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IOTA: fulfilling a promise

Intro

After some rough and turbulent times, the IOTA Foundation’s hard work seems to be finally paying off. They have found a clear path towards fulfilling their initial promise: to build a backbone for the machine-to-machine economy, and solve the blockchain trilemma. Dubbed “A new dawn”, the IOTA Foundation is about to upgrade and release a complete re-write of the core protocol on April 28th. This is the first domino of a series of big upgrades coming this year. In this article I will cover some of the IOTA basics, misconceptions, and the road ahead. I’ll try to keep the paragraphs short and concise wherever possible.

What is IOTA?

For those unfamiliar with IOTA, let me describe it in a few sentences:
IOTA is a permissionless, open-source distributed ledger protocol that can transfer both value and data. In contrast to most other cryptocurrencies, it uses a directed acyclic graph (DAG) instead of a blockchain. The benefit of using a DAG are high transfer speeds, good scalability and zero transaction fees. All of this contributes to the fact that IOTA is designed to become a backbone for the Internet of Things (IoT), allowing for separate or simultaneous transfer of both data and value between machines. Because IOTA is feeless and can send both data and/or value transactions, companies can launch data-based applications independent of thinking or worrying about owning cryptocurrency. The IOTA network is called the Tangle.

Supply misconceptions (Bitcoin comparison)

I’m often met with the argument that the IOTA supply is very big. People are quick to point out that Bitcoin has a “small” supply of 21 Million BTC, whereas IOTA has an “enormous” supply of 2.779.530.283 MIOTA. It’s easy to see why people might think this, however, the reality is different, because you have to look at the smallest divisible unit. The smallest divisible unit for Bitcoin is known as a ‘Sathoshi’, one BTC consists of 100.000.000 Satoshi. This is different for IOTA because they are sold as MIOTA, which stands for Mega IOTA. One MIOTA consists of 1.000.000 IOTA, which already is the smallest divisible unit.

A quick calculation (dividing the difference by the total Bitcoin supply in Satoshi) will tell you that IOTA has a max supply that is about 32% larger than Bitcoin. Which is a lot smaller of a difference than you might have thought at first glance. Another important thing to note is that 100% of the IOTA supply is already in circulation, while the Bitcoin supply is still inflating.

Current price (Bitcoin comparison)

Okay, so the IOTA supply is not much larger than the Bitcoin supply, but what about the price? To calculate the normalized price compared to Bitcoin you’d need to multiply the current price of one MIOTA (which at the time of writing this article is $2,14) with the circulating MIOTA supply and then divide that by the circulating Bitcoin supply. The calculation is: ((2,14*2779530283)/18686800) = $318. This means that buying MIOTA today would be similar to buying Bitcoin when it was still $318 back in the day. There is huge amounts of room left for price growth in IOTA.

The road ahead

The IOTA Foundation has several major updates planned this year: Chrysalis, digital assets, smart contracts, and Coordicide. All of these updates successfully combined will result in a very versatile protocol that is feeless, scalable, secure, and decentralized. I’ll cover these updates one by one in the paragraphs below.

Chrysalis (IOTA 1.5)

As mentioned before, the Chrysalis update is a complete re-write of the IOTA core protocol. The Chrysalis update is the IOTA Foundation’s move to transition the protocol towards production readiness, taking real world needs and requests from industry partners and the ecosystem into account. This upgrade is so big in fact, that you could easily consider IOTA to be an entirely new crypto project. Because the upgrade is so big, there will be a token migration period between the 21st and 28th of April. Chrysalis is all about being production ready, companies and individuals will be able to build on top of IOTA without having to worry about any ground-breaking changes. Here is a list that sums up the most important parts of the Chrysalis update:

• Lower confirmation times from 2 minutes to 10 seconds.
• Replace the WOTS signature scheme with the Ed25519 signature scheme. This is the most common signature scheme in the crypto space, which means easier exchange integration and it enables re-usable addresses.
• Completely new wallet called Firefly.
• Completely new client libraries for developers to work with that are easy to use, and very flexible.
• Switch to UTXO model.
• Switch from ternary to binary.
• Improved tip selection.

Digital assets (NFTs)

The Chrysalis update will enable a number of other projects to be deployed on top of the IOTA ecosystem, one of these is the digital assets framework. You are probably familiar with the term NFT, which stands for Non-Fungible Token and is getting a lot of hype in the current crypto space. NFTs are one of the use cases that the digital assets framework will enable on top of the IOTA protocol. Other notable uses cases that the digital assets framework enables are things as digital twins (tokenization of real-world physical objects/assets) and crypto applications (such as multi-asset wallets). Digital assets are expected to be released in either Q2 or Q3 this year. For more in depth information on digital assets you can either read the blog or watch this webinar.

IOTA smart contracts protocol (ISCP)

Many of the more complex use cases for IOTA digital assets require smart contracts for their full realization, which is exactly why that will be the next big release after the digital assets framework. Smarts contracts will enable use cases such as decentralized exchanges, NFT marketplaces, and liquidity platforms. On Ethereum, smart contracts are run on the core protocol (layer 1), which means they suffer from network congestion and high and unpredictable fees. In contrary to Ethereum, the IOTA smart contracts protocol will run on a second layer protocol. This means that IOTA smart contracts do not burden the rest of the network, the average cost of a smart contract is low and predictable, and use cases over micro-transactions are possible. ISCP is expected to be released in either Q3 or Q4 this year. For more in depth information on ISCP you can either read the blog or watch this webinar.

Coordicide (IOTA 2.0)

The final hurdle for IOTA to solve the blockchain trilemma is to become fully decentralized. Currently the way consensus finality is achieved on the IOTA network is with the help of a centralized special node called ‘the Coordinator’. To become fully decentralized the Coordinator has to be removed, that’s why this update is referred to as ‘Coordicide’. The road to Coordicide was divided into three stages: pollen, nectar, and honey. Pollen is the first official testnet of the IOTA 2.0 network and has been live since July 2020. A lot of progress has been made and next month (May 2021) the next testing stage of the IOTA 2.0 network will begin. This second stage (called Nectar) will be a feature complete public incentivized testnet. The final and third stage (called Honey) is the final mainnet release candidate of the IOTA 2.0 network. Honey will include all of the modules according to the full and final specification of Coordicide. This release is targeted for Q4 this year, but with delays being very common in the crypto industry it wouldn’t be shocking to see its final release date pushed to early 2022.

MANA

One important aspect of Coordicide that should not be overlooked is the implementation of mana. Mana is a reputation system given to nodes for providing a good service and being honest. Mana has a double function; it is both the new sybil protection and congestion control mechanism of the IOTA 2.0 network. Sybil protection prevents an attacker from gaining excessive influence over a network through the creation of multiple identities. Congestion control determines who has the ability to write to the ledger (issue transactions/process data) in times of congestion. Mana is not a token, therefore it can’t be sold, but it can be pledged. Mana has a decay mechanism by which nodes drop mana continuously, so they can only keep a good mana score if they keep working honestly and as expected on the network. The economic model that mana creates is unique to IOTA, it is similar to radio frequency bandwidth. As a token holder you can rent out your bandwidth to companies who want to use the IOTA network, but don’t want to own tokens because of regulatory difficulties for instance. Companies that do hold IOTA tokens will generate mana and are therefore guaranteed a slice of the network bandwidth (guaranteed TPS) in times of congestion. Pretty much every single crypto project is offering companies two bad propositions: the value of their coins is being diluted by an ever-increasing max supply, and on top of that they are slowly losing their stack of coins due to fees. IOTA offers the opposite to companies: their tokens are not being diluted because the max supply is already in circulation, their stack is not decreasing due to fees, and on top of that their stack is giving them a guaranteed share of the network throughput with mana. For more in depth information on MANA’s economic model I highly suggest reading this blogpost by Luka Stanisic, and for more technical information on MANA I suggest reading this blogpost from the IF.

Other noteworthy things

In this final section I will go over some other noteworthy things that IOTA got going on, namely partnerships, patents, and the size of the future IoT market. I will also mention some other IOTA products that are being built, and give you my closing remarks.

Partnerships

The IOTA Foundation has too many partners to go over, so I’ll just briefly cover some of the most notable ones here.

• IF is working with Zebra Technologies on supply chain management and digital vaccination certificates. Zebra Technologies manufactures and sells marking, tracking and computer printing technologies. Their RFID technology can be found in warehouses worldwide. Zebra Technologies is #264 on the S&P 500 and are listed on NASDAQ under the ticker ZBRA.
• IF is working with Dell and Intel on project Alvarium, a data confidence framework that measures the trustworthiness of data. Intel is the world’s largest semiconductor chip manufacturer by revenue, they are #20 on the S&P 500 and listed on NASDAQ under the ticker INTC. Dell Technologies designs, develops, manufactures, markets, sells and supports information technology solutions, products, and services worldwide. They are #34 on the fortune 500 and listed on the NYSE under the ticker DELL.
• IF is working with Jaguar Land Rover on a smart car wallet. Jaguar Land Rover is owned by the Tata Motors Group, a leading global automobile manufacturing company. They are listed on the NYSE under the ticker TTM.

Patents

IOTA has been mentioned in 356 unique patents at this point in time by a total of 156 unique entities. Some noteworthy entities that mentioned IOTA in a patent are: Siemens, Panasonic, Intel, HP, American express, British telecom, Fujitsu, SAP, Daimler, Mastercard, Sony, Bank of America, Hitachi, Ford, T-Mobile, Bosch, Volkswagen, Adobe and Alibaba. You can find all of this information here.

Future IoT market size

According to Cisco, 500 billion devices are expected to be connected to the internet by 2030. Each device includes sensors that collect data, interact with the environment, and communicate over a network. All of this valuable data needs a safe way to be immutably stored and transacted, this is exactly what IOTA will enable. The industrial Internet of Things could add over 14 trillion US Dollar to the global economy by 2030 according to Accenture. In the United States alone the industrial Internet of Things is expected to add over 6 trillion US Dollar to the cumulative GDP.

The global IoT market is expected to reach a value of over 1.3 trillion US Dollar by 2026, and this is a market that is growing exponentially year on year. One can only imagine what the price of IOTA could be if it became the backbone of this machine economy. One aspect of becoming the backbone for the Internet of Things is to become a global standard. The IOTA Foundation has been working towards this goal with the Object Management Group for several years now, you can read more about the progress in their latest standardization update. Of course, to enable all of the IoT use cases IOTA needs ways to be embedded into (lightweight) IoT devices. This is something they have been working on together with STMicroelectronics, a global semiconductor leader who supply to customers such as: Apple, Bosch, Cisco, HP, Samsung and Sony, among others. The amount of IoT use cases are in the thousand, if not millions. Think of things like: energy management, smart grids, health monitoring, supply chain tracking, smart cities and autonomous vehicles. You can find some more examples in the image below.

Other IOTA products

There are several other products being built on top of IOTA that I haven’t mentioned yet. Here are some that caught my eye:

• IOTA Access, is an open-source framework used to build access control systems for smart devices.
• IOTA Identity, is a digital identity framework that builds on the W3C’s proposed standards.
• IOTA Oracles, bring off-chain data to decentralized applications and smart contracts on the IOTA network.
• IOTA Streams, formerly known as Masked Authenticated Messaging (MAM), is an organizational tool for structuring and navigating secure data through the Tangle.
• IOTA Stronghold, is a secure software implementation with the sole purpose of isolating digital secrets from exposure to hackers and accidental leaks.

Closing remarks

Have you heard the saying “data is the new oil”? Well, oil needs a pipeline, and this is exactly where I see IOTA fit in. Because unlike most other cryptos, IOTA can send both value and data transaction separately, or simultaneously. If you’re forced to send value with data, you’ve just blocked off thousands of use cases. IOTA was built with the Internet of Things in mind, and with the current developments IOTA will be perfectly suited for those use cases. On top of that, when all the planned updates are done, hopefully by the end of the year, IOTA will be able to do everything that Ethereum can do, while being feeless, decentralized, and without scalability issues. If the IOTA Foundation succeeds in bringing their vision to life, then IOTA is on a fast track to mass adoption.