🤔 What is IOTA?
IOTA is a cryptocurrency designed for machine-to-machine payment in IoT(Internet of thing) economy.
It uses DAG(Directed acyclic graph) instead of traditional blockchain to store transactions. This makes it fast, scalable and feeless.
What is IoT (Internet of things) ?
IOTA allows machines to have economic relations with other machines. These smart machines have IOTA wallet and use IOTA to transact with each other. For example:
- A fridge can automatically order milk if it senses its supplies are running low.
- Electric self-driving car paying charging station for electricity.
Origin of Enjin
- IOTA was founded by 2 students and their professor in 2015:
- David Sonstebo
- Dominik Schiener
- Professor Sergei Popov
- The team raised 1377 BTC during ICO in 2015 to fund development of IOTA project.
- The network went live in 2016.
👴 Founders
David Sønstebø
- David is based in the Drammen area in Norway.
- He started Stealth, a hardware start-up developing an ultra-low-power processor for Internet-of-Things in 2014.
- He confounded IOTA in 2015 and served as co-chairman on its board of directors till 2020.
Dominik Schiener
- He is based in Südtirol, Italy.
- He is a serial entrepreneur:
- His first startup was Fileyy, an affiliate marketing platform.
- He next attempted to start a cryptocurrency-fiat exchange in Switzerland, which failed.
- He also founded Finhaus,a blockchain firm in London.
- He co-founded IOTA in 2015 and serves as co-chairman of board of directors for IOTA foundation.
Serguei Popov
- He holds a Doctor of Philosophy from Moscow State University.
- He is professor of Mathematics at the University of Campinas in Sao Paulo, Brazil since 2009.
- He serves as advisor to AdHive, Cartesi, KIRIK, and STeX.
- He Co-founded IOTA in 2015 and was member of board of director to Iota foundation till 2020.
😌 What problems does it solve ?
- Feeless – No transaction fees: IOTA does not have any gas fees, unlike other cryptocurrencies.
- Scalable: IOTA uses DAG(directed acyclic graphs) which is much more scalable than traditional blockchain.
Blockchains become slower as more and more users join the network. Whereas, IOTA network becomes more efficient because of more users joining the network.
- Fast transactions: IOTA architecture allows transactions to be processed in parallel, unlike transactions on other cryptocurrencies which have to wait for at least 1 block confirmation.
- Energy-efficient: Majority of cryptocurrencies use proof-of-work consensus mechanism in which miners use computing resources to solve mathematical puzzles. Energy usage of millions of miners adds up to an enormous number, which is growing every year.
IOTA does not have any miners making it one of the most energy-efficient cryptocurrency solutions.
🤖 How does it work ?
Tangle - Directed acyclic graph
IOTA uses Tangle, a type of directed acyclic graph, to store transactions:
- Directed: Link between two nodes have a fix direction.
- Acyclic: It is not possible to create loops.
- Graph: It is structured as graph.
Each node represents a transaction. A new node gets added every time a user initiates a new transaction.
IOTA does not have miners who validate transactions. Each user making a transaction has to validate 2 randomly selected previous transactions. This makes IOTA feeless and scalable.
Coordinator
IOTA foundation runs a special node called coordinator to keep the network secure. Coordinator issues milestones after regular intervals. Transactions reference these milestones to be accepted in tangle.
This makes coordinator a single point of failure and centralization. IOTA team is working on “Coordicide” which will remove the coordinator and make IOTA fully decentralized.
Coordicide
🏛️ Governance model
The IOTA foundation maintains and develops IOTA project. The foundation also runs coordinator, which is essential to the functioning of the network and is capable of shutting down the entire network.
IOTA Foundation
It is a non-profit foundation that develops IOTA protocol. In 2017, early investors donated 5% of the total supply to fund IOTA foundation. It has:
- Governing Board: to set and achieve the vision and run operations.
- Supervisory Board: to guide and oversee the performance of the Governing Board.
- Advisory Board: to provide independent advice, perspective and direction.
🤑 How much money does IOTA project have for future development ?
- IOTA team raised 1377 BTC during ICO in 2015 to fund development of IOTA project.
- 5% of total IOTA token supply was donated by early investors to IOTA foundation..
- Other than the funds already held, IOTA project does not have any ongoing source of revenue.
👍 Tailwinds
- Growth of IOT devices: Number of devices connected to the internet are growing exponentially every year.
- First mover advantage: IOTA is the first cryptocurrency that provides feeless, instantaneous transactions for IoT devices. It is an old project and has sustained itself through several bear markets.
- Network effects: IoT manufacturers will choose to integrate with the most widely used cryptocurrency. IOTA has the opportunity and potential to capture complete IoT market.
- Switching cost: Companies and customers would not want to migrate to other solutions because:
- All other IOT devices are on IOTA network.
- Users have invested time and resources in IOTA network.
☠️ History of hacks
2018
Over 10 million USD worth of IOTA tokens were stolen from 85 users who used a malicious online seed-creator, a password that protects their ownership of IOTA tokens.
In January 2019, UK and German law enforcement agencies arrested a 36-year-old man from Oxford, England believed to be behind the theft.
2019
IOTA wallet had integrated third party code of Moonpay(payment service provider). Hacker exploited a vulnerability in Moonpay code to steal approx 2 million USD worth of IOTA tokens.
IOTA foundation switched off the coordinator which shut down the entire IOTA network. They gave users at risk a week to migrate their funds. IOTA network was restarted after about a month.
😨 Risks and Challenges
- Centralization: IOTA foundation maintains and develops IOTA protocol. They also run Coordinator which can be used to shut down the entire network. This makes the project centralized and exposes the project to risks like:
- Differences among founders.
- Government crackdown.
- Team not keeping their word, etc.
- Differences among founders: The founders do not share the same vision for the future of IOTA. Two out of the three founders left IOTA foundation after a fight in 2020.
- Partnerships: Most of their partnerships were just proof of concept. The companies are yet to integrate IOTA into their products.
- IOTA uses directed acyclic graphs to store transactions. Whereas other cryptocurrencies use blockchain data structure. Developers would not want to limit themselves by learning a different technology, locking themselves away from the rest of the crypto ecosystem.
- IOTA foundation holds a sizable amount of funds. However, they do not have a profit model that generates revenue. IOTA is a long-term project whose growth can be affected by lack of funds.
💰 Tokenomics
IOTA tokens have a fix max supply of 2.7 quadrillions. These tokens were distributed in 2015 ICO as follows:
Token Inflation
IOTA tokens do not have any inflation because complete max supply is already in circulation.
Demand pressure
Demand pressure increases token’s price. Demand for tokens will come from people & IoT devices who will open wallets and acquire IOTA tokens as it becomes more popular.
Market cap
IoT technology is still in its infancy. IoT devices do not transact with other IoT devices.
But IoT economy of billions of devices transacting with each other will definitely be worth trillions. IOTA token will be worth a lot if IoT economy is denominated in IOTA.
🧐 Indicators to watch out for
- Youtube channel is growing:
- Twitter account is growing:
Future possibilities
The project has tremendous potential if it is able to achieve the goals it has set for itself: a decentralized, feeless cryptocurrency.
It will be used for all the transactions and not just machine-to-machine transactions if it achieves its goal.
The team is also planning to support smart contracts on IOTA. This will revolutionize smart contract blockchains like Etherium that require huge amounts of gas fees to execute smart contracts.
IOTA’s tangle data structures have the potential to be the next evolution in the crypto industry!
👋 Final remarks
We have come a long way since humans first started trading.
Exchanging items with each other allowed humans to cooperate with unknown humans at scale. This helped human race to flourish at an exponential rate.
Machines transacting with each other will be the next industrial revolution.
However, it is better to wait before investing in IOTA till:
- Coordinator is removed.
- Project is decentralized.
- Team is not fighting with each other.
- There are real world use-cases.
😊 Do further research
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