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The invisible risk of a connected world

July 2017

Everyday life is becoming more convenient as more appliances are launched online. The downside is that security risks are increasing as well.

Simple devices can become versatile digital tools when they are connected to the
internet. The best example of this metamorphosis is the upgrade of mobile phones to smartphones. For many people, their smartphone has become their preferred platform for reading e-mails, surfing the web and ordering an Uber taxi. The fact that a smartphone can also be used for an old-fashioned phone-call is often an afterthought rather than the main purpose. A similar revolution will soon occur in and around the house.

Exponential growth

The price decline of semiconductors for wireless communications is an important driver of the increase of internet connectivity. As a result of more efficient production methods and technological development, it is common for semiconductor-capacities to double every two years, enabling the price of semiconductors to be twice cheaper than they used to be. In the technology industry this phenomenon is known as Moore’s Law. It allows electronics manufacturers to include wireless semiconductors in all kinds of appliances: from thermostats to toasters and from fridges to dishwashers.

The house that runs itself

The number of devices with an internet connection is expected to double from 25 billion
in 2015 to over 50 billion by 2020.1 In the technology world, this trend is referred to as the Internet of Things (IoT). It is not hard to imagine how IoT might make our lives easier. Refrigerators will be able to make shopping lists with items that need restocking. When you start your car to drive home from the office, a message will be instantly sent for the thermostat at your home to adjust the temperature in your apartment to a predetermined
level. Manufacturers might even connect appliances to the internet just to aggregate all kinds of usage data.

Security as an investment theme

There is a downside to the prospect that IoT will make everyday life more comfortable.
The number of opportunities for malicious hackers to disrupt consumers’ life is
increasing exponentially. In 2014, hackers managed to send hundreds of thousands of
malicious spam emails via over 100,000 Smart TVs, refrigerators and other home
appliances.2 ‘Over the last couple of years, detected cyber attacks have outnumbered
internet connected devices’, explains Yves Kramer, fund manager of the Pictet-
Security fund. ‘I believe it is this kind of growth opportunities that will make security a
promising investment theme going forward.’

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