IoT and Blockchain in the Development of Smart Cities
Laith T. Khrais
Department of Business Administration, College of Applied Studies and Community Services,
Imam Abdulrahman Bin Faisal University, Dammam, Saudi Arabia
Business models have continually developed to bridge the gap between physical transactions and online works. The models include the Internet of Things (IoT) and blockchain applications. The model on the Internet of Things aids businesses in connecting electronically to clients throughout the globe. The Blockchain model is essential in helping to develop a platform of interaction for sellers and buyers. This technology, coupled with the diverse clients and growing markets of informed buyers and sellers, has seen internet banking grow to a new phase. The purpose of this paper is to evaluate the impacts of the two models. A review of the merits, consequences, and demerits of the models was included and implication on unexploited markets evaluated. There is little research, about the e-commerce models and therefore, the journal will be of substantial influence in clarifying how they will lead to the transition from traditional to smart cities. A combination of qualitative and quantitative methods of analysis were employed in this research.
KeywordsــــــInternet of things, Blockchain technologies, Smart Cities, Emerging markets, Electronic commerce.
Smart cities are the newly tapped markets that have embraced the use of technology in their transactions . They feature single items and mass purchases with integrated payment modes — the business organizations, on the other hand, feature in-depth research and marketing of customized products. There is a high affinity for internet banking since transactions are online; thus, there are many cashless amounts to be debited and credited. The IoT integrates the use of electronic devices, such as tablets, laptops and smartphones in their interactions. The blockchain model features a wide variety of cloud-based applications, smart registers and ledgers for business calculations and tracking of financial transactions.
The applications are accessible using devices that are ideally connected using wireless connections by Wi-Fi or by the network providers . Various devices and clients have access to multiple websites that offer banking services. People can comfortably withdraw the amounts electronically and use them to purchase products and services online using specific shopping applications. The models not only provide a variety of products on sale but also more significant opportunities for real-time interactions with the sellers for the supply of customized productized and services. For instance, a client can purchase a CCTV surveillance camera and immediately request after-sale services of installation and maintenance.
The various benefits that accrue from the blockchain model include decentralization, cyber-attacks protection, and ease of transaction flow and flexibility of usage. This business model often features customized platforms for the buyer and seller to meet and transact eliminating the man in the middle attacks . The technology is safe since there are no authorized organizations to bind them. Besides, it secures the two parties by ensuring the privacy of the operations. Zero government interference and few legal requirements for transactions are in place, which promotes the freedom of actions. The most significant aspect of the model is the flexibility of use since the disabled persons, for instance, can comfortably enjoy the services of the models.
The challenges suffered by the blockchain models include scalability, inability to convert information easily, limitations in its supply options, strict legal requirements and lack of quality standardization. The application does not sufficiently support various transactions . It only runs a minimum of five transactions simultaneously. Besides, blockchain acts as a hindrance to the growing smart cities and the different emerging markets. The strict legal regulations set up by the various authorities also set a limit to the development of the application. Moreover, it lacks standardization levels since it has variances in the different geographical markets that its coverage spans over. These reasons, coupled with the limited research available concerning it, pose the question at hand on the impacts of emerging markets and smart cities.
Furthermore, the Internet of Things technologies faces the risks of hacking, inadequate standards for operations and its complexity . The banking clients and online shoppers who invest therein are often at risk of losing important details. It also embarks on ruining the reputation of the host company if the customers suffer a disadvantage as well. These challenges have opened the avenue for research on the subject title to unveil the strategies of curbing the issues in the smart cities. Different literature sources explain progressively on the entire combination, and further is left for evaluation.
II. LITERATURE REVIEW
The development and growing popularity of smart cities have been aggravated in the twenty-first century due to the enhanced adoption of technology. Moreover, the developments have been further enhanced by the aggressive pursuit of automation and efficiency by the corporate sector.
A. Survey of emerging markets and smart cities
Since 1991, different electrical appliances, such as computers, modems, cables, emerged on the Internet as a result of e-commerce. The trend continued to today’s advanced technologies in product development and customized marketing opportunities. Social media platforms, for instance, Facebook, which has over 2.45 billion users , have implemented e-commerce as well. Other platforms, such as Twitter, Instagram, and WhatsApp, have also popularized the application. These users vary from the young kids to the old persons who engage in the sales and purchases.
Statistics indicate that from 2014 until date, the income from the e-commerce sales has grown from 6 billion dollars to the currents sales of 25 trillion dollars and counting . Online business activities can use blockchain to record such transactions. They include the online shopping, online banking services and financial merchandise. The platform has opened markets, and growing economies in the production and exchange of goods and services that range from electronics, telecommunication appliances, fashion wear as well as home groceries.
B. Preview of the two business models
This paper focuses on two business models, namely, the Internet of Things and the Blockchain technology, and assesses the influence of the models on the operation of e-commerce and smart cities. Both models can be implemented separately or integrated to achieve the intended results.
Previously, the safety of the e-commerce activities was at risk. The production processes have been simplified by digitized technologies, thus, taking shorter periods to produce and market products . Besides, the employees enjoy the freedom of interaction with their clients ensuring better quality products and proper timing. The technologies promote efficient ways of tracking inventory whereby current stock and all purchases are screened and adequately labeled since their receipt until usage.
The use of protocols and special codes during processing are applied to enhance the payment process. The Internet of Things (IoT) technology utilizes sensors and unique networks to check on the systems. It then notifies the users in case of slow-moving products or late payments. Through the method, customers can pin a list of their expected product features and locations, which as well assists in the marketing process. Sensor technology checks for product conditions if any, and even temperature levels if required by the customers . It has seen an emergence of clientele who have great trust for online services.
The business model, which caters explicitly to the customers’ satisfaction and overall company growth, is the IoT. It takes care both of customer complaints to resolve them on time and helps in customer choice-making and potential product tailoring or development . The businesses can mine relevant data for their operations by using IoT. It again helps to analyze the business and market trends for the investments made in banking and shopping. The banks can as well check on active clients and integrate products to boost the investment cultures of smart people.
Blockchain is a business model that aids in smooth transactions for banking, shopping, and other areas. It works by providing a platform for leveraging ledger transactions for both the internet banking clientele where the deals are efficiently maintained and automatically operation . Besides, it keeps the information on payment and buying patterns of the shoppers. The model is flexible and has especially enhanced a more natural way of handling online processes.
The model works by creating an account ledger in the form of simple models, where the firms can easily access and understand the business patterns. Ideally, the ledgers and registers promote payment details follow up of the banking clients or even the shoppers . It identifies the creditworthiness of clients. The process steps used to streamline the suppliers’ data. All supplier payments and details provided evidence for goods receipt and their selling patterns. The systems enable the business suppliers to identify potential risks and handle them efficiently. The policies then promote a customer service process, which equates to trustworthiness in the service chains.
There is an additional package for the blockchain users, where bankers’ and shoppers’ data is safely stored. Consequently, all necessary communication to the shoppers is provided in case of new better product designs or products are on discount. Customers are, in turn, can synchronize their bank details and assess their worth online. On the business side, the files and other databases are essential in developing patterns and understanding customer needs, and it leads to better marketing strategies and efficient supply systems. The firms also have access to large files quickly and in real-time. Online banking providers in the accounting and financial management processes receive the aid of the large files, which helps reduce fraud and unwanted pilferages .
C. Impacts of business models
The core aim of smart cities is the development based on simple artificial intelligence mechanisms. The growth, especially in the internet banking sector, features smart solutions, such as cost reduction in processing payments and loan requests in real-time. The banks apply the Internet of things technology to analyze the customers’ data and make decisions regarding further improvement to ensure continued customer loyalty. Besides, it aids in deciding the appropriate strategy, especially for the mobile banking services and ATMs installation. The models help the banking area in devising flexible terms for the customers and suppliers in the industry.
Blockchain and IoT business models efficiently serve internet banking and online shopping markets . This combination, especially in emerging markets, contains interconnected transactions since it uses sensors to generate process payments and track transactions within the markets. All the connected devices have open access to all baking services to include savings, online ATM withdrawals, loan processing, and credit card or debit card transactions . The online shoppers, on the other hand, maintain a view of the available products for purchase and can even make product suggestions. The shoppers can make micropayments directly using IoT, whereas blockchain enables the firms to view the payments and transactions in real-time.
Blockchain has impacted the internet banking sector through increasing its accessibility, lowering costs, increasing the transparency and speed of transactions. Customers in smart cities can continually enjoy withdrawals and loan processing at reduced rates compared to traditional banking. The services are fast since the clients and service providers are available in real-time to respond to the customer queries , . The possibility of losing money through fraudulent practices is reduced since internet banking transactions are processed through the artificial intelligence technology. Moreover, the fees are automatically presented clearly and concisely for banking customers.
Blockchain has consequently enhanced the supply chain functions for online shopping. There are fewer manual systems and process requirements ensuring precise and more comfortable process. The participants have free access to the transportation and transactional process, which proves the authenticity of the venture. It helps in faster growth rates of the cities and even distribution of the development phases across the market places . The buyers have the power to verify all details as the process is underway to confirm the accuracy and trustworthiness of the merchants, which, in turn, helps in building a sharp brand image for the suppliers and a positive reputation on the service providers. The business models have also seen a significant improvement in the buyers’ perceptions and buying patterns to optimistic and more purchases.
The emerging markets and smart cities enjoy the benefits of growing loyalty programs, smart contracts, products or services advertising and commercial lending, which come from the two business models. Since the IoT technology features technical programs for maintaining customers’ databases the firms use the information to develop loyalty programs for regular or repeat customers . Blockchain, on the other hand, maintains registers of all money transacted by the customers, the two models enable the firms to develop smart contracts for the buyers to have positive credit records. Automatic emails and messages are easy to generate and disseminate to the identified clients; thereby, it helps to promote the banking sectors and also the shoppers.
This paper applies mixed research designs to collect, interpret, analyze, and present data. As such, the researcher will employ both qualitative and quantitative methods to made deductions on the subject matter.
A. Qualitative approach
The qualitative approach will entail collecting secondary information on model companies and assessing it to address the research problem. Businesses that adopt the Internet of Things and blockchain models will constitute the population sample for this study. A majority of the companies to be sampled for the study is in the world’s smart cities and upcoming markets. A random sampling technique is preferred to avoid bias and misrepresentation. The sampling method would take into consideration the different outplays that cannot be left out, including a review of the previous study and figure as identified in the table below.
Using the qualitative approach, a significant limitation of this study was the fact that technologies are constantly evolving. For this reason, secondary data is not adequately updated or at times is left unattended as brand new models eclipse the previous ones. From the reviews, smart cities and emerging markets show that the shoppers and bankers feature a high use of technology in the form of two business models. The two models define ways of making the length of processing transactions shorter and more flexible and transparent. Charts and graphical representation will be applied to understand the concepts and derive the impacts on e-commerce while using such business models.
B. Quantitative approach
Besides, the study will employ a quantitative approach to address the research problem. The approach will be useful in collecting information on the perspective of industry experts on the various developments and dynamics of blockchain technologies and the Internet of Things.
1) Target population. The study will target company managers and intellectuals from the industry, such as university professors, pioneers of IoT and blockchain technologies. The participants will be drawn from various companies as well as from different sectors. Consequently, the study will recruit 10 participants to contribute to the required information
2) Research instrumentation. The study will utilize interviews to collect quantitative data. The interviews will constitute both closed and open-ended questions. The closed-ended questions will gather statistical data that will enable the researcher to measure opinion and the popularity of ideas on the subject matter. On the other hand, the open-ended questions will help obtain detailed information on the questions through the explanations given by the participants.
3) Data analysis: The collected data will be recorded in tables and analyzed using the Excel software. Using the Excel program, the researcher will derive graphical illustrations and charts to demonstrate the outcome of the study.
C. Research ethical considerations
This study will adhere to the conventional ethical considerations that govern research work. For instance, the sample companies had provided their consent for participation before the information on their operations was collected. Secondly, the participants of the interviews were briefed on the purpose of the study, and hence, were given a chance to exercise free-will to give the required information. Considering this, no participant was coerced to engage in the study. Finally, the participants were accorded due to confidentiality and anonymity, as their personal details such as names were not recorded.
IV. RESULTS AND DISCUSSION
A. Contributions of the IoT and blockchain technologies to business development
The rating (values 1-5) presented in Table 1.0 indicates the impacts with 5 stars as the best and most influential impact derived from the combination of IoT and blockchain. The information from the literature sources was summarized in the table for a simplified interpretation of the data. Besides, it put the impacts into perspective by elaborating on the impacts with the scale of spread in the banking and shopping fields.
The five-star ratings for faster transactions, process transparency and waste/fraud prevention imply that the models have received a significant number of users in the two businesses. Three-star ratings for inventory management, loan access and processing, and development of online infrastructure indicate that the implications for the business models have not yet grown to maximum capacity. There are fewer hitches when it comes to accessing loans from the banks since the systems might at times experience delays. Besides, the online merchants have challenges with keeping up with the inventory levels due to underdeveloped online infrastructure.
The details on loan processing and access are significant milestones with the use of business models. The online infrastructure includes machine learning and artificial intelligence, both for online business and banking. Customers can request for credit extensions for the sellers and secure them in real-time. There is a well-defined infrastructure to host all the blockchain technical components and the IoT for smooth functioning. The rating for these two impacts will improve as the obstacles of the business are overcome continuously; it will help to improve the emerging markets share with the banking industry.
Table 1.0. Business Models and Their Implications in Emerging Markets and Smart Cities.
Figure 1.1 presents a summary of the major impacts of IoT and blockchain in different industries. Some of the most profound impacts include easing economic projections in investment research, assisting in GDP estimation in government, and policy customization for insurance. In total, the figure shows that IoT and blockchain have positively influenced on at least six sectors by ranging from the banking industry to government. The ability of IoT to gather data from different sources in real time explains why business models involving the technology would lead to more accurate and up-to-date information for the customization of insurance policies, the accurate calculation of a country’s GDP, the effective management of inventory, the real-time monitoring and calculation of interest rates, and the projection of investment outcomes.
In addition to providing essential real-time information to all the different areas highlighted in Figure 1.1, another significant outcome of IoT and blockchain is the prevention of wastage and fraud. The customers and merchants no longer need to worry about the safety of their money in the Internet banks. There is also a security assurance on the privacy of transactions during online purchases and shipping, which is possible by the integration of blockchain end-to-end encryption and decentralized transaction approval. There is, therefore, a high sense of transparency in IoT and blockchain business models. Moreover, the models will deter middlemen from hacking the customers’ database and using it without their knowledge.
Figure 1.1 The analysis of the IoT impacts on business commerce
Figure 1.2. Application of blockchain in emerging markets.
In the specific context of Figure 1.1, the ability of blockchain for transaction and population tracking reveals how such models would be useful in areas such as government and insurance. In the context of business development, Figure 1.2 shows that the impacts will enable business owners to create unique identities for the shoppers. Then a contract will be established to promote reasonable grounds for sales and improvement. The shoppers can consequently acquire assets to open online shops and invest in the banks. They can venture into selling any of electrical or electronic appliances amongst others, which helps grow the overall business sector. The enthusiasm in the shopping, sales, merchandise, supply chain management, and inventory controls make up the entire business for online shoppers and bankers to exist and thrive. All the impacts shown on the figure are the representation of the smart cities.
Figure 1.2 shows that the application of blockchain in business leads to a continuum of outcomes ranging from the establishment of unique digital identities through smart assets and smart contracts, group decision making, and the establishment of smart communities. Digital identities and the ability to make group decisions, as presented in Figure 1.2, increases the connection of people through their devices thus making it possible for different aspects of a smart community to be achieved. Some of the capabilities in smart communities include automated traffic management, transaction management, and population tracking among others.
IoT and blockchain technologies incorporate the radio frequency identification to check on product quality, conditions and individual requirements. For instance, shoppers with interest in chilled red meats or frozen dairy products can use such models to indicate their interests when placing orders. IoT, in combination with blockchain, helps product assessment to be conducted continuously. Additionally, the end-to-end conversation between sellers and shoppers assists in real-time rectification of mistakes in product specifications, and the shoppers are, therefore, assured of high-quality products through the use of IoT and blockchain platforms. Besides, they are supplied with periodic updates on the service improvements and changes in the websites or devices to keep me up with the industry trends. Once again, at the backdrop of cutting short intermediaries, there can be the creation of jobs in the courier and warehouse services, in case deliverables are collected expressly.
B. The readiness of modern businesses in embracing IoT and blockchain technologies
The interviewees were asked whether their businesses have the capacity to adopt the Internet of Things and blockchain technology. Out of 10 respondents, 6 noted that their companies were ready to fully pursue the transition. However, 3 of the respondents stated that the full embracement of the new changes requires undergoing structural and human resources adjustments in their organizations.
C. Challenges encountered when adopting IoT and blockchain technology
The participants were also prompted to indicate the challenges their companies encountered or were likely to encounter during enhancing of the IoT and blockchain technologies. Out of the 10 participants, 3 noted that the lack of competent personnel was a major challenge in achieving the transition effectively. Similarly, 3 participants noted that the organizations lacked the required mindset in embracing the new technologies. In light of this, the participants were of the view that their organizations did not sufficiently acknowledge the purpose and benefits of embracing the IoT and blockchain technologies. 2 out of the 10 participants stated that slow decision-making in their organizations hindered the adoption of advanced forms of IoT in their operations. Finally, 2 employees cited financial challenges to be a key cause of failure to embrace IoT and blockchain developments. The challenges encountered by companies in embracing IoT is represented in the pie chart illustration below.
Figure 1.3. Challenges facing IoT and blockchain. Source: own effort (2020)
D. Theoretical and practical contributions
The outcome of this study will be imperative in giving information on the benefits of the IoT and blockchain technology in businesses. Hence, this study establishes the rationale for companies to adopt the technologies. Besides, the study points out the challenges encountered by organizations in adopting the technology, thus, forming a foundation for further studies on elimination of these hindrances to facilitate business development.
Business in modern-day life has taken diverse angles in an attempt to meet the necessary customer satisfaction levels and enhance business development. The different measures to expand the online shopping portfolio and internet banking at large include the blockchain technology and Internet of Things. Blockchain has overly supplied bankers and business people with registers and transaction ledgers to adequately monitor sales and inventory , . On the other hand, the IoT has promoted safe grounds for business operations and security of the customers. The risks and challenges of fraud, pilferages, and mismanagement have been taking care of, as well.
The impacts include easier process payouts, faster transactions, and safe operational grounds. For instance, internet banking services with a role in insurance coverage can automatically pay out any claims. The models facilitate quick assessment and, in turn, efficient ways of calculating the expected claims. The bankers enjoy swift transactions and self-service packages for the clients, especially, on loan application and processing. These smart solutions are possible since the emerging market consists of knowledgeable persons with significant interests in business performance and overall industry growth. The models offer solutions for efficiency in service provision and empowering the customers to be their bosses regarding access and control of their private data.
The challenges faced by the business models still drag the processes and industry behind, including the lack of equitable standards for operation and the limited scale for processing transactions . Internet bankers and online retailers suffer the challenge of uneven standards, especially when handling clients in far apart geographical locations. Fortunately, the benefits and impacts outbalance the obstacles and limitations though still leave room for improvements.
The models should be able to handle a variety of transactions efficiently without lags and failures. Besides, it is possible to scale up operations and eventually face out all the manual systems and competition from other business model suppliers. Future researchers can take it up to bridge this gap by offering reliable business model suggestions.
The models should be developed and adequately equipped to have clear standards for different clients. The models also lack legal representation because little has been evaluated and accredited as blockchain or the Internet of Things. Instead, they just pop up into the smart markets and exit when their decline phase shows up. Software developers have a task to come up with better and legit business models, especially for diverse demands.
The models should continue advancing and applying more expertize in service provision. The blockchain technology, for instance, is heavily dependent on energy supply. Updated models should be smartly powered to consume minimal energy and offer effective services to the bankers and shoppers.
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