Insights & Resources12 min read

What is IoT? How It Works and Why We Need It

IoT, short for the internet of things, is a collection of internet connected devices capable of collecting and transmitting data.

Brian Segal
Diagram of IoT explained
Typically, when we think of things that are connected to the internet, we think computers and smartphones. However, computers and smartphones represent only a small fraction of all the devices that are connected to the internet.
There’s a ton of utility in using the internet to transmit data from devices other than computers and smartphones. Collectively, all of these internet connected devices are called the “Internet of Things” or IoT. What is IoT exactly? Here's everything you need to know.

What is IoT?

“What is IoT?” can be a trickier question than it seems. The Internet of things (IoT) is a collection of internet-connected devices that can collect and transmit data over the wired and wireless networks of the internet, without direct human operation.
However, this definition can be deceiving because it suggests that there’s one single IoT in the world. But an IoT can be as large or small as it needs to be. And an IoT can be connected to the public internet, or it can operate entirely on a private network.
To have an IoT, you simply need a system of devices that are connected to each other and can transmit and receive data from one another. This flexibility is actually a big reason why IoT technology is so useful for businesses and individuals.

A Brief Look Back

The core supporting technology of IoT is machine-to-machine (M2M) communication, where devices talk to each other without a human intermediary. One of the earliest instances of M2M communication happened in a 1843 experiment where thermometer readings were transmitted from a weather balloon to an automated press via copper wires.
But it wasn’t until computing components—microchips and microprocessors—became small enough and power efficient enough to build millions (now billions) of tiny devices. Then the widespread adoption of IPv6 around 2008 provided enough IP addresses to support all of these devices.
So the IoT that we see today was born in about 2008, although it’s taken over a century to develop all the underlying technologies.

Who’s Behind the IoT Technology?

Kevin Ashton coined the term “Internet of Things” in 1999. Kevin Ashton is often called the “Father of IoT.” But there are so many supporting technologies in the modern IoT that no one person or company can be credited with its creation.
In the early 2000’s, companies like Hexago produced the networking hardware to help facilitate the transition from IPv4 to IPv6, which greatly expanded the number of available IP addresses. This alleviated one of the bottlenecks to creating the IoT by creating enough IP addresses to support a practically unlimited number of IP addresses.
This combined with advancements made by companies like Intel, who did the work of making microchips and microprocessors small enough to fit into tiny devices. Then companies like Cisco supplied the hardware and built many of the physical networks that enable internet connectivity.
The list could go on. But the big idea is that it takes the support and cooperation of many businesses and individuals to produce the IoT technology that makes the IoT work.

How the Internet of Things Works

An IoT system requires data collection devices, a central processing computer, and software that decides what to do with the data. The devices collect and send data to the central computer, and central computing software can use the data to perform an action.
The fundamental idea behind IoT is simple: collect data, and use connectivity to send that data to a more powerful system for processing. However, as with most things, there are several steps involved in this process and each step has its own set of substeps.
Here’s a more detailed look at how IoT works:
  • Sensors and devices
    The data for an IoT system is generated by sensors and devices. Usually, the devices on an IoT network collect data from the physical environment.
    Motion, temperature, light, pressure, and other sensors are common IoT sensors. But IoT devices can also collect less physical data, such as electrical or network activity.
  • Connectivity and data transfer
    When the sensors and devices collect the data, they may store it briefly on some sort of onboard storage. But, most of the time, the data gets immediately transmitted to a central computer where it can be stored, processed, and analyzed.
    It’s most common to use wireless networks for this data transfer—both from the IoT devices to the central processing computer and from one IoT device to another. Wireless networks are just easier to use for connecting many devices that must be positioned remotely.
    However, some IoT systems use wired networks to connect the sensors and devices. But this is uncommon because wired IoT networks are more complex and resource intensive.
  • Data processing
    People often use the term “cloud” to describe the central computer where the data is processed and analyzed. And it’s very common to outsource the data processing in an IoT system to a cloud processing provider.
    But the software that decides what to do with the data can be hosted on a local computer that’s owned by the IoT system operator. Regardless of who owns and operates the central processing for the IoT network, this is where all the decisions about what to do with the data are made.
  • Action
    Once the data has been processed and analyzed, the central processing computer may send out a signal to take some action based on the data collected by the IoT devices.
    This could be as simple as sending a notification to the user interface in a smart phone app. Or it might be something more complex like adjusting the speed of an automated assembly line.
    Either way, the purpose is to use the collected data to optimize operations, keep equipment running within operational parameters, provide more detailed information to end users, or make some other meaningful change based on what’s actually happening in the operating environment.

What is Protocol in IoT

Protocols in IoT can be broken down into two layers: IoT network protocols and IoT data protocols. Generally speaking, IoT network protocols are for sending IoT data over the internet, and IoT data protocols are for transferring data between IoT devices.

IoT Network Protocols

Many IoT network protocols are the same protocols that your smartphone or computer uses to connect to the internet. But there are IoT specific protocols which are unique to IoT devices. Typically, an IoT network protocol connects a group of IoT devices to a central device that can connect to a larger, higher performance network.
  • HTTP and HTTPS
    HyperText Transfer Protocol (HTTP) and HyperText Transfer Protocol Secure (HTTPS) are the same protocols that your computer uses to connect to websites. IoT systems use these protocols to send data to remote computers that require the public internet for connectivity.
  • LoRaWan
    LoRaWan (Long Range Wide Area Network) protocols are typically used as a bridge between low-power IoT devices and internet networks. IoT devices connect to a LoRaWan network, which has a central hub device that translates the signal into a different protocol and connects to the internet.
  • Bluetooth
    Bluetooth and Bluetooth Low Energy (BLE) are used to connect very low power devices over short distances. Bluetooth is most common in smart wearable devices, smartphones, and mobile devices where power efficiency is crucial.
  • ZigBee
    ZigBee is a low-power protocol that’s common in home automation, industrial applications, and smart city devices like street lights and electric meters.
    The main advantage of the ZigBee protocol is that it requires very little power to operate, which makes it ideal for tiny devices that need to be power efficient.

IoT Data Protocols

IoT data protocols are most often unique to IoT systems. These protocols enable IoT devices to communicate with each other.
  • MQTT
    Message Queue Telemetry Transport (MQTT) is the most common protocol for passive, low-power devices like fire detectors, engine sensors, and smart watches. MQTT is based on event-driven message exchange, where a message is sent and received when a specified criteria is met.
  • CoAP
    Constrained Application Protocol (CoAP) is best for applications where data only needs to be collected from the IoT devices at certain times. Rather than the IoT devices initiating the data transfer, the central processing computer pings the devices when it needs to retrieve data. This enables IoT systems to operate with minimal data exchange.
  • M2M communication protocol
    Machine-to-machine (M2M) communication protocol is primarily used to enable IoT devices to self-monitor and adapt the IoT system according to changes in the environment. This protocol is very common in vending and ATM machines.
  • (XMPP)
    Extensible messaging and presence protocol (XMPP) is the most common protocol in IoT systems designed for communication. XMPP primarily sends information about device status, which is used to identify which devices on an IoT network are available to send and receive data.
    XMPP is popular in instant messaging apps like WhatsApp, online gaming chat programs, and VoIP applications.
Most IoT systems use at least one of these protocols. And IoT networks often use two or more IoT protocols, one protocol for internet connectivity and one protocol for connectivity between the IoT devices (which can be a whole lot of devices).

So, Just How Big is IoT?

How big is IoT? Globally, the IoT market is projected to top $418 billion U.S. dollars by the end of 2021. The global IoT market is predicted to reach $1.6 trillion by 2025. And this figure does not include all the services that IoT devices support.
This IoT market value represents over 31 billion IoT devices installed around the world. In short, IoT is big. And it’s only getting bigger as 127 new IoT devices are connected to the internet every second for all sorts of purposes.

Types of Internet of Things

The types of internet of things systems can be loosely categorized by the sort of connection the system establishes. There are several types of IoT systems. But there are 6 types of IoT systems which are deployed in the most common use cases.
  • WiFi
    Wifi is the most common wireless connectivity network for most consumer applications. But wifi is much less common in IoT because it’s not power efficient enough for running on small, battery powered devices. However, it’s still used in some IoT use cases where IoT devices can be connected to power.
  • Cellular (3G/4G/5G/LTE)
    Cellular networks have higher power requirements than some other IoT networks. Therefore, cellular networks are most common in IoT applications where a relatively high network bandwidth is required and power efficiency isn’t the most important factor.
  • Bluetooth
    Bluetooth is typically used for IoT devices that transmit data to a larger device that either processes the data or forwards it to a remote processing station. Most wearables and IoT devices that connect to smartphones use Bluetooth connectivity.
  • RFID
    Radio Frequency Identification (RFID) is ideal for applications where only a small amount of data needs to be transmitted a short distance. Most RFID devices are passive transmitters that are used in supply chain optimization and production planning.
  • LPWAN
    A Low Power Wide Area Network (LPWAN) is one of the few types of IoT that can transmit data over long distances, while using very little power. LPWAN devices can run for years on simple, affordable batteries. LPWAN networks are best suited for connecting sensors and devices across university campuses and industrial complexes.
  • Mesh protocols
    Mesh protocols are best suited to applications where IoT devices need to be connected across long distances, but the devices require higher data rates.
There are other types of IoT. And each of these types of IoT can be divided into subcategories. But most IoT implementations use some variation of one of these types of IoT.

IoT Examples in Everyday Life

There are a ton of potential IoT use cases. New ways to use IoT are being developed every day. But these are a few standouts in the current batch of IoT use cases:
  • Industrial automation and monitoring. IoT is one of the cornerstone technologies that’s being used to automate and optimize industrial production.
  • Wearables and smart electronics. Smart watches and Fitbits are just the beginning of wearable technology. Smart glasses and true augmented reality are on the way.
  • Transportation and civil infrastructure. Smart cars, self-driving cars, and traffic management haven’t been perfected, yet. But IoT will be a major part of the solution on this front.
  • Cellular failovers. This might be the most transparent IoT use case. But IoT is getting us closer to cellular networks that just work, no matter what.
This is far from an exhaustive list. But it’s a good overview of how IoT is being used and where it might go in the future.

Why the Internet of Things is Needed

There are a lot of reasons why IoT is important. But the overarching reason that we need the internet of things is that it turns information into tangible action. IoT devices turn environmental information into quantifiable data that can be used to drive automated actions.
Since their inception, computers have been limited in their ability to interact with the real world. Computers mostly only interacted with humans and served as a supplement to human intellect and productivity.
IoT enables us to leverage computing processing power to gather environmental data and make decisions about what actions are appropriate, based on the collected environmental data. Essentially, the IoT enables computers to behave more like the human brain, collecting information and producing action in connected systems.
Long story short, IoT is important because it’s a way (quite possibly the best way) to leverage computers to produce real world action, with less guidance from human operators. In the short term, this looks like automation. But, in the long term, it will be even more than that.

The Benefits of a Connected World

Yes, there are a whole lot of IoT cybersecurity and privacy problems to solve. But the benefits of IoT make these problems totally worth solving, and make IoT absolutely worth developing. Even a few of these benefits of IoT make IoT worth the work:
  • Reduced Costs
    Ultimately, making things less expensive is good for consumers and businesses. And IoT helps make things less expensive through automation and better interaction between machines and humans.
  • More Efficiency
    This isn’t just about automating production. IoT also makes it possible to use electricity, roads, and other resources more efficiently.
  • Better Customer Experiences
    Customer expectations go up as information technology improves. IoT enables businesses to streamline their customer service systems and deliver the sort of experience modern consumers demand.
  • Improved Adaptability and Flexibility
    IoT devices expand the available data for computers. So computing power can be deployed in places and applied to processes that would be impossible without IoT.
  • Expanded Industries and Business Opportunities
    Even without considering all the industrial and production possibilities that IoT opens up, just the IoT industry itself is massive and has generated billions (maybe trillions) of business opportunities.
There’s more. But an IoT connected world will be more efficient, more productive, and more prosperous than a world without the benefits of IoT.
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