Cryptocurrencies have continued to lose ground since the turn of the year, having endured most of 2021 via a wild rally largely indiscriminate about whether a crypto project was 1) a legitimate project, 2) built with cool tech, but looking for an answer/usage was -case, or 3) was a SQUID related scam.
Now, I know that the inclusion of points two and three seems like a passive-aggressive smack at the crypto space, but this is not an article that poke fun at cryptos. In fact, it’s just the opposite. During pullbacks, the strong survive and the rest are forgotten, so we want to highlight cryptos that are actually doing some exciting things and have clear goals and a transparent record of progress toward those goals.
So, without further ado, meet IOTA.
IOTA, whose coin is traded under the symbol MIOTA, is certainly one of those cryptos. The best part is that this isn’t even a blockchain. It’s a DAG. If you found it frustrating trying to explain blockchain to your family on Thanksgiving, boy are you going to love (hate?) that.
What is it?
IOTA and its native currency MIOTA were named after the ninth letter of the Greek alphabet, which represents the least amount possible.
The IOTA Foundation, established by the founders of IOTA, is a non-profit organization tasked with creating a production-ready IOTA that can form the basis of the machine economy, while also researching and providing resources to help companies implement it to help the technology. The foundation lives mainly on donations received back from companies and individuals who bought MIOTA during their ICO or who otherwise joined the IOTA community and on grants.
The detailed roadmap of IOTA can be found here. And a list of their partners can be found here, which includes some notable names such as Dell and Jaguar Land Rover, the latter actually already have IOTA wallets in their I-Pace vehicles. As said, this is not a typical crypto search use case. It has very much an identity and a purpose and aggressively approaches it.
IOTA brings something new to the Web3 decentralization narrative. Instead of using the blockchain, which is a distributed ledger that uses fees mixed with miners and/or stakers to keep the blockchain secure, IOTA uses a Directed Acyclic Graph (DAG), which IOTA calls its “Tangle ” names.
what is the tangle
Tangle or DAG by IOTA is an innovation on the blockchain that redefines how to keep a distributed ledger. On the blockchain, a node (either a miner or a staker) approves transactions for a fee. The more people using the blockchain, the longer the waiting time and the higher the fee, as the two-step process slows down the network.
Currently, bitcoin transactions take around 10 minutes per confirmation and typically require six confirmations before the transaction is complete, so expect a wait of around an hour. Meanwhile, Ethereum takes between 5 minutes and 4 hours.
With a DAG, the transaction and the security are one and the same. This allows transactions to be validated in seconds instead of minutes or hours.
Before we dive into the nitty-gritty, let’s examine the acronym as it helps in visualizing the Tangle. If there is something acyclic, meaning it does not indicate or form a circle or have an open chain structure. So if something is directed and acyclicthen that means that the graph – the ledger – always goes in one direction.
When a transaction takes place using MIOTA, the new transaction partially authorizes some previous transactions by referencing them. It then waits for a few future transactions to come and reference what can be up to eight transactions. Once it has been referenced enough times, the transaction is complete.
With this structure, the nodes – which would traditionally be miners or stakers – are the actual transactions. This means transactions will be approved faster and more securely the more IOTA is used. This is a huge improvement over traditional blockchains in terms of scalability, as more usage typically means higher transaction costs and longer wait times.
This structuring of the protocol allows IOTA to be completely fee-free as each transaction contributes to the security of the ledger.
What are the use cases?
The use cases of IOTA are numerous and you can see a list of some industries currently using and implementing IOTA here.
But I’m no square, so while I encourage you to pick IOTA apart and explore it to death, I’ll share with you some of my favorite use cases.
First mobility & automotive.
A great application of IOTA is its ability to track a car’s life and create a “digital twin” that is transparent and immutable. This can help prevent odometer fraud in the used car market and eliminate the need for third-party vehicle history reports for cars, as an accident could not be hidden as it would have been logged on the DAG.
The digital twin is also useful for “consumption-based” insurance, which is expected to become more of the norm as self-driving cars will likely enable ordinary people to rent out their car for the day to tourists, friends and the like.
Data integrity is another use case. In this episode of Rooftop Talks, Dominik Schiener, one of the co-founders of IOTA, addresses one of the most important unique aspects of IOTA. Skip to 19:25 for just the question and answer.
This feature is that on the IOTA network you do not need a token to participate. This is extremely powerful for IoT security. By allowing connected devices to participate in the IOTA Tangle without making IOTA, true data integrity is created in the Internet of Things.
What that means in the case of self-driving cars and so many other industries is that commands are pure and theoretically immutable. That means IOTA could become a digital failover, protecting us from hackers changing what certain things are doing.
Schiener’s example of this is once again the topic of self-driving cars. The idea of someone hacking your car to do the command [steering wheel right]actually [steering wheel left], is scary and extremely dangerous, to say the least. But if these commands were held on the Tangle and the car freely participated in the network with constant transaction from IOTA, then important functions of the car now run immutably through the Tangle.
In short, IOTA also works with the non-profit organization “REFUNITE”. There, IOTA hopes to help refugees reconnect with loved ones they were separated from when the conflict erupted by giving refugees digital identities. These identities can be searched and found via lo-fi technologies like SMS and call centers, allowing displaced families to reconnect.
Last but not least, just some rapid-fire applications that can be found on the IOTA website that you can explore further on your own. IOTA has plans for supply chain applications that can be explored here and demonstrated here. Here you can demonstrate and explore agricultural applications. Smart City applications can be found here and Industrial IOT applications can be found here.
What you should know about IOTA’s tokenomics is that they are slightly deflationary as 2.78 billion coins were offered in their ICO and there are no plans to add more. So it’s slightly deflationary because some of those coins are lost when people lose their keys and they aren’t replaced.
Remember when I commented that you don’t have to have IOTA to join the network? Well, this is important to IOTA’s tokenomics, as the natural demand for IOTA does not arise from infrastructure usage like in Ethereum and Bitcoin’s networks.
This means price increases are directly related to transactions, not adoption. But that doesn’t mean the adoption won’t have a future price impact. If IOTA is to be the framework for the machine economy, then there will be some natural acceptance that will precede the increased number of transactions these machines coming online will produce.
What about this 2020 hack?
Last but not least, let’s talk about the 2020 hack. Because that was a major setback.
The hack came from the third party Moonpay, which IOTA recruited to allow users to purchase directly from IOTA. Moonpay’s code contained a hack that leaked vital information about users’ IOTA wallets to the hacker. The hacker then waited until an update was imminent before liquidating the wallets, as the update would then delete the hack from the code, making it much more difficult to trace back.
The important lesson here is about the nature of the hack. The ledger was not changed, which is good because the promise of these technologies is that the ledger cannot be changed. Not that you can’t steal your private keys and lose all your money.
This in no way excuses the hack, but it is important to know where the error came from. IOTA has a three part series here where you can see a summary of events, actions taken and lessons learned.
All in all, IOTA is a technology that greatly expands its applications and has no foreseeable scaling problems. Like all cryptos, it’s not immune to attack, but that didn’t stop or even slow down the formation of new partnerships, as the nature of the hack wasn’t something that didn’t happen to Facebook or the New York Times, The Guardian, Twitch, Reddit or the UK government.