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Authored by Dr. Tim Weingärtner, a professor at Lucerne University of Applied Sciences & Arts, School for Information Technology, the reportreleased by European Union Blockchain Observatory and Forum deals with the “digital twin” concept, which refers to a digital replica of the physical world, focusing also on IoT, blockchain, smart contracts and AI.

“The world has changed fundamentally in the last 20 years. With the advent of computers in everyday life many job profiles have changed and completely new jobs have been created. In recent years, this has been summarized under the ambiguous term of Digital Transformation. A parallel digital world, which is becoming more and more similar to our physical world, has been created. The term Digital Twin — the virtual representation of physical objects from the real, physical world — has now become established in industry”, reads the beginning of the report.

Internet of Things (IoT), blockchain and Artificial Intelligence (AI)

Keeping in mind this overall picture of a duplicate of our world, the relevant technologies of the Digital Transformation can be classified as follows:

– The Internet of Things (IoT) provides the possibilities for recognizing and tracking physical objects. In addition to cameras, microphones and tracking systems, a variety of sensors are available to measure various attributes. IoT thus represents the senses of the digital world.

– On the other hand, robots, drones and other manipulators allow the intervention into the physical world. They represent the actuators of the digital world.

– Artificial Intelligence (AI) in the form of machine learning, computer vision, speech recognition, speech processing or optimization makes it possible to understand objects and processes in the physical world. Autonomous decisions can be made. AI thus represents the brain of the digital world.

– The storage of large amounts of data by means of Big Data and thus the possibility of storing all information in the long term is ultimately the memory of the digital world.

The report notes that blockchain would play a key role in this digital transformation by providing trust and allowing the identification and tokenization of physical objects. Blockchain-based Smart Contracts also play their part by providing a tamper-proof computational environment and automatic execution of financial actions. “Blockchain technology plays a fundamental role in this overall picture of Digital Transformation. As a trust protocol it can be seen as the link between the physical world and the digital world. With its features of trust, distribution and value, Blockchain makes it possible to identify and connect physical objects and their digital representations.”

The role of Smart Contracts

We’ve touched upon this before, but for those who don’t know it yet, “a smart contract is an automatable and enforceable agreement; automatable by computer, although some parts may require human input and control. Enforceable either by legal enforcement of rights and obligations or via tamper-proof execution of computer code.” Smart Contracts form an essential component when it comes to processing information on the blockchain. If the blockchain itself represents a distributed, permanent data storage, with the help of Smart Contracts it becomes an “autonomous Turing machine”. Smart Contracts enable the triggering of complex transactions, the processing of data and thus the reaction to events. These events can occur either on the blockchain, like results of other Smart Contracts, or outside the blockchain, like occurrences in the physical world that can be detected by IoT sensors.

Ethereum, the prefered choice for Tokenization

Today, there are different programming languages for Smart Contracts depending on the Blockchain used. These are either existing languages — Go, Java or Javascript — or new programming languages like Solidity. The fact that the program code itself is stored on the Blockchain makes manipulation of the calculation steps impossible. Furthermore, the distribution and simultaneous execution of a Smart Contract on many nodes of the Blockchain avoids the execution from being prevented by manipulation of a node. Once stored and deployed, the autonomous execution is thus guaranteed. This is an essential feature when it comes to trusting a digital representation. Smart Contracts themselves form the basis of almost all Tokens in existence today. The most important platform for the generation of Tokens today is the Ethereum Blockchain. It allows the straightforward technical implementation of Tokens through Smart Contracts.

The report reads: “Ethereum is the prefered choice for Tokenization at the moment due to the possibilities of the programming language Solidity, the large community, existing code examples, the easy connection to the cryptocurrency ether, and working implementations. Other blockchain implementations e.g. Hyperledger Fabric or Corda also allow the creation of Tokens. However, these systems have not yet gained widespread use for this kind of application.”

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The connection of IoT with Blockchain

To illustrate the importance of Blockchain for Internet of Things (IoT), the report focuses on several use cases.

Supply chain management

Trust is one of the most important features in supply chain management. When it comes to tracking goods, monitoring conditions and guaranteeing provenance, IoT devices in combination with a blockchain have great advantages. For instance, perishables in a cold chain can be traced by IoT sensors and documented on the Blockchain. This helps to retrace longer transport routes. Also the origin of commodities can be recorded and traced back from the final product. Tokens can be used for payment or as representation of a physical good. Rarely they are used as representation of intangible values like rights. In supply chain management each transfer point tracks the status of the IoT devices and stores the data onto the Blockchain. This is how trust is built.


Like participants in a supply chain, participants in the sharing economy rely on reputation and trust. One does not give one’s property to a stranger without any kind of trust. Trust can either be represented by a deposit or by a good reputation. Both can be achieved by using a blockchain. One example could be a general rental system. Objects or rooms in the physical world can be rented via Smart Contracts, so that the registration of the objects, the release for the tenant, the settlement of the rental fee and the return of the object can be handled via the blockchain. The rental contract includes direct access to the used Token or Cryptocurrency — in this case ether — to pay the rental fee and the deposit.

Identity and network management

Identity is becoming the most relevant good in future. On the one hand, identity of persons or physical objects, on the other hand — identity of IoT devices. Sensors can ensure identity using various techniques like fingerprints, iris scanner, face recognition, private key infrastructure, GPS trackers, built in sensors, or markers. Furthermore, devices or objects joining a network have to be identified and communication must be set up. Non-fungible tokens can help to implement this uniqueness. A tamper-proof link between object and Token will help to build up trust and is a prerequisite for any further use cases.


Finally, automatisation of processes and workflows creates a strong demand for sensing objects in these processes, as well as monitoring and recording their progress. The combination of IoT devices and Smart Contracts on a blockchain allows fully automated Machine-to-Machine communication and contracting. Even payments can be realized by using Tokens. This takes automatisation to a new level since isolated production units suddenly become able to interact. Moreover, interfaces can be reduced to the negotiation of Smart Contracts and their execution.

The role of Artificial Intelligence

Artificial Intelligence (AI) is considered to be of great importance in the future of computer science. Disciplines such as machine learning and especially deep learning or speech processing allow computers to support and even replace people. For this reason, visions of the future vary from positive belief, like a harmonious cooperation between humans and machines, to a neutral view, where machines make humans irrelevant, to dark scenarios, with an omnipotent and human controlling AI. Many possible applications of a linkage between Blockchain and AI are currently being discussed, and the most important — as shown in the report — are:

Democratisation of data

Data is referred to as the gold of the 21st century. Today, however, the largest amounts of data are in the hands of a few companies or governments. Machine learning requires large amounts of data. Thus, the development of efficient and powerful AI is in the hands of a few. Blockchain enables the creation of Marketplaces for data. Self-sovereignty of data allows everyone to release their data in a targeted manner. In this way, access to data can be globalized and availability increased. Tokens can be used to ensure financial compensation and thus encourage application. Even new business models such as the renting of data for training AI models without disclosing this data are possible through the use of blockchain technology.

Authenticity of data

In the digital world, the boundaries between reality and fiction are blurring. The buzzword “fake news” shaped the last election campaign in the USA. Today, computer-generated images can no longer be distinguished from real ones. At this point, blockchain technology can be used to prove the authenticity of the data. Due to the property of immutability, the origin of the data can also be guaranteed at a later point in time. The same applies to the training data used for AI algorithms. In order to be able to prove that machine-learning algorithms have been trained with correct data, blockchain technology with its properties of immutability and transparency is an ideal supplement. The origin of data can be documented and its utilisation can be traced.

Explainability of AI decisions

Not only the authenticity of the training data, but also the traceability of decisions of AI algorithms can be achieved by blockchain. Today, AI systems are a black box. Decisions cannot be traced back to the “experiences” made by the algorithm during training. This is a big problem, especially in medical applications, and limits the use of AI. By documenting decisions on a blockchain, confidence in these decisions can be increased. With the growing understanding and confidence, trust in AI algorithms will grow too, and this leads to a broader application of AI.

Auditing and ensuring the quality of Smart Contracts

The immutability of Smart Contracts might pose some problems. Programming errors, for example, can have major consequences because once deployed on the blockchain, they cannot be stopped or reversed. AI can help to make programs safer and to detect errors early. The absence of errors in Smart Contracts is an essential prerequisite for the widespread use and acceptance of such solutions.

Summing it up

“The explosive development of the digital world and its influence on our daily lives cannot be stopped. As shown in the report, blockchain, Artificial Intelligence and Internet of Things are merging. The convergence of already existing, but siloed developments of AI, IoT and Blockchain in the form of a learning, sensing and trusted Digital Twin will increases the frequency of innovation. Future scenarios of human Digital Twins acting autonomously with other digital objects or humans are not so far away as science fiction wants us to believe.”

“First AI based personal assistants are already existing and conducting simple tasks like making a haircut appointment. Digital avatars like the ones Facebook is developing allow us to participate in distant meetings. In the same time, the next generation of Internet, the semantic web, is evolving. It will connect knowledge in a structured way and therefore allow the use of the Internet for machines. This will blur the border between human and machine in the digital world.”

“In this world, trust will have a crucial meaning. Trust in content, trust in identity, trust in ownership, trust in authenticity, and trust in truth. Blockchain technology can be used to enable and ensure this trust on a protocol level. Tokens will have an important role in this ecosystem since they represent physical assets in the digital world and enhance them with functionalities. Tokens will embody the aspect of identity and value in the protocol”, concludes the report.

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In over two years, using cutting-edge technologies and with a clear strategy, Modex has evolved from the world’s first app store for blockchain into a complex ecosystem designed for developers’ needs and for enterprises looking for blockchain solutions. Our mission is to spread and facilitate the adoption of blockchain into the society and to solve real world problems using this revolutionary technology.