# When Money Learns to Fly: Towards Sensing as a Service Applications Using
Bitcoin

Kay Noyen1, Dirk Volland2, Dominic Wörner1 and Elgar Fleisch12  1Department of
Management, Technology and Economics
ETH Zurich, Switzerland  2Institute of Technology Management
University of St. Gallen, Switzerland

###### Abstract

Sensing-as-a-Service (S2aaS) is an emerging Internet of Things (IOT) business
model pattern. To be technically feasible and to effectively allow for broad
adoption, S2aaS implementations have to overcome manifold systemic hurdles,
specifically regarding payment and sensor identification. In an effort to
overcome these hurdles, we propose Bitcoin as protocol for S2aaS networks. To
lay the groundwork and start the conversation about disruptive changes that
Bitcoin technology could bring to S2aaS concepts and IOT in general, we
identify and discuss the core characteristics that could drive those changes.
We present a conceptual example and describe the basic process of exchanging
data for cash using Bitcoin.

##  I Introduction

After investigating product, process and service innovation, scholars and
industry experts have recently been shifting their focus on the innovation of
business models, i.e. on how companies comprehensively reinvent the way they
create and capture value for their customers [1, 2, 3, 4, 5]. In a majority of
game changing business model innovation in the last 15 years, information
technology played a key role [4]. In that period, many new so called business
model patterns where created in which information technology was a mandatory
precondition. The first wave of the Internet, for example, created patterns
such as _Freemium_ , _E-Commerce_ , _Leverage Customer Data_ , _Long Tail_ ,
and _Digitalization_ , the Internet 2.0 then led to patterns such as
_Crowdsourcing_ , _Crowdfunding_ , and _User Design_.

Given that each Internet wave so far created new business model patterns one
can assume that the same holds true for the next wave of Internet-based
innovation, the _Internet of Things_ (IOT). The IOT is expected to consist of
billions of sensor nodes bridging the gap between the physical and digital
world. Hence, _Sensing-as-a-Service_ (S2aaS) is a promising candidate for an
IOT-enabled business model pattern [6, 7, 8, 9].

In contrast to a physical good, a digital service attached to it by
connectivity and sensing capabilities can easily be delivered not just to one
addressee, but to many customers at the same time. In addition, these
customers can be distributed across the globe. As a consequence, the one who
generates the data is not necessarily the one who profits from the data. Thus
physical goods that help to create data initiate multi-sided markets for
sensor data in which one or more customer groups (the market’s buying side)
subscribe to and pay for data that is provided by one more data creator
(selling side). For instance, car manufacturers could be interested in a
constant flow of road condition data generated by all cars on the street, city
planners in the way how bicycles move through town, parking authorities and
car drivers in empty parking lots, companies that produce weather forecasts in
the data of millions of privately owned weather stations, and home security
systems in the data generated by heating and climate control systems.

The technical challenges when building such a S2aaS business model pattern are
manifold: For instance, sensors and its owners have to be uniquely identified
and authenticated, the values delivered by the sensors should be traceable and
have to be secured against manipulation, and a low cost micropayment system
has to enable the seller side to receive monetary gratification from the buyer
side — because not everybody will be willing to share his sensor data for
free. But even more than technical challenges, economic and business aspects
are central to the success of S2aaS [10] given the inherent chicken-and-egg
problem that is typical for patterns based on network effects. In this paper,
we present the key characteristics of Bitcoin – a peer-to-peer payment system
and a digital currency – and discuss how these characteristics could
contribute to enable and establish S2aaS business model patterns.

The remainder of this paper is structured as follows. First, we briefly
introduce Bitcoin and its current direction of development and research.
Second, we present the basic concept of using Bitcoin in the context of S2aaS,
further elaborating on how to scale our approach. Finally, we discuss the
S2aaS relevant core characteristics of Bitcoin, conclude our work and give
directions for future research.

##  II Bitcoin Primer

Since its invention in the year 2008 [11], Bitcoin has grown to a global
phenomenon allowing for frictionless, borderless transfer of cash endorsed by
an enthusiastic community of early adopters, entrepreneurs, and speculators.
Bitcoin is a peer-to-peer payment system that uses cryptography to allow
payments to be sent directly from one party to another without going through a
central authority like a financial institution. The term Bitcoin refers to
both the technology and payment system that was introduced as open source
software in 2009, and to the currency itself. Unlike traditional currencies
like the Euro or US Dollar, but also unlike other digital currencies like
Linden Dollars or Amazon Coins, and alternative payment services including
eWallets like Paypal or money transfer systems like MoneyGram, Bitcoin does
not rely on trusting a central authority that controls money supply, money
distribution, or transaction verification [12]. Bitcoin solely relies on an
eco-system designed and defined by the Bitcoin protocol and its open source
implementations. A collectively implemented public ledger called the block
chain keeps record of all transactions, and therefore allows to appropriate
ownership of bitcoins at all points in time [11]. Digital signatures based on
public- and private key pairs are used to determine and prove the ownership of
units of Bitcoin [13]. Bitcoin eliminates payment fraud, which is a highly
significant and expensive issue for payment receivers (merchants) in
traditional payment networks. Fraudulent credit card payments (e.g. initiated
using a stolen credit card) can be reversed after the payment occurred. All
losses are usually covered by the receiver [14]. If a transaction from one
Bitcoin address to another has been carried out, it is impossible for anyone
else than the receiver to reverse the transaction. Bitcoin further uses a
scripting system that provides flexibility to change transactions parameters
of what is needed to be able to spend transferred bitcoins [15].

Since the seminal paper from Satoshi Nakamoto [11], Bitcoin has received a
high level of attention from the press. Despite its current instantiation
still being criticized for its poor parameters, its core has the potential for
a proliferating decentralized currency [16]. Indeed, the eco-system around
Bitcoin has been growing at rapid pace [17]. Popular representatives for this
eco-system are BitPay [18] that enables merchants to accept bitcoins or
Blockchain.info [19], a Bitcoin wallet and block chain explorer service. Also
a vast number of Bitcoin clones and derivatives like Litecoin [20] or Peercoin
[21] have emerged, to name only two of them. The concept of Bitcoin has also
gained popularity in academic research. A Google Scholar query for the term
bitcoin indicates exponential growth of related literature, with 20 results
before the year 2010, 140 results for 2011, 509 results for 2012, and 1020
results for 2013. Recent research has also vested the concept of Bitcoin, and
its method for achieving consensus, beyond purposes of pure payment
transactions. These include usage of Bitcoin and its block chain or parts of
it for other purposes, but also the use of Bitcoin concepts to build their own
separate systems.

Bitmessage [22] is a trustless decentralized peer-to-peer communication system
that enables encrypted communication. Applications like Colored Coins [23],
Mastercoin [24], or Counterparty [25] build on top of the bitcoin protocol and
add new layers that may be used to implement commodity certificates, smart
property, or instruments such as stocks or bonds [26, 27]. Namecoin [28] is
based on Bitcoin and allows to create globally unified namespaces that can be
used to e.g. decentralize the concept of domain name systems [29]. While
Namecoin provides the mechanism for globally unified namespaces for all sorts
of applications, OneName [30] uses the Namecoin block chain and defines a
format for usernames and profiles. BitDeposit uses Bitcoin and proposes an
economic measure to deter attacks and service abuses of cloud computing
applications [31]. Others like Ethereum [32], referring to themselves as
cryptocurrency 2.0, build systems from scratch that aim to introduce more
features in the protocol and more flexible scripting systems that enable
developers to implement features on top of the protocol [33]. Summarizing, the
Bitcoin technology itself or the idea underlying Bitcoin has already been
successfully applied to other domains that go beyond sole payment
applications. However, to the best of our knowledge, no research so far has
discussed the application of Bitcoin and its underlying characteristics to the
concept of S2aaS as introduced above.

Based on the original Bitcoin paper [11], the Bitcoin-Wiki [34], academic
literature [16, 17] and major Bitcoin related online sources
bitcoinmagazine.com, coindesk.com and thegenesisblock.com, we identified five
core characteristics of the Bitcoin protocol that are relevant for S2aaS
applications: (1) decentralization and openness, (2) pseudonymous
identification, (3) low fees and friction, (4) scriptability and (5)
cryptographic verifiability. This process of identification and selection of
characteristics was guided by our assessment of their potential impact on
today’s and future S2aaS applications. A brief description of these
characteristics is presented in Table I. These are discussed in more detail in
Section IV. We continue by introducing the basic concept of applying Bitcoin
to S2aaS with a concrete example.

TABLE I: Core characteristics of the Bitcoin protocol relevant for S2aaS applications Characteristic |  Description
---|---
Decentralization and openness |  Traditional payment networks usable for S2aaS applications always rely on a central authority and have a single point of trust. Bitcoin is an open-source decentralized network with neither a single point of trust nor failure. This may address aspects like censorship-resistance or the reduction of counter-party risks with regard to fraud but also with regard to platform independence and technology longevity.
Pseudonymous identification |  In contrast to traditional identification or authentication systems, Bitcoin addresses are not directly connected to an identity and do not need to be registered at some central entity in the network. Unique Bitcoin addresses can be generated offline by both humans or objects and can be bound to pseudonymous or real identities whose authenticity can be proven.
Low fees and friction |  Unlike traditional currencies and unlike traditional payment systems, Bitcoin enables transactions from anyone to anyone without the need for any intermediaries. It involves potentially neglectable transaction costs and allows for the exchange of arbitrary small units of cash in bitcoin.
Scriptability |  Bitcoin is programmable money and as a result provides the opportunity to configure payments and data transfers directly inside of the transaction using the Bitcoin protocol. That means simple or complex conditions for cash and data transfers can be set.
Cryptographic verifiability |  As Bitcoin is based on cryptography, methods for authentication, encryption, or integrity of the transactions are already included. As a result both humans and machines can exchange confidential data but also prove ownership with digital signatures.

##  III Example and Basic Concept

To illustrate the here presented concept, we use a personal connected weather
station like Netatmo [35] as an example. Personal weather stations are
typically equipped with multiple sensors to continuously measure, for
instance, temperature, humidity, wind speed, wind direction, solar radiation,
and air pressure. Some even measure air pollution in terms of particulate
matter which concerns people’s health. The most obvious use for this data is
to inform the owner of the weather station with the data it generates. Another
example for the application of measurement data from a weather station is its
use to feed the control system of the owner’s household heating. For the
investment into a personal weather station and heating control, its operation
and maintenance, the owner gains the benefit of a well-tempered house and
saves energy and money [36].

Clearly, there is more overall use to the data, if it is shared with others.
For instance, neighbours could use the exact same data to control their
heating systems, however, only given the condition that the owner of the
weather station is willing to share the generated data. Even for the rather
simple case of a weather station, there are many other useful applications of
the data. Fitness platforms like Runkeeper [37] and Nike+ [38] could aggregate
data from many owners of personal weather stations to monitor air pollution
and generate running tracks with optimal air quality in real-time.
Meteorologists could improve weather forecasts with the high-resolution data
from many personal weather station owners. Also, researchers could use the
data to track climate change [39].

There are already enthusiasts who share their data freely and without monetary
incentive, e.g. [40]. However, to enable applications of greater use, there
has to be extensive supply of sensor data from many weather stations all
around the world. This can only be achieved by providing monetary incentive to
the suppliers [10]. In fact, monetary incentivization of sensor data providers
is a main challenge faced by S2aaS schemes to become viable in the future. As
outlined above, Bitcoin technology embodies characteristics that could help to
tackle those challenges. Thus far, scholars proposing S2aaS have always
introduced central coordinating intermediaries [10] such as sensor publishers
[7] or sensor cloud platforms [9]. In the following, a completely
decentralized scheme using the Bitcoin protocol is presented. First, the
atomic process of exchanging a single sensor datum between two machines for
cash is introduced. Limitations and extensions towards scalable
implementations are discussed thereafter in Section III-B

###  III-A Atomic Process

Consider the scenario in which two machines trade a single datum for cash. The
simplified process is illustrated in figure 1, for a more in detail technical
introduction please refer to [34, 11]. Given the example above the requesting
machine A could be the Nike+ smartphone application which requires the current
air pollution at the user’s typical running track to optimize air quality
during the run. The sensor C in this case would be an air pollution sensor in
the vicinity of the running track. Both, the requesting machine and the sensor
have a key pair which provides unique identification and allows them to
transfer cash as well as private data over the block chain B as the
decentralized public ledger. In the illustrated scenario, the requesting
machine A sends a payment to the Bitcoin address (the public key111More
precisely the SHA-256 hash of the public key plus a prefix.) of sensor C. This
involves the generation of a transaction that gets included in the block chain
(1). In a second step, sensor C notices the receipt of the payment (2). After
that, sensor C creates a transaction to the Bitcoin address of requester A,
including its most current datum encrypted with A’s public key (3). Finally,
requester A notices the receipt of the transaction that includes the requested
datum and decrypts it using its private key (4).

Figure 1: Schema for the atomic S2aaS process of exchanging a single datum for
cash using Bitcoin.

###  III-B Extensions Towards Scalability

In most cases S2aaS applications will probably involve the transfer of more
than one datum. A heating control system as well as a meteorologist needs a
continuous stream of real-time data from the weather stations. Considering the
instantiation of the Bitcoin protocol as it is today, the atomic scheme
introduced above comes with several flaws: (1) it takes on average ten minutes
until a transaction appears in the block chain, (2) every exchange involves
two transactions which may entail fees, and (3) every datum has to be stored
on every Bitcoin node forever. Further, there might be requests for larger
datasets of historical data which cannot be included in valid transactions.

However, developments based on the inherent scriptability of Bitcoin like
rapidly-adjusted (micro-) payments (see Section IV-D) and the possibility to
transfer data off-block chain allow to build scalable solutions for S2aaS
applications. In fact, it is highly unlikely that complete sensor data will be
stored in the block chain. One solution is to store it on multiple redundant
third party servers and only put a pointer together with a hash of the data
into the transaction. This way, the data cannot be altered later by the third
party and the reference will always be in the block chain without consuming
too much space.

Finally, the above scenario is based on the assumption that the requesting
machine knows the sensor, the type of data it has available as well as its
price. While a central repository would be a solution, it is also possible to
create a decentralized sensor registry based on Namecoin much like OneName is
a decentralized registry for people [30].

##  IV Discussion

In this section, we revisit the S2aaS relevant characteristics of the Bitcoin
protocol introduced in table I and discuss their application to S2aaS schemes.

The core Bitcoin protocol is continuously improved and extended by a vibrant
open source community. Developers are actively adapting the core protocol to
the needs of the rapidly growing eco-system. As the Internet was not
originally designed for the applications that we use today, it still evolved
on top of the original underlying protocols like TCP/IP and HTTP. For this
reason we choose not to focus on specific single technical limitations of the
current Bitcoin protocol implementation, but rather argue from a broader
technological perspective.

###  IV-A Decentralization and Openness

Comparable to HTTP as a protocol for transfer of data, Bitcoin is a protocol
for the transfer of cash on the Internet. It is based on a decentral design
and consequently has no single point of trust. Just like HTTP, anyone is free
to use it and build applications on top of it. This has important
ramifications for its use in S2aaS applications.

As Bitcoin is a peer-to-peer network, it is censorship-resistant.
Consequently, no central authority can systematically exclude someone or
something from participating. This represents a crucial difference to
classical payment networks (e.g. Visa, MasterCard, or PayPal) that can ban
anyone from using their services (as happened to Wikileaks in 2010 and Russian
bank customers in 2014). Using Bitcoin as payment layer for S2aaS application
brings censorship-resistance to sharing sensor data for cash payment. Nobody
could systematically be excluded to buy or sell sensor data.

Without counter-party risk of an intermediary to process both payments and
data transfer, applications leveraging on a Bitcoin enabled S2aaS environment
do not carry the risk of self-interested (even justified) policy changes by
central entities. For instance, policy changes by Twitter forced some third-
party developers using the Twitter API to shut down their operations [41].
Something like this cannot happen using Bitcoin, as there is no central
authority able to change the rules out of self-interest. Using Bitcoin as a
payment network is completely platform independent. This should give
entrepreneurs, sensor data providers (like the personal weather station owners
in our example) and established platforms alike confidence in the stability,
longevity and availability of S2aaS services built on top of the Bitcoin
protocol and stir innovation.

Further, Bitcoin is an open source project with many readily available
implementations that can be adapted and extended (see
bitcoin.org/en/development for a list). Anyone is free to use Bitcoin
technology and innovate with it. This gives Bitcoin a head start for
innovation which will continue to grow rapidly all areas that require some
sort of financial service, like payment, including S2aaS applications.

###  IV-B Pseudonymous Identification

A viable S2aaS network requires that all entities have to be uniquely
identified and authenticated. Bitcoin addresses can be assigned to all types
of entities in a S2aaS network. Ownership of an address is provable with
public key cryptography and allows for pseudonymous authentication.

As Bitcoin addresses are not directly connected to an identity and do not need
to be registered at some central entity in the network, they guarantee
pseudonymity of the owner. This can be favorable for S2aaS applications,
because data providers may not want to expose their identity. However, it does
not necessarily mean that owners are anonymous. As all transactions are
publicly available on the block chain, any payment can be traced to an address
that can possibly be connected to an identity at some point.

Bitcoin addresses cannot only be assigned to persons and used as an equivalent
to a bank account. Objects like cars, fridges, houses and - like in our
example – personal weather stations – can have a Bitcoin address, effectively
enabling them to send and receive cash. As the Bitcoin network does not
incorporate any intermediaries, Bitcoin transactions can be carried out
completely automated. In fact, Bitcoin transactions can be carried out equally
well by machines and humans enabling direct machine-to-machine payments. We
believe, this will have strong impact on future S2aaS applications and the IOT
in general.

###  IV-C Low Fees and Friction

Bitcoin is a global payment network enabling cash transactions from anyone (or
anything) to anyone (or anything) at any time directly without the need for an
intermediary. Thereby, Bitcoin can scale down payments to very low amounts
allowing for trade of very small exchangeable units. We believe, low fees and
friction in the Bitcoin payment network can lead to a whole wave of IOT
innovations, because the programmatic exchange of arbitrary amounts of cash
without human intervention and intermediaries allows for a generation of IOT
applications that has not been feasible before.

Using Bitcoin technology as a payment network for S2aaS applications may allow
for purchases of single data points, as in our basic example of a personal
weather station, costing way less than the smallest available units of any
traditional currency. This would not be possible using traditional payment
network, at least not without the introduction of additional processes.
Typical intermediaries in a classical payment network like Visa, MasterCard
collect fees of one to three percent [42]. Average fees for international
remittances (e.g. with Western Union or MoneyGram) even account for more than
eight percent of the transaction amount [43].

Bitcoin transactions are not free, but rather compete against each other for
space in the block chain in something similar to a bidding process. Senders of
Bitcoin transactions can include a voluntary, so called miner fee with their
transactions. Transactions with higher fees are given higher priority by
miners and are consequently processed faster than transactions with lower fees
(This is a simplified description. For an accurate description of the
transaction prioritization mechanism, please refer to [34, 11]). By exposing
Bitcoin transactions to these simple supply and demand market dynamics
transaction costs are no longer dictated by the gatekeepers of payment
networks and price efficiency in the processing of transactions for all types
of applications will eventually be established.

###  IV-D Scriptability

Bitcoin is programmable money in the sense that transactions are scriptable.
For instance, the validity of a transaction message, and hence its clearing,
can be bound to certain conditions. By combining multiple transaction messages
and conditions, rather complex contracts requiring no trust between the
parties can be established. Traditionally such contracts are enforced by
intermediaries. Bitcoin allows to establish contracts and enforce them
completely without intermediaries in the block chain. The following examples
are taken from [15]. We briefly describe the different types of scripted
transactions and put them into context to S2aaS.

####  IV-D1 Multi-signature Transactions

Bitcoin allows to require several parties to sign a transaction in order to
claim an output. This type of transaction is the basis for many use cases as
can be seen in the following.

####  IV-D2 Escrow and Dispute Mediation

In the case a requester wants to buy data from an untrusted sensor, a third
party can act as an escrow service by using multi-signature transactions.
Notably, the mediator can never claim the bitcoins by itself. This can be
useful to hold back payments until the received data can be validated, like in
cases where the value of data is closely linked to additional actions or
events, and needs to go through some kind of validation phase.

####  IV-D3 Assurance Contracts

Assurance contracts can be used to fund public goods in a similar fashion to a
crowd-funding campaigns (cf. Kickstarter.com or Indiegogo.com) but without the
need for a third party. For instance, an entrepreneur could offer to build a
sensor network to measure air quality in a city if s/he is able to raise a
particular amount of money. People could then send transactions to the
entrepreneur privately with their pledge as inputs and the output to be the
fund limit. Therefore, the transactions become only valid if the entrepreneur
collects enough transactions to meet the funding. In the S2aaS case, assurance
contracts may play a role to crowd-fund data that is useful to many, but could
easily be duplicated and given away for free. The provider could couple the
release of data to a sufficient payment threshold.

####  IV-D4 Using External State

With multi-signature transactions an oracle can be required to sign
transactions. The oracle is a server with a key pair that only signs a
transaction if a particular expression returns true. The incorporation of
external state in Bitcoin transactions could lead to the development of
decentralized trustless prediction markets, requiring a S2aaS network as
oracle. For instance, movie producers could hedge against bad weather on a
filming day. The external state which resolves the bet in the block chain
could stem from the multiple personal weather stations in our example.

####  IV-D5 Rapidly-Adjusted (Micro-)Payments

Although Bitcoin allows to transfer tiny fractions of a bitcoin with little or
no fees, several problems arise if this is done in fast succession. However,
using time lock and multi-signature transactions it is possible to create
micropayment channels where payments between two parties are aggregated
without the need for a trusted third party. In the S2aaS scenario such a
payment channel can be used if a requester wants to subscribe to a sensor for
a specific amount of time.

###  IV-E Cryptographic Verifiability

Bitcoin uses digital signatures to prove ownership of addresses. Using the
same technique, persons, or in our case sensors, can authenticate themselves
by signing a message, proving ownership of their Bitcoin address.
Confidentiality of the data to be sent can be guaranteed by encrypting the
data with the public key of the receiver. Further, the block chain can be used
as a notary service for the transacted data. Hashes of the data can be stored
in the block chain to prove that the data was not altered later on.

##  V Conclusion and Outlook

The IOT is expected to consist of billions of sensor nodes bridging the gap
between the physical and digital world. Based on the idea that not only the
one who generates data can profit from it, the concept of S2aaS foresees
global sensor data markets. However, to carry this idea from theory to
practice, there are manifold systemic hurdles to overcome. Naturally, a low
cost micropayment system for sensor data has to be in place, so sellers of
data are able to receive monetary gratification from the buyer side. Sensors
and its owners have to be uniquely identified and authenticated and values
delivered by the sensors should be traceable and have to be secured against
manipulation.

In this paper, we introduced Bitcoin with its core characteristics and
discussed how IOT applications and more specifically S2aaS applications could
benefit from Bitcoin technology or its conceptual idea. We derived five core
characteristics that could drive innovation in this context: (1)
decentralization and openness, (2) pseudonymous identification, (3) low fees
and friction, (4) scriptability, and (5) cryptographic verifiability. We
discuss how the integration of these characteristics in S2aaS applications may
trigger the right business dynamics that are needed on the buyer side and on
the seller side of emergent sensor data by creating value for all exchange
partners that is solely based on fair market dynamics defined in the
underlying protocol.

As the eco-system around Bitcoin is growing and its technology and conceptual
idea has already been transferred successfully to other domains and purposes,
it is our belief that it could also drive the development of S2aaS business
models. These could build on the innovations that the integration of discussed
characteristics provides and offer new value propositions. It is our intent to
start the conversation with IOT scholars and practitioners. From our
perspective, future research should focus on bringing Bitcoin and the IOT
closer together in two ways. First, by further refining the core
characteristics of Bitcoin in the IOT context and eventually building a
framework for IOT applications to further understand Bitcoin’s potential role
in its evolution. Second, by conceptualizing IOT applications using Bitcoin,
solving known problems and inventing new applications.

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