By WallStreetDaily.com

By Greg Miller, Senior Technology Analyst

Analysts and commentators are in almost-unanimous agreement…

The next massive phase of the digital revolution will be the Internet of Things (IoT).

That is, the idea that all devices and appliances will be connected to the internet, allowing them to be controlled from anywhere in the world.

If you thought the internet changed our lives, just wait until the IoT reaches its stride.

However, as both consumers and investors, there are some crucial facts that we need to know about the IoT.

And be warned: Not all of them are so promising. In fact, some are downright dangerous…

From Science Fiction to Science Fact: The Internet of Things Is Here

The inevitability of the IoT trend was predicted as far back as 1996, when technicians who control the mechanics of the internet introduced a new internet numbering system called IPv6. This will account for all the new devices that need a unique address to connect to the internet.

Indeed, during his keynote address at the Consumer Electronics Show (CES), currently taking place in Las Vegas, Samsung (SSNLF) joint-CEO Boo-Keun Yoon said that the IoT is “not science fiction anymore. It’s science fact.”

He’s partly right.

While growth of the IoT has proved slower than anticipated so far (only 4% of the internet uses IPv6), industry gurus say the shift is finally upon us. More devices – ones both familiar and newly developed – will be available with an online presence.

But not everything about this new future is shiny and bright.

There are two big drawbacks to the Internet of Things…

The Dark Side of the Internet of Things

The first big concern is privacy.

More people = more devices connected to the IoT = more data.

As a result, that means we’ll need much greater ways to store all the extra data and, most importantly, protect it. It’s a serious concern, and my colleague, Louis Basenese, has brought these IoT privacy issues up before.

But is failsafe security even possible?

After all, we already know that the internet isn’t 100% secure. Data hacking of corporations, governments, and general consumers is an increasingly troubling problem.

Last week, for example, I talked about how health and fitness company Fitbit accidently made some of its users’ sex lives available on Google (GOOGL) back in 2011.

More recently, there were the high-profile cases of hackers breaching Apple’s (AAPL) servers and disseminating celebrities’ lewd photos all over the internet.

Also, the health records of everyday people sell for $50 on the internet’s black market.

So consider what will happen when information such as your home security system and departure/arrival habits – or even how many times a day your pacemaker delivers a shock to your heart – is out on the internet.

Hackers aren’t the only privacy concern, either…

Doomed by Data

With massive amounts of our personal data floating around, what happens if your life insurance company decides to hike your rate or cancel your policy because it bought data that shows you drive too fast, or don’t take your diabetes medication when you’re supposed to?

Or a mortgage company denies you a mortgage not because of an unacceptable credit rating, but based on data that’s completely irrelevant to your ability to repay?

FTC Chairwoman Edith Ramirez addressed privacy concerns at CES on Tuesday. While her speech was well-thought-out and reasonable, governments rarely stop at speeches. And the only thing worse than a big company snooping through your data is a big company having your data with the government looking over its shoulder!

The second big concern of the IoT is more pertinent to investors. Namely, do we actually need all this stuff, anyway?

Do Coffee Pots Really Need to Be Online?

Don’t get me wrong… some of the new devices coming out are unquestionably beneficial, especially if security challenges can be overcome.

For example, blood glucose monitors could be helpful not only to the people who wear them, but also to researchers developing future treatments.

Or a thermostat that knows when the weather is about to turn sharply warmer or colder can save money – particularly if nobody will be home for several hours.

And while my Fitbit article last week was bearish, the information collected by the device can provide good motivational tools for its users.

But there are limits – and not all devices need to do everything.

I mean, do we really need coffee pots that connect to the internet? Are there so many people who’d actually benefit from being able to make their coffee from the living room? Or so addicted to the stuff that they must start coffee when they’re exactly 10 minutes away from home, so it’s brewed as soon as they arrive?

Heck, one of the products at CES is an internet-enabled flower pot!

Many “things” for the IoT will never be sold. They’ll see plenty of hype, and some will see an initial sales jolt. But a lot more will merely be short-lived tchotchkes that will either collect dust or die out altogether.

So while you should embrace the IoT – both as a consumer and an investor – remember to keep your skeptic’s hat on.

To living and investing in the future,

Greg Miller

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