Monthly Archives: December 2014

2015 – Year of the Payment Channel

If 2014 was the year of multisig in bitcoin, then 2015 should be the year of the payment channel. Multisig solved the most near term problem everyone was facing by helping them prevent coins from being stolen or services from taking control of users private keys. While it hasn’t been completely rolled out to every service, we have seen the leaders in space adopt the new technology, like Coinbase’s Multisig Vault. If we assume that this immediate challenge has been tackled, we should look forward to see what the next is, and I believe they can be solved with payment channels.

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Why the “Internet of Things” will be run on the Blockchain

Why aren’t all refrigerators connected to the Internet?

When the Internet of Things is discussed, the example of a refrigerator connected to the Internet always comes up. This fridge is supposed to monitor what is contained inside of it, and automatically order items when they get depleted. These items will then be delivered via a service like Instacart, right to your door.

I personally can’t wait for this, since I spend a majority of time scavenging in our kitchen, looking for what I can make without having to go to the store to buy more food. Also, even though I use Instacart, it still takes time to figure out what we need, and also think about meeting minimum requirements so the delivery fee doesn’t seem astronomical compared to the purchase (e.g. $5 delivery fee for $3 of milk).

So why doesn’t this exist? The technology is available to connect things to the Internet, research has been done to put cameras into a fridge and know what is missing, and we already have food delivery services. The only explanation is economics.

Nest Thermostat

Let’s take a look at one of the few existing success stories for Internet connected appliances, the Nest Thermostat. The Nest Thermostat is sold for a pretty high price of approximately $250. Assuming the hardware costs approximately $100 and the retailer captures approximately $50 of the price, this leaves approximately $100 left over for the company.

You may say “Great!” the company gets $100 per sale of each device, but the problem is that the liability of the company is ongoing. For each device the company sells, they need to provide some sort of centralized cloud service over the Internet that each device connects to, gets updates from, and communicates with in order to be “Smart”.

My guess is that most people don’t plan on changing their thermostat very often. If the Nest is supposed to last 10 years on average, this means that the company gets $10 per year, per device to support all the functions of the smart device. Also, there is no explicit End of Life date, so in theory, people may expect the Nest to function for the next 40 years, without ever paying another penny to the company. This is just a giant liability and may actually make the company lose money in the long run.

This is why my fridge isn’t connected to the Internet.

On the Blockchain

In order to incentivize device makers to make them “smart”, there needs to be an income opportunity for supporting the devices as long as the device is in existence. While there is a possibility for charging a monthly service fee, I doubt anyone would sign up for a monthly subscription for their toaster. Also, we could potentially embed advertisement displays into every device, but most people would probably not see that as acceptable in the privacy of their home.

If each smart device was blockchain aware, instead of charging fees or showing ads, they could each mine bitcoins. The owner would essentially be burning a small extra amount of electricity in order to allow the device have greater capabilities. The user would also have the ability to turn this function off, and have the device lose its smart capabilities in order to save electricity.

The device could then use the fractions of bitcoins it earned to use services available over the Internet, and this would provide incentive for services to be hosted in the cloud to provide data or other functionality. When devices become blockchain aware, they go from a long-term liability to a long-term revenue opportunity for Internet of Things device manufacturers and service providers.

I am hopeful that one day my fridge supports the bitcoin blockchain and my wife stops yelling at me for eating all the food.