Blockchain at its core is a cryptographically secured, distributed ledger that allows for the secure transfer of data between parties.
Traditional IoT systems are dependent on a centralized architecture. Information is sent from the device to the cloud where the data is processed using analytics and then sent back to the IoT devices. With billions of devices set to join IoT networks in the coming years, this type of centralized system has very limited scalability, exposes billions of weak points that compromise network security and will become incredibly expensive and slow if third-parties have to constantly check and authenticate each and every micro-transaction between devices.
Smart contracts in blockchain networks will allow devices to function securely and autonomously by creating agreements that are only executed upon completion of specific requirements. It not only allows for greater automation, scalability and cheaper transfers (no third-party needed to oversee transactions) but these smart contracts can also prevent overrides by individuals that want to use the data for their own benefit. Information is shared across a decentralized, cryptographically secured network, meaning it becomes very difficult to compromise the network security.
Finally, with a centralized network, the risk of a single point of failure disabling an entire network is a very real possibility. A decentralized blockchain network mitigates this risk with millions of individual nodes that transfer data on a peer-to-peer (p2p) basis to keep the rest of the IoT network running smoothly.