WiFi, to provide information and entertainment. NFC (Near Field Communication), on the other hand, makes car sharing possible. Finally, autonomous driving would be impossible without the IoT: it requires communication with other vehicles to prevent collisions, infrastructure for traffic management, and the network to receive traffic and weather reports.

This first look at the Internet of Things shows us a structure divided into devices and communication layers. The following paragraphs represent precisely the path followed by information in an IoT system, so we can observe its consequentiality

IT structure


Sensors are devices, or parts of devices, that collect information from the environment and translate it into raw data in order to send it to other IoT units. Their main task is to transform physical phenomena (temperature, heartbeat, air composition, etc.) into digital data.

Think of the IoT as a ‘virtual’ organism. The 5 senses act as sensors for the system, monitoring the environment: they send sensations (physical phenomena) through the nervous system (the communication protocol) to reach the brain (the cloud). Here, the information is recorded in memory (storage) and processed (computing) to find solutions. These will then be translated into commands to be sent to other nerve centres (actuators) that will direct them to the limbs (targets), to change the conditions of the environment surrounding the organism.

Communication protocols (connectivity layer)

Data aggregated by sensors must be transmitted to other devices, to ‘smart gateways’ or to the cloud, so peripheral IoT devices need a language to communicate.

Existing protocols and standards can be divided by distance of competence: WiFi, Bluetooth and NFC (Near Field Communication), for instance, handle short-range communication; whereas, to send data to the cloud via the Internet, a TCP/IP protocol is required.

Smart Gateway (security and management layer)

All sensors could connect directly to the Cloud via the Internet, but this would require a lot of energy. Therefore, it is preferred to transfer the collected data to a smart gateway, via WiFi or Bluetooth for example, which manages two-way communication with the Cloud.

Gateway brokerage also serves other purposes:

  • maintaining security by controlling access to the IoT and encrypting data;
  • transmitting commands to the actuators;
  • performing preliminary processing of data, so as to create a summary and transmit only relevant information, also reducing communication latency.

Cloud (computing and storage layer)

Data collected by the sensors is analysed, processed, and stored in the Cloud, which is the set of software resources made available by an Internet network. Here, the data in itself finds a purpose: it is organised to be useful to other IoT devices. In fact, Web3 will also be characterised by a different way of processing information: Edge Computing. In a nutshell, the computation of data is further decentralised, in a spatial sense, and transferred to the individual devices on the ‘periphery’ of the IoT system. The devices then process the collected data themselves, reducing traffic and improving network performance, something that already happens with smartphones, smartwatches and computers.


After being processed by the cloud or hardware,the information gathered by the sensors may signal the need for a change,. Therefore, the information is transformed into commands and sent to actuators, which in turn will cause the response of target objects. These are tools or other physical entities capable of exerting an influence on the environment so as to change its state. Therefore, actuators do not act directly on the environment, but delegate the task to the target objects.

NB: a ‘smart home’ often implies a direct connection between sensors and actuators, with no or minimal computation, and therefore excludes connection to the internet and the cloud. Despite this, home automation is often considered an example of IoT.

Applications/user interfaces

The Internet of Things is not just about automation, the user plays a key role. Through applications and interfaces, often hosted in devices such as smartphones, tablets or smartwatches, we can interact with the IoT and exploit it for our own purposes. Not only can we remotely control our ‘smart’ objects, ordering changes, but we can set our own ‘preferences‘ and receive customised notifications from sensors.

The IoT, however, also has utility beyond everyday use: researchers from all fields can harness the computing power of the Cloud to process Big Data collected from sensors, useful for statistical and experimental purposes.

Now that you have a better understanding of what the Internet of Things (IOT) is, you may have guessed the importance of interoperability in object networking. In other words, the need for a shared register for information and the value of sharing resources. Sounds familiar? These are characteristics of blockchain technology, of which cryptocurrencies are the main products. So, is blockchain compatible with the purposes of IoT? Let’s see what applications it could have by looking at some use cases.

Blockchain and IoT: decentralisation, reliability and security

The blockchain is renowned for solutions in the financial field, and Bitcoin was the first real world application of this technology. Blocks, however, could contain information other than just the exchange of coins and tokens: any data can be recorded immutably and distributed. Therefore, why not use blockchain as a communication layer between IoT devices? This would solve some of the critical issues of the Internet of Things.

Information recorded by sensors is only useful if it is true, so the current form of the IoT uses a validation mechanism based on intermediaries (gateways) and centralised entities. The blockchain, on the other hand, would transform the structure of the IoT from Client/Server to Peer-to-Peer. Distributing the verification of information, through consensus mechanisms (as in cryptocurrencies), can be useful to take care of issues of trustworthiness from the very beginning of the process. This would make the IoT a trustless system, thus supporting direct communication between devices, without the need for intermediation.

Most units in the IoT are already in a Public Key Infrastructure (PKI). However, if encrypted messages were recorded on a blockchain through cryptographic identity, they would give rise to a ‘reputation‘. In addition to knowing whether a device has a reliable ‘history’, the blocks would also store what it has transmitted and to whom, transparently and always accessible in an eternal timeline. Despite the traceability of communications, each entity retains its privacy, being represented by alphanumeric strings. The security of encryption, if extended to the entire network, could ward off the possibility of DDoS (Distributed Denial of Service) attacks: the dual-key architecture would thwart hacking attempts.

Finally, the IoT would also have smart contract technology at its disposal, supported by many blockchains. The IoT structure could thus get rid of ‘actuators’, replacing them with decentralised software on blockchain. 

Insight: Supply chain, cloud storage and IOTA

There are already examples of the application of blockchain technology to the IoT, demonstrating different use cases: let us look together at some of the solutions built so far.

The first combined application of blockchain and IoT can be found in supply chains.These can be defined as the network of entities (companies and people), activities, resources and information that allow products and services to be delivered to the end consumer. An example would be the network of suppliers, warehouses and supermarkets that makes us find products on the shelves.

This process needs close monitoring to meet safety, hygiene and sustainability standards, but also efficiency and profitability. Therefore, tracking goods at different levels is essential: IoT sensors can detect any kind of useful supply chain parameter, such as product location or storage conditions, send them to the cloud for processing and, after that, stimulate action. Whereas, blockchain can record all the data generated in this exchange in a distributed manner. This makes it possible to reconstruct material paths, from production to distribution to sales, and to formulate predictive and prescriptive analyses to optimise processes and coordinate units.

There is already an implementation of IoT and blockchain in supply chains, it was presented at the Polkadot Decoded event at the end of June 2022. It is called Origin Trail, a multichain infrastructure (Ethereum, Polygon and Polkadot parachain, among others) that collects information and organises it in blockchain through knowledge graphs, making it reliable and searchable.

The second intersection between IoT and blockchain occurs in the cloud component: the resources processed and contained here can also be administered by blockchain technology in a decentralised manner. In this regard, we have already discussed the cloud storage of IPFS, Storj, Filecoin and the data indexing of The Graph in this article, but let us briefly summarise. Data from IoT devices can be stored in IPFS‘s decentralised repository: users with unused hardware can contribute by lending their storage space, in exchange of tokens such as FIL or STORJ. Finally, decentralised repositories can host the information generated by the IoT, but how can we retrieve it? The Graph makes it easy to find any data recorded on the blockchain.

The third example concerns the integration between the IoT and Distributed Ledger Technologies (DLT), the group to which blockchain also belongs. IOTA‘s distributed ledger and its cryptocurrency MIOTA are designed to store and process transactions generated by IoT devices. The structure used to verify the information exchanged is called the Tangle: based on directed acyclic graph (DAG), a protocol that processes multiple messages in parallel. The Tangle differs from the blockchain because, in the latter, transactions have a single ‘hook’ point, i.e. the next block, produced individually by a single node. Whereas, in IOTA’s network, each new message can be attached to up to eight others that preceded it, without creating blocks or choosing a leader for validation. In IOTA, several nodes attach multiple transactions to multiple points in the Tangle at the same time: a guarantee of speed for communications in the IoT.

Now that you know what the Internet of Things (IoT) is and which blockchain applications could support it, you can delve into the historical phase that will see the materialisation of these innovations: Web 3.0, the next form of the Internet.