Explained: Asset Diversification And Allocation For Cyptocurrency

In the traditional world of finance, the performance of different assets could vary under different market conditions. For example, real estate investment trusts could outperform general equities in a turbulence market, and defensive stocks could disappoint investors when the appetite for risk is heightened. That’s when diversification comes in. The main purpose of exposure to different asset classes is to balance risk and return in a portfolio.

In the cryptocurrency space, diversification could also be one of the ways to manage risk exposure. However, some would argue that it is impossible to diversify a crypto portfolio due to the fact that major altcoins are highly correlated with Bitcoin. However, with a carefully selected basket of altcoins — in conjunction with stablecoins — investors could able to navigate the market more effectively with manageable risk.

There has always been a debate about putting all your eggs in one basket. While in some cases concentrating on only one asset could maximize profitability, this also maximizes the risk exposure. On top of that, a heavy-concentration strategy gives investors no room for any errors in analysis, and it overexposes the investor to unnecessary risks.

However, over-diversification could also hurt investment returns. Some investors believe that the more assets they own, the better return they can have — and that’s not the right concept. It could increase investment cost, add unnecessary due-diligence efforts and lead to below-average risk-adjusted returns.

Asset Allocation

Financial professionals almost universally acknowledged asset allocation as the most critical decision in the entire investment process. Consensus research has proven that 80–90% of a portfolios’ risks and returns can be attributed to asset allocation. However, the allocation process is often the most ad hoc and ignored step in investment decision making.

Many investment advisors want to exclude cryptos from the allocation process as they consider the assets “too risky”. But one must evaluate the benefits of the asset class when combined with more traditional allocations.

4 Types of coins to diversify and allocate

Bitcoin- 25–33% of your portfolio

Bitcoin is currently the largest cryptocurrency based on market cap and makes up over 50% of the entire cryptocurrency world. It would be fair to say that the entire cryptocurrency market is highly correlated to Bitcoin’s price movements. Bitcoin is also the default base currency of the cryptocurrency world. Anyone that wants to buy any other altcoins or tokens, would need to purchase Bitcoin first in order to easily acquire any other coins. This is because local cryptocurrency exchanges usually limit the amount of coins that can be purchased by local fiat money.

Ethereum- 15% of your portfolio

Ethereum is one of the coins that is used alongside Bitcoin as a base currency since it is much faster than Bitcoin. The utility of Ethereum is also correlated to its price; the more developers and projects built on Ethereum, the higher the demand for ETH coins, which will lead to a price increase. Having a portion of your investments in established and credible coins such as Ethereum is vital in stabilizing your portfolio.

Passive Income Provider- 25% of your portfolio

XcelToken Plus is a great passive income provider. ERC20 token on the Ethereum Blockchain Platform, that is painstakingly crafted with the purpose of building, engaging and fostering a large crypto-community within the hospitality, retail and gaming sectors.

By holding a good portion of a passive income earner token, you will be rewarded regularly for keeping faith with the brand. As a keen investor, you want to be in a position of having a mix of risk in your portfolio ranging from high to low. A passive income earning-token is a must-have.

Stablecoins- 35% of your portfolio

Stablecoins are a great way to protect your portfolio from volatility and provide you with much-needed liquidity (or ‘cash’) whenever you have a need. Imagine putting all of your money into cryptocurrencies and the market takes a deep dive; you would lose a major portion of your investments. It is therefore important for you to always keep a portion of your portfolio in stablecoins so that you can cash-out when needed or simply buy more cryptocurrencies when prices take a dive. This action plan will also prevent massive losses in your portfolio.

A well-diversified portfolio goes a long way in ensuring success in the ever-evolving and volatile cryptocurrency markets. There are over 2,000 coins and tokens with varying degrees of risks and characteristics for investors to choose from. Having a balanced portfolio with all the four categories of coins could save you from lots of headache and worry. Lastly, investors should always perform thorough due diligence before investing in any coin.

Weekly Overview: Crypto And Blockchain News

PwC Switzerland Partners With Chain Security

Smart contract auditing team ChainSecurity partnered with the Swiss branch of Big Four auditing firm PwC to enhance the services the global auditor provides.

In an email sent to Cointelegraph, a PwC spokesperson explained that no acquisition took place and multiple ChainSecurity teams joined the firm.

According to a press release published by the firm on Jan. 5, PwC hopes that, with ChainSecurity’s team, the firm will become “the world’s leader in smart contract auditing.”

FTX Launched Bitcoin Option Trading

Cryptocurrency derivatives exchange FTX has launched Bitcoin (BTC) options trading on Jan. 11.

FTX CEO Sam Bankman-Fried announced in a tweet on 11th January, that options were listed on the trading platform. Furthermore, later the same day he also claimed that options trading volume on the exchange reached $1 million in about 2 hours.

Student Wins Satoshi Nakamoto Scholarship

Bitcoin SV (BSV)-promoting Bitcoin Association has awarded a PhD student at Cambridge University with its Satoshi Nakamoto Scholarship, designed to support the development of blockchain applications.

Per a Jan. 9 press release, Robin Kohze, a second-year human genomics PhD student at Cambridge University, became the first to receive the scholarship following a series of blockchain competitions within the Bitcoin SV Hackathon last fall. With his project dubbed, Hive, Kohze took second place. The scholarship is set to allow further development of Hive into a fully operational platform.

Block.One Released Major EOS.io Blockchain Software Update

Blockchain software development firm Block.One released EOS.io 2.0, the software underlying the EOS blockchain.

In the release announcement published on Twitter on Jan. 10, Block.One claimed that the update makes the blockchain “faster, simpler, and even more secure.”

The official blog post on new software explains that it includes a purpose-built WebAssembly (WASM) engine on which the EOS smart contracts run. According to its official website, WASM is an instruction format designed for deployment on the web and servers.

This change is expected to improve the performance of smart contract execution, given that it is supposedly up to 16 times faster than the engine used in the previous version.

Introduction To Cryptoeconomcs

We often see Bitcoin and other cryptocurrencies like the Wild West: no rules, no social norms, only greed, selfishness and mining. This professed lack of law and order makes the crypto world scary to many people. Nevertheless, in reality, there are rules that govern decentralized peer-to-peer (p2p) networks such as Bitcoin. These rules are coded into procedures and deliver the framework for how contributors of a network interact with each other. They help us create a secure, trustworthy and valuable system, just like laws deliver a framework for a better society. Cryptoeconomics asks the question of how we can design these rules and incentives, so that the networks stay secure and create value for everyone. Cryptoeconomics uses cryptographic tools, game theory and economic incentives to achieve this goal.

The Two Pillars of Cryptoeconomics

Cryptography: techniques that keep messages secure

Economic incentives: rules and rewards that encourage you to add value to the network

In this blog we will specifically be talking about the economic tools of Cryptoeconomics.

Economic tools are incentives that encourage and discourage certain behaviour amongst network participants.

The most basic economic tool is the use of tokens and consensus mechanisms.

Tokens

Tokens are exchangeable goods within the decentralized p2p network. The most famous token in the crypto world is Bitcoin.

Beyond Bitcoin, tokens can be exchanged for a variety of goods and services. For example, you can rent out your excess CPU/GPU cycles via the Golem Network and get paid by the GNT (Golem Network Token) as a reward for your service. The presence of tokens creates a shared value amongst network participants, which makes decentralized p2p networks more like separate economies or ecosystems.

Now let’s see how tokens are used to incentivize desirable behaviour in the Bitcoin network.

Block rewards

Let’s say you are a node that creates a new block to be included in the Bitcoin blockchain. You are rewarded for your work by being allowed to include a special transaction (coinbase transaction). This transaction allows you to send a block reward to your own address. Currently (June 2018) miners receive a block reward of 12.5 bitcoins.

You will only be able to reap the reward if the new block is accepted by the rest of the network. Other nodes express their acceptance by including your new block’s hash in the next block they create. This incentivizes them to only include blocks with valid transactions. Because you believe they won’t accept your new block if you include faulty transactions, you are incentivized to include only valid transactions if you want the block reward.

Transaction fees

As I mentioned above, the block reward for creating new blocks decreases at a set rate, which means that there is a finite amount of bitcoins. But what incentivizes participants to continue building the Bitcoin blockchain and to execute transactions if they don’t get rewarded by being able to mine new bitcoin? Simple: they receive transaction fees for each transaction they include in their block.

Transaction fees also disincentivize participants from slowing down the network by sending transactions from and to their own accounts.

Consensus Mechanisms

Participants in a decentralized p2p network need to agree — they need to reach consensus — about the state of the network and about what blocks and transactions to include on the blockchain. We need a mechanism that helps eliminate issues that arise from decentralization and the possible presence of adversaries.

A consensus mechanism is a protocol on top of the blockchain that takes each node’s proposed block as an input and selects a valid block as an output.

Let’s take a look at Bitcoin’s Proof-of-Work consensus mechanism. Simply put, miners must expend a great amount of computational power to prove they have “skin in the game” and then they are allowed to propose a new block. They expend this computational power by solving hash puzzles that are based on the properties of hash functions I’ve mentioned earlier. I’m not going to dive into the technical details of these hash puzzles but you can read more on pages 64–67 of the Princeton Bitcoin book. From a cryptoeconomics perspective, it is important to note that miners must expense fiat currency to buy computing power (nowadays in the form of highly specialized and high-performance ASIC chips). With that, they have expensed significant resources that they would lose if their block wouldn’t be included on the blockchain.

Another popular consensus mechanism is Proof-of-stake. Generally, this consensus mechanism works by having a set of validators take turns proposing and voting on the next block, and the weight of each validator’s vote depends on the size of their staked deposit. They lose their stake if the block is not included in the blockchain and are therefore incentivized to vote on blocks that include only valid transactions. If you want to read more about Proof-of-Stake, I suggest perusing the writings of Vlad Zamfir and Vitalik Buterin, who are championing PoS for Ethereum (which currently runs on PoW).

5 Things You Must Know About Croatian Culture

Culture is everything in the Balkans. Croatian culture gets drummed into young people from an early age, an obvious hangover of centuries of occupation and having to fight for national existence. There is plenty to love in the culture, however, especially if you’re into red-and-white checkerboards. What makes the Croats stand out from the pack? In a part of the world where languages intertwine, and much of history is shared, it is culture that separates the Croats from their Slavic brethren. Here are the 5 things you must know about Croatian Culture before vacationing there:

Red-and-white checkered everything

If there is one thing that is synonymous with Croatia, it is the distinct red-and-white checkerboard design that is ubiquitous here. Whether it is adorning the jerseys of national sports teams, the faces of supporters or practically every flag in the country, there is nothing more Croatian than what the local people call the šahovnica (chessboard). The šahovnica has been the symbol of Croatia since the 10th century, although its use by the violently fascist Ustaše organisation in World War II means it is viewed with fear and suspicion by others in the region.

Soccer is life

Many fans were surprised by the Croatian national team’s run to the final of the 2018 FIFA World Cup, but not the Croats. The beautiful game is king in Croatia and has long been a source of inspiration to ordinary people from Osijek all the way down to Dubrovnik. The love and passion are shown in how vociferously the fans protest against the ruling body and the corruption that holds back this already overachieving team.

Eat, eat, eat

Croatians are very proud of their food, and so they should be. The regional influences are embraced instead of being resisted, with little dabs of Croatian class added to great effect. The traditions of Central Europe and the Mediterranean are very much alive in the kitchens of Croatia. It might also seem like there is a never-ending supply of the stuff, and don’t be surprised to come home from Croatia with a bit of extra padding around the waistline.

Family comes first

Family is everything in Croatia. An extremely high value is placed on family relations, and they can often act as the social centre of life in the country. Children often live with their parents until they are themselves married, something that many Western visitors might find a little confusing. This isn’t quite as much about being a ‘mummy’s boy’ or ‘daddy’s girl’ as you might at first think — it is just how things have always been here. Blood is most definitely thicker than water in Croatia, whether they like it or not.

Don’t mention the war

This one isn’t particularly unique to Croatia but bears repeating nonetheless. Do not mention the war. This is little more than common courtesy, and digging up old wounds is a surefire way to create tension and anguish in what may have been a joyful room to that point. If a Croat wants to talk about their experiences, then by all means listen, but do not barge in with opinions based on hearsay from far away.

To experience Culture is Croatia book your tickets with XcelToken Plus on XcelTrip and make memories that last a lifetime.

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XcelToken Plus Now on CoinMarketCap

XcelToken Plus with the ticker name XLAB is the upgraded version of XcelToken, which is an ERC20 token on the Ethereum Blockchain Platform, that is painstakingly crafted with the purpose of building, engaging and fostering a large crypto-community within the hospitality, retail and gaming sectors. XcelToken Plus is now listed on CoinMarketCap, a platform that allows you to buy and tracks most of the alternative coins that has hit the market as well as Bitcoins and shows users the current value in dollars and Bitcoins for each coin.

Note- The value of the token in the above picture is from the 30^th of September, 2019 at 12:30PM IST. The value will fluctuate based on demand and trading volumes.

On CoinMarketCap you will now be able to trace the prices from whence XcelToken Plus (XLAB) was listed, with values shown in both United States Dollar (USD) and Bitcoin.

XcelToken Plus is a one of a kind utility token, aside from its tradability, is now adopted into usage on platforms such as:

XcelTrip– An online travel booking platform based on the blockchain technology, aims to disrupt the ever-growing trillion-dollar travel industry, through challenging the monopoly of the ecosystem by giving the power back to the users. XcelTrip, allows travellers to check-in at over 1.5 million hotels and book tickets with over 400 airlines. XcelTrip makes sure to give the power of bookings and anonymity to the consumer, since the platform runs on the blockchain system, the consumer is exempt from paying extra credit card charges and other miscellaneous expenditures.

On this decentralised travel platform, aside from XcelToken Plus, crypto-travellers can also use Ethereum, Bitcoin, Dash, Litecoin and Verge currency to book airline tickets and hotels.

Crypto-travellers around the world can either log on to XcelTrip.com or download the XcelTrip app, available on both android and IOS, to book their travels, with amazing cashback offers that run all throughout the year and for those travellers who contribute content and inventory there is a proposition that allows them to earn XcelToken Plus on the XcelTrip platform.

XcelPay Wallet– A merchant POS, digital payment wallet and crypto payment gateway. XcelPay Wallet is integrated into an easy to use, crypto wallet that is enabled for both mobile and tablet use, makes sure that sending and receiving payments in crypto is a secure process.

XcelPay Wallet aims to cut out unwanted middle men, bank/card transaction fees, currency conversion fees that produce a damaging effect on the retailer’s and consumer’s margins, making this a shopaholic’s ultimate companion.

Through XcelPay Wallet, the users can now top up their mobile phone plans with 900 different carrier services and in 160 countries, with Ethereum, Bitcoin and XcelToken Plus.

XcelToken Plus is also a referred token on Bitnare a social media platform that allows for the people of the crypto-community to network with each other within the community on a higher level. XcelGames where the player can collect coins on the game and convert them into XcelToken Plus. The app is available for both IOS and Android devices.

Hard Fork Vs. Soft Fork

A “fork,” in programming terms, is an open-source code modification. Usually the forked code is similar to the original, but with important modifications, and the two “prongs” comfortably co-exist. Sometimes a fork is used to test a process, but with cryptocurrencies, it is more often used to implement a fundamental change, or to create a new asset with similar (but not equal) characteristics as the original.

Not all forks are intentional. With a widely distributed open-source codebase, a fork can happen accidentally when not all nodes are replicating the same information. Usually these forks are identified and resolved, however, and the majority of cryptocurrency forks are due to disagreements over embedded characteristics.

There are two main types of programming fork: hard and soft.

Hard forks

A hard fork is a change to a protocol that renders older versions invalid. If older versions continue running, they will end up with a different protocol and with different data than the newer version. This can lead to significant confusion and possible error.

With bitcoin, a hard fork would be necessary to change defining parameters such as the block size, the difficulty of the cryptographic puzzle that needs to be solved, limits to additional information that can be added, etc. A change to any of these rules would cause blocks to be accepted by the new protocol but rejected by older versions and could lead to serious problems – possibly even a loss of funds.

For instance, if the block size limit were to be increased from 1MB to 4MB, a 2MB block would be accepted by nodes running the new version, but rejected by nodes running the older version.

Let’s say that this 2MB block is validated by an updated node and added on to the blockchain. What if the next block is validated by a node running an older version of the protocol? It will try to add its block to the blockchain, but it will detect that the latest block is not valid. So, it will ignore that block and attach its new validation to the previous one. Suddenly you have two blockchains, one with both older and newer version blocks, and another with only older version blocks. Which chain grows faster will depend on which nodes get the next blocks validated, and there could end up being additional splits. It is feasible that the two (or more) chains could grow in parallel indefinitely.

This is a hard fork, and it’s potentially messy. It’s also risky, as it’s possible that bitcoins spent in a new block could then be spent again on an old block (since merchants, wallets and users running the previous code would not detect the spending on the new code, which they deem invalid).

The only solution is for one branch to be abandoned in favor of the other, which involves some miners losing out (the transactions themselves would not be lost, they’d just be re-allocated). Or, all nodes would need to switch to the newer version at the same time, which is difficult to achieve in a decentralized, widely spread system.

Soft fork

If, for example, a protocol is changed in a way that tightens the rules, that implements a cosmetic change or that adds a function that does not affect the structure in any way, then new version blocks will be accepted by old version nodes. Not the other way around, though: the newer, “tighter” version would reject old version blocks.

In bitcoin, ideally old-version miners would realize that their blocks were rejected, and would upgrade. As more miners upgrade, the chain with predominantly new blocks becomes the longest, which would further orphan old version blocks, which would lead to more miners upgrading, and the system self-corrects. Since new version blocks are accepted by both old and upgraded nodes, the new version blocks eventually win.

For instance, say the community decided to reduce the block size to 0.5MB from the current limit of 1MB. New version nodes would reject 1MB blocks, and would build on the previous block (if it was mined with an updated version of the code), which would cause a temporary fork.

This is a soft fork, and it’s already happened several times. Initially, Bitcoin didn’t have a block size limit. Introducing the limit of 1MB was done through a soft fork, since the new rule was “stricter” than the old one. The pay-to-script-hash function, which enhances the code without changing the structure, was also successfully added through a soft fork. This type of amendment generally requires only the majority of miners to upgrade, which makes it more feasible and less disruptive.

Soft forks do not carry the double-spend risk that plagues hard forks, since merchants and users running old nodes will read both new and old version blocks.

Blockchain and Digital Identity

Technological advancements in the digital space has revolutionized every aspect of our lives, from shopping to collaborating with colleagues to keeping in touch with friends to entertainment to managing our finances. Since the dawn of the Internet, identity management has been a key concern, with billions of dollars being spent on usability, security and privacy.

The identity and access management market is expected to grow from $8.09 billion in 2016 to $14.82 billion by 2021, representing a 12.9% CAGR. Despite this huge investment, managing digital identities continues to be plagued by three Cs – Cumbersome, Costly and Challenging.

With data driving the world today, digital identity is critical to most business and social transactions. This governs the interaction of users in the digital world. But traditional identity systems continue to be highly vulnerable, with single points of failure, attracting continuous attempts to gain access to the complete repository of high value data.

And, with companies prioritizing cybersecurity, identity protection and compliance management, while customer experience is significantly compromised. As individuals, we shoulder the burden of managing multiple online IDs and passwords, while also handling a host of documents, including passports, driver’s licenses, Social Security cards and medical insurance cards.

Blockchain has evolved significantly from the distributed ledger technology created to track bitcoin ownership. This technology can replace traditional systems with a highly trusted mechanism of managing identities. Blockchain can empower users to have greater control over their own identity. Organizations can use the information only with customers’ consent and no central entity would be able to compromise a consumer’s identity.

Blockchain has facilitated the so-called self-sovereign identity, which is inherently unalterable and more secure than traditional identity systems.

This has the potential to completely change the way we use identities to connect to different online services. Individuals would use their self-sovereign ID to verify their identity, removing the need for passwords. As with every lifechanging innovation, there’s been an extended period of evolution, with experts exchanging ideas and little consensus on what self-sovereign ID means!

It’s a concept that stems from the belief that an individual must have control over the administration of his identity. The ID cannot be locked into one site and there needs to be interoperability of the ID across multiple platforms, with user consent. Experts have been contemplating the summation of various identifying information like demographic and employment related data and even information about the individual revealed by other people.

Difference Between Blockchain and Bitcoin

Part of the confusion around what is blockchain versus what is cryptocurrency is due in part that the terms have come into use. Instead of being introduced by formal definition, the term blockchain developed from “chain of blocks”. Cryptocurrency is a sort-of portmanteau of “cryptographic currency”. But the fundamental difference between these concepts has to do with how distributed ledger technology is used.

When Bitcoin was the only blockchain, there wasn’t much of a distinction between the terms and they were used interchangeably. As the technology matured and a variety of blockchains bloomed, the uses quickly diverged from the pure money aspect. Instead, technologists experimented with ideas like decentralized name registry. Other uses utilized the peer-to-peer aspect to deliver messages in a discrete way. In the end, many of these projects failed to find a good use of the technology. The projects left standing helped demonstrate what was possible with beyond buzzwords.

A blockchain is a distributed ledger technology that forms a “chain of blocks.” Each block includes information and data that are bundled together and verified. These blocks are then validated and strung onto the chain of transactions and information in previous blocks. These blocks of transactions are permanently recorded in the distributed ledger that is the blockchain.

Contrasted with blockchain, cryptocurrency has to do with the use of tokens based on the distributed ledger technology. Cryptocurrency can be seen as a tool or resource on a blockchain network. Anything dealing with buying, selling, investing, trading, microtipping, or other monetary aspects deals with a blockchain native token or subtoken.

It is a token based on the distributed ledger that is a blockchain. Cryptocurrency is a digital currency formed on the basis of cryptography, or by definition, “the art of solving or writing codes.” Although all are considered cryptocurrencies, these tokens can serve different purposes on these networks.

Referring to the token as the technology can be right in the case of Bitcoin, but is very different when dealing with other blockchain projects like Ethereum. In this case, the technology is known as Ethereum, but the native token is Ether, and transactions are paid in gas.

Blockchain is the platform which brings cryptocurrencies into play. The blockchain is the technology that is serves as the distributed ledger that forms the network. This network creates the means for transacting, and enables transferring of value and information.

Cryptocurrencies are the tokens used within these networks to send value and pay for these transactions. Furthermore, you can see them as tool on blockchain, in some cases serving as a resource or utility function. Other times they are used to digitize value of an asset.

Blockchains serve as the basis technology, in which cryptocurrencies are a part of the ecosystem. They go hand in hand, and crypto is often necessary to transact on a blockchain. But without the blockchain, we would not have a means for these transactions to be recorded and transferred.

Advantages and Disadvantages of Blockchain Technology

Below mentioned are the major advantages and disadvantages of Blockchain.

Advantages–

1. Process Integrity

Due to the security reasons, this program was made in such a way that any block or even a transaction that adds to the chain cannot be edited which ultimately provides a very high range of security.

2. Traceability

The format of Blockchain designs in such a way that it can easily locate any problem and correct if there is any. It also creates an irreversible audit trail.

3. Security

Blockchain technology is highly secure because of the reason each and every individual who enters into the Blockchain network is provided with a unique identity which is linked to his account. This ensures that the owner of the account himself is operating the transactions. The block encryption in the chain makes it tougher for any hacker to disturb the traditional setup of the chain

4. Faster processing

Before the invention of the blockchain, the traditional banking organization take a lot of time in processing and initiating the transaction but after the blockchain technology speed of the transaction increased to a very high extent. Before this, the overall banking process takes around three days to settle but after the introduction of Blockchain, the time reduced to nearly minutes or even seconds.

Disadvantages–

1. Power Use

The consumption of power in the Blockchain is comparatively high as in a particular year the power consumption of Bitcoin miners was alone more than the per capita power consumption of 159 individual countries. Keeping a real-time ledger is one of the reasons for this consumption because every time it creates a new node, it communicates with each and every other node at the same time.

2. Cost

As per the studies as an average cost of the Bitcoin transaction is $75-$160 and most of this cost cover by the energy consumption. There are very fewer chances that this issue we can resolve by the advancement in the technology. As the other factor that is the storage problem might be covered by the energy issues cannot be resolved.

3. Uncertain regulatory status

In each and every part of world modern money has been created and controlled by the central government. It becomes a hurdle for Bitcoin to get accepted by the pre-existing financial institutions. So, this was all about the advantages and disadvantages of Blockchain. Hope you like our explanation of Pros and Cons of Blockchain technology.

Hence, in this Blockchain tutorial, we learned about the various possible advantages and disadvantages of Blockchain technology. Next, we will see the features of Blockchain. Furthermore, if any query occurs, feel free to ask through the comment section.

Blockchain Use-case: Internet Of Things

IoT or Internet of Things is an interconnected network of smart devices that include everything from our phones, baby monitors, fridges, front door keys etc. Increasingly, these devices are becoming integrated into our lives. According to Wikipedia, “The number of IoT devices increased 31% year-over-year to 8.4 billion in 2017 and it is estimated that there will be 30 billion devices by 2020. The global market value of IoT is projected to reach $7.1 trillion by 2020”. There are already lots of examples of IoT networks in use today. One welcomed example of an IoT smart device is the Petnet Smart Pet Feeder. This device allows us to automate the feeding of our pets. It is able to determine which is the best type of food for your dog or cat and order it via online stores.

The feeder will then automate the amount and times when your pet can eat according to what is best for it. This device can be controlled via any smartphone so owners can ensure that their pet is being fed even if they are halfway around the world on holiday.

Now that we have a clear understanding of what IoT and blockchain are all about, we can take a closer look at how these two technologies can be used in parallel to create exciting new software solutions.

Since the main selling point of blockchain is security, I will start by looking at how using blockchain to secure the internet of things will make many of the apps we use in the future safer and more secure from cyber-attacks.

Security

Using blockchain with IoT stands to benefit applications enormously. Current applications rely on the client-server model in order to function. In essence, this means that all devices are connected to one central authority that controls the network and data.

Time and time again, this central flaw to this model has allowed hackers to gain control of networks and steal data and even access webcams and speakerphones in people‘s homes.

The blockchain model would prevent such attacks from happening. Since a decentralized database would remove any one point of weakness attackers would have to target individual nodes on the network instead.

Any attack on an individual node on the network would also be futile as all the other nodes would resist any attempt to alter the data. Since data is held in a blockchain is secured by cryptography it is much safer than with a traditional client-server database.

Increased Speed of Transactions

Another advantage of employing blockchain solutions to IoT networks is the potential to increase the speed of transactions. This advantage is very specific to the use case to which it is applied. Bitcoin transactions, for example, takes longer than VISA because of limited network speeds. Since each participant on the network is required to validate transactions rather than one single entity, these kinds of straightforward transactions are faster with the client-server model.

It is when the transactions become more complex than an IoT application using blockchain technology can really shine. The implementation of smart contracts will allow multiple resulting actions to occur automatically.

A future version of the Petnet Smart Pet Feeder will be far more independent. The entire process of automating every aspect of feeding your pet could be done by the feeder.

While the current model can reorder food, a future version would be able to employ smart contracts to initiate payments to the online store without the need to involve the owner. Once the goods were received, the feeder could be refilled at which time the entire process would begin again.

Automation would allow more complex transactions to take place instantaneously. This has enormous benefits for IoT users.

Reduced Costs

While there is still much debate regarding the true cost of blockchain databases (in several countries the cost of mining a single Bitcoin currently exceeds $10,000), the overall consensus is that IoT networks costs would be reduced significantly.

The biggest reduction in costs will come from removing intermediaries and automating more complex transactions. Smart contracts only require relatively small “gas” fees to automate many of the processes that currently take time-consuming human intervention.