𝐈𝐨𝐭𝐚 - 𝐝𝐢𝐞 𝐞𝐧𝐞𝐫𝐠𝐢𝐞𝐞𝐟𝐟𝐢𝐳𝐢𝐞𝐧𝐭𝐞 𝐊𝐫𝐲𝐩𝐭𝐨𝐰ä𝐡𝐫𝐮𝐧𝐠 𝐚𝐮𝐬 𝐁𝐞𝐫𝐥𝐢𝐧 𝐨𝐡𝐧𝐞 𝐍𝐞𝐭𝐳𝐰𝐞𝐫𝐤𝐠𝐞𝐛ü𝐡𝐫𝐞𝐧

Today we're going to take a look at the cryptocurrency Iota. Technically, Iota is mega interesting and one of the main reasons why I am invested. However, the response to my previous more technical posts shows that the GetQuin community is probably not the right audience for this. I therefore focus on facts that might be more interesting for a financial community. However, IT nerds can check out the sources at the end of the post - there are some interesting links there that shed more light on the technology. For crypto beginners, I recommend first taking a look at my series of posts "Cryptocurrencies for Beginners / Stock Market Disciples": https://app.getquin.com/activity/buTJFYxcSD . You can find a (non-)buy recommendation at the end of this post.

𝐔𝐧𝐝, 𝐰𝐚𝐬 𝐢𝐬𝐭 𝐣𝐞𝐭𝐳𝐭 𝐝𝐢𝐞𝐬𝐞𝐬 𝐈𝐨𝐭𝐚?

Iota is a crypto network based on a DAG (Directed Acyclic Graph [1]) instead of a blockchain. In 2015 / 2016, Iota was conceptualized as a network for the Internet of Things (IoT) and thus for many microtransactions. The unit of the network is also called Iota, but it is mostly expressed in millions of Iota (Miota, Mi). In total, the number of Miota tokens is limited to 2,779,530,283, so there are exactly 2,779,530,283,000,000 Iota that are already completely in circulation (no inflation) [2]. Currently, the network reaches a max. speed of 1,000 transactions per second [3].

𝐖𝐞𝐫 𝐡𝐚𝐭𝐬 𝐞𝐫𝐟𝐮𝐧𝐝𝐞𝐧?

No, not the Swiss. And not the Yanks either. Behind Iota is the Iota Foundation (IF), a non-profit organization based in Berlin [4]. Yes, the Berlin in Germany. Crazy, isn't it? And the IF team is not that small either, with about 200 members in over 25 countries [5]. The IF is financed by donations in the form of Iota tokens from the community, R&D budget from public institutions, and donations from individuals and companies [6].

𝐄𝐢𝐧 𝐝𝐢𝐫𝐞𝐜𝐭𝐞𝐝 ... 𝐝𝐢𝐧𝐠𝐬𝐛𝐮𝐦𝐬 ... 𝐆𝐫𝐚𝐩𝐡 𝐚𝐧𝐬𝐭𝐚𝐭𝐭 𝐞𝐢𝐧𝐞𝐫 𝐁𝐥𝐨𝐜𝐤𝐜𝐡𝐚𝐢𝐧? 𝐉𝐞𝐝𝐞𝐫 𝐬𝐩𝐫𝐢𝐜𝐡𝐭 𝐝𝐨𝐜𝐡 𝐢𝐦𝐦𝐞𝐫 𝐯𝐨𝐧 𝐝𝐞𝐫 𝐁𝐥𝐨𝐜𝐤𝐜𝐡𝐚𝐢𝐧. 𝐅ü𝐫 𝐦𝐢𝐜𝐡 𝐠𝐞𝐡ö𝐫𝐞𝐧 𝐊𝐫𝐲𝐩𝐭𝐨 𝐮𝐧𝐝 𝐁𝐥𝐨𝐜𝐤𝐜𝐡𝐚𝐢𝐧 𝐮𝐧𝐭𝐫𝐞𝐧𝐧𝐛𝐚𝐫 𝐳𝐮𝐬𝐚𝐦𝐦𝐞𝐧. 𝐖𝐨𝐫𝐢𝐧 𝐥𝐢𝐞𝐠𝐭 𝐝𝐞𝐫 𝐔𝐧𝐭𝐞𝐫𝐬𝐜𝐡𝐢𝐞𝐝?

A DAG, Directed Acyclic Graph or in German a directed acyclic graph is - just like the Blockchain - a kind of data structure. While in a blockchain data (blocks) are strung together and each block is followed by exactly one more block (Fig: https://en.wikipedia.org/wiki/Blockchain#/media/File:Bitcoin_Block_Data.svg), , a DAG consists of nodes that are almost cross-connected via edges. These nodes contain the data (comparable to the blocks in a blockchain), but in doing so they are usually not arranged strictly one after the other, as is the case in a blockchain. Instead, a node can have multiple successor and predecessor nodes (Fig: https://en.wikipedia.org/wiki/Directed_acyclic_graph#/media/File:Tred-G.svg). The only thing that must not occur is a "circle", otherwise we would be talking about a cyclic and not an acyclic graph.

In Iota, this data structure is implemented in the form of the "tangle" [7]. The tangle is thus Iota's counter-design to the blockchain. With the Tangle, the limitation of a blockchain to only write data sequentially and in competition with each other is resolved and parallelized [8]. To look at the Tangle and get an idea of how it is built, you can watch Iota live at work in what is called the Tangle Visualizer: https://explorer.iota.org/mainnet/visualizer/. The visualizer very quickly makes clear why the Tangle is called "tangle" in German.

𝐀𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡𝐡!!! 𝐁Ö𝐒𝐄𝐑 𝐄𝐒𝐄𝐋! 𝐃𝐮 𝐡𝐚𝐬𝐭 𝐠𝐞𝐬𝐚𝐠𝐭 𝐤𝐞𝐢𝐧𝐞 𝐓𝐞𝐜𝐡𝐧𝐢𝐤!!!!! 𝐍𝐚𝐣𝐚, 𝐳𝐮 𝐬𝐩ä𝐭 ... 𝐛𝐫𝐢𝐧𝐠𝐭 𝐦𝐢𝐫 𝐝𝐚𝐬 𝐢𝐫𝐠𝐞𝐧𝐝𝐰𝐚𝐬? 𝐇𝐚𝐭 𝐈𝐨𝐭𝐚 𝐞𝐢𝐧𝐞𝐧 𝐔𝐒𝐏? 𝐎𝐝𝐞𝐫 𝐢𝐬𝐭 𝐝𝐚𝐬 𝐧𝐮𝐫 𝐞𝐢𝐧 𝐒𝐡𝐢𝐭𝐜𝐨𝐢𝐧 𝐰𝐢𝐞 𝐯𝐢𝐞𝐥𝐞 𝐚𝐧𝐝𝐞𝐫𝐞 𝐚𝐮𝐜𝐡?

Iota has no (!) network or transaction fees [9]. Right. None at all. If I send 2 iota (or 2,000,000 iota) from A to B, 2 iota (or even 2,000,000 iota) will also arrive there within a few seconds. Bam. This also means that, for example, NFTs could be sent without fees and smart contracts could be executed free of charge (if they already existed, but more on that later). You only need to confirm two other transactions to initiate one, which consumes a negligible amount of power on your computer. Which brings us to the second important argument for Iota: The energy cost per transaction. By the way, calculating the exact energy consumption of a transaction is not that trivial. For example, [10] assumes 0.00011 kWh, while [11] would like to have the power consumption calculated to a bit more than 0.000001 kWh per transaction. For comparison: According to [12], an Ethereum transaction consumes 238.22 kWh and a VISA transaction approximately 0.001486 kWh.

Overall, Iota aims to solve no less a problem than the blockchain trilemma, i.e., enabling decentralization, security, and scalability simultaneously [13] [14].

𝐖𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐚𝐬? 𝐊𝐞𝐢𝐧𝐞 𝐍𝐞𝐭𝐳𝐰𝐞𝐫𝐤𝐠𝐞𝐛ü𝐡𝐫𝐞𝐧, 𝐚𝐛𝐞𝐫 𝐠𝐥𝐞𝐢𝐜𝐡𝐳𝐞𝐢𝐭𝐢𝐠 𝐬𝐜𝐡𝐧𝐞𝐥𝐥 𝐮𝐧𝐝 𝐧𝐮𝐫 𝐠𝐞𝐫𝐢𝐧𝐠𝐞 𝐄𝐧𝐞𝐫𝐠𝐢𝐞𝐤𝐨𝐬𝐭𝐞𝐧? 𝐖𝐨 𝐢𝐬𝐭 𝐝𝐞𝐫 𝐇𝐚𝐤𝐞𝐧?

Charges are important for the security of the network. If coins are to be sent from A to B, nodes in the corresponding network must process and confirm this transaction. For example, nodes in the Bitcoin and Ethereum networks are credited with transaction fees, among other things, as compensation for this work [15]. Network fees are thus an important incentive for the node operators of the network to provide their hardware and computing power and to behave honestly. How much these fees are is specified in the code of each cryptocurrency. In the case of Iota, the decision was made to set these fees to 0 and thus not to charge them.

This, of course, creates a risk. Operating an Iota node appears to be a losing proposition at first. However, it can make sense for a company to have its own node, as this gives it direct access to the network without being dependent on other node operators. Moreover, such a node can be operated for as little as 5 USD / month and thus contributes to the existence of a fee-free network, which could certainly represent a huge added value for some companies. One can imagine the operation of a node as the monthly account maintenance fee at a bank. In the future, nodes will also be rewarded with "Mana" for confirming transactions. Mana, in turn, is said to allow higher-priority transactions, which could generate a market for trading in mana. In addition, services based on Iota could still charge fees, of course. Overall, however, it remains to be seen whether this will actually create sufficient incentives to establish a stable, secure, and decentralized network with many nodes and node operators. [16]

Speaking of decentralized: Another catch is in the coordinator. The coordinator is a central entity that is necessary in the current state of the network to ensure its security and stability. While the goal is to shut down the coordinator in the medium term, in its current state the network cannot be described as decentralized or trusted because of the coordinator. The shutdown is called Coordicide and is currently being tested in the development network [17]. No one can say for sure whether a successful shutdown will succeed in practice for the main network as well. Accordingly, Coordicide is also the biggest point of criticism and the biggest risk for Iota. However, a successful coordicide is likely to unleash a gigantic potential. [18]

Another problem is the Iota Foundation itself. Besides a lot of internal quarrels and scandals, promised timelines were often not kept, which shook the trust in the Iota Foundation [19] [20]. Various attacks, e.g. on the own wallet [21] or by tapping the private keys during key generation [22], did the rest.

𝐃𝐚𝐬 𝐢𝐬𝐭 𝐣𝐚 𝐬𝐜𝐡𝐨𝐧 𝐚𝐛𝐬𝐜𝐡𝐫𝐞𝐜𝐤𝐞𝐧𝐝. 𝐈𝐬𝐭 𝐁𝐞𝐬𝐬𝐞𝐫𝐮𝐧𝐠 𝐢𝐧 𝐒𝐢𝐜𝐡𝐭?

2021 was a year of transformation for Iota, as the Iota Foundation itself headlines in its blog post [23]. From my perspective, the Foundation and Iota itself came of age in the last 1-2 years [8]. One has said goodbye to idealistic ideas from the early days like a ternary instead of a binary system [24] and has not afforded any more scandals. The roadmap [25] now focuses on topics that can already generate added value today. One example here would be smart contracts. Attempts are being made to close the gap to the competition and, at the same time, to achieve decentralization by switching off the coordinator. However, whether IF actually delivers remains to be seen. Too often, the community has been disappointed by unfulfilled promises.

𝐖𝐨 𝐰𝐢𝐫 𝐠𝐞𝐫𝐚𝐝𝐞 𝐛𝐞𝐢 "𝐞𝐧𝐭𝐭ä𝐮𝐬𝐜𝐡𝐞𝐧𝐝" 𝐬𝐢𝐧𝐝. 𝐃𝐞𝐫 𝐊𝐮𝐫𝐬 𝐢𝐬𝐭 𝐣𝐚 𝐚𝐮𝐜𝐡 𝐠𝐚𝐧𝐳 𝐬𝐜𝐡ö𝐧 𝐢𝐦 𝐊𝐞𝐥𝐥𝐞𝐫 ...

Just in 2017, Iota was still hotly loved by the community and was a regular in the top 10 cryptos by market cap. The Miota ATH is over 5 USD [26] and has not been reached since the end of 2017. This is likely mainly due to the aforementioned scandals and delays. Currently, the price for a Miota is well below one USD and is miles away from the ATH. Iota is thus outside the top 50 cryptos by market capitalization.

𝐎𝐩𝐭𝐢𝐦𝐢𝐬𝐭𝐢𝐬𝐜𝐡 𝐛𝐞𝐭𝐫𝐚𝐜𝐡𝐭𝐞𝐭 𝐠𝐢𝐛𝐭 𝐞𝐬 𝐚𝐥𝐬𝐨 𝐯𝐢𝐞𝐥 𝐏𝐨𝐭𝐞𝐧𝐭𝐢𝐚𝐥 𝐧𝐚𝐜𝐡 𝐨𝐛𝐞𝐧. 𝐊ö𝐧𝐧𝐭𝐞 𝐝𝐚𝐳𝐮 𝐑𝐞𝐚𝐥 𝐖𝐨𝐫𝐥𝐝 𝐀𝐝𝐨𝐩𝐭𝐢𝐨𝐧 / 𝐝𝐢𝐞 𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐢𝐞 𝐞𝐭𝐰𝐚𝐬 𝐛𝐞𝐢𝐭𝐫𝐚𝐠𝐞𝐧?

IF has always had many partnerships in industry [27] and tries to add value with real use cases. For example, with "Alvarium" there is a collaboration with Dell to measure the trustworthiness of data [28]. With EnergieKnip in the Netherlands, a project was launched to reward environmentally friendly behavior in about 50,000 participating households [29]. In addition, Iota is now participating in Phase 2a of the European Commission's European Blockchain Services Infrastructure (EBSI) implementation project [30]. To name just a few of the projects with companies and institutions.

𝐍𝐚 𝐢𝐦𝐦𝐞𝐫𝐡𝐢𝐧. 𝐖𝐢𝐞 𝐬𝐜𝐡𝐚𝐮𝐭 𝐞𝐬 𝐝𝐞𝐧𝐧 𝐦𝐢𝐭 𝐞𝐢𝐧𝐞𝐦 Ö𝐤𝐨𝐬𝐲𝐬𝐭𝐞𝐦 𝐫𝐮𝐧𝐝 𝐮𝐦 𝐈𝐨𝐭𝐚 𝐚𝐮𝐬?

This is currently under construction. Assembly will be used to bring smart contracts to Iota [31]. Lendexe is poised to become the first DeFi protocol for Lending on Iota [32] and TangleSea is a decentralized exchange in development on the Iota network [33]. Iota Identity provides a solution for mapping digital identities, which is also under development [34]. The Soonaverse is intended to bring communities, DAOs, and NFTs to Iota [35], but is currently more of a centralized platform, as Iota does not provide the necessary tools today [36]. Soonaverse is thereby a reference to the constant delays of the Iota Foundation. When will feature xyz be ready? Soon. In addition, in December 2021, a way to stake Iota was created for the first time, even if it was more like airdrops, since Iota is not a proof of stake currency [37]. Through the deposited coins, assembly tokens could be generated, among other things. By the way, there is currently (April 2022) another staking period for Assembly. If you own or buy Iota, send them to your Firefly wallet and get some free Assembly tokens.

𝐃𝐮 𝐡𝐚𝐬𝐭 𝐝𝐢𝐞 𝐓𝐞𝐜𝐡𝐧𝐢𝐤 𝐬𝐜𝐡𝐨𝐧 𝐚𝐥𝐬 𝐬𝐞𝐡𝐫 𝐚𝐮ß𝐞𝐫𝐠𝐞𝐰ö𝐡𝐧𝐥𝐢𝐜𝐡 𝐛𝐞𝐬𝐜𝐡𝐫𝐢𝐞𝐛𝐞𝐧. 𝐆𝐢𝐛𝐭 𝐞𝐬 𝐚𝐮𝐜𝐡 𝐊𝐨𝐧𝐤𝐮𝐫𝐫𝐞𝐧𝐳?

In fact, there are some cryptocurrencies with similar approaches [38]. A detailed comparison with them is beyond the scope here. Therefore, I am only sharing a non-exhaustive list of some cryptocurrencies with similar approaches here and ask you to do research on your own. Maybe I will write another article about Hedera sometime in 2022.

- Obyte. A relatively old cryptocurrency on a DAG rather than a blockchain. Currently at the top end of the top 1000 cryptos.

- Aleph Zero. A young project based on DAG far outside the top 1000.

- Hedera. Uses a DAG in the form of their "hashgraph" (cf. Tangle) as a blockchain replacement. Follows a central governance approach and is currently ahead of Iota in the top 50 cryptos.

- Nano. Also uses a DAG and sees itself primarily as a currency. Outside the top 100.

- Banano. A meme DAG coin for all the apes. Still in the Top 1000.

𝐃𝐞𝐫 𝐀𝐫𝐭𝐢𝐤𝐞𝐥 𝐢𝐬𝐭 𝐣𝐞𝐭𝐳𝐭 𝐞𝐜𝐡𝐭 𝐥𝐚𝐧𝐠 𝐠𝐞𝐧𝐮𝐠. 𝐒𝐨𝐥𝐥 𝐢𝐜𝐡 𝐧𝐮𝐧 𝐤𝐚𝐮𝐟𝐞𝐧 𝐨𝐝𝐞𝐫 𝐧𝐢𝐜𝐡𝐭?

By buying Iota, you are taking a significant risk. You are acquiring an altcoin that has not exactly covered itself with glory in the past and has had turbulent times. Iota is also not based on a blockchain, which is a big risk. DAGs as blockchain successors have yet to prove themselves in practice. But this is also where Iota's huge opportunity lies. If proven practical, Iota brings gigantic potential. Even though IF has yet to show that it can deliver, the project has taken a much more promising direction in recent months.

In my view, the key to a share price explosion lies in shutting down the coordinator in the main network and proving that the network can still do its job in a stable and secure manner. However, it could be years before this happens. Until then, I think it is likely that the prices of other coins, including Bitcoin, will develop better. On the other hand, you probably won't be able to buy as fast as the price rises, should the IF actually succeed in the feat of coordiciding.

If you want to add some spice to your crypto portfolio and are willing to accept the uncertainties and risks described above, a small position in Iota can be a good addition to the more stable crypto assets Bitcoin and Ethereum in your wallet. This gives you the chance to invest in Blockchain 2.0 today - or in a stillborn.

𝐔𝐧𝐝 𝐰𝐚𝐬 𝐢𝐬𝐭 𝐦𝐢𝐭 𝐝𝐢𝐫? 𝐁𝐢𝐬𝐭 𝐝𝐮 𝐢𝐧𝐯𝐞𝐬𝐭𝐢𝐞𝐫𝐭?

Yes, I am invested. You can take the percentage from my portfolio on a daily basis. I have been buying iota since 2017 and have pretty much taken every price possible. In 2017 I bought partially for over 5 USD, 2018 / 2019 for under 30 cents and 2021 at prices between 1 and 2 USD. I have never sold. I eagerly hodle with my Ledger in combination with the Iota Firefly Wallet.

𝐕𝐢𝐞𝐥𝐥𝐞𝐢𝐜𝐡𝐭 𝐛𝐚𝐮𝐞 𝐢𝐜𝐡 𝐦𝐢𝐫 𝐭𝐚𝐭𝐬ä𝐜𝐡𝐥𝐢𝐜𝐡 𝐞𝐢𝐧𝐞 𝐤𝐥𝐞𝐢𝐧𝐞 𝐈𝐨𝐭𝐚-𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐚𝐮𝐟. 𝐖𝐨 𝐤𝐚𝐧𝐧 𝐢𝐜𝐡 𝐈𝐨𝐭𝐚 𝐤𝐚𝐮𝐟𝐞𝐧?

I bought my iota from Binance. Also, here is an overview of exchanges where you can trade iota: https://www.iota.org/get-started/buy-iota

Sources

[1] https://en.wikipedia.org/wiki/Directed_acyclic_graph

[2] https://coinmarketcap.com/de/currencies/iota/

[3] https://blog.iota.org/iota-shimmer-assembly/

[4] https://www.iota.org/impressum

[5] https://www.iota.org/foundation/team

[6] https://www.iota.org/foundation/vision-and-mission

[7] https://academy.moralis.io/blog/blockchain-vs-tangle-untangling-the-iota-tangle

[8] https://t3n.de/news/iota-web-3-blockchain-holger-koether-interview-1448851/

[9] https://wiki.iota.org/learn/about-iota/why-is-iota-feeless

[10] https://nairametrics.com/2021/05/20/top-5-eco-friendly-cryptocurrencies/

[11] https://blog.iota.org/internal-energy-benchmarks-for-iota/

[12] https://www.statista.com/statistics/1265891/ethereum-energy-consumption-transaction-comparison-visa/

[13] https://www.ledger.com/academy/what-is-the-blockchain-trilemma

[14] https://block-builders.de/iota-gruender-wir-loesen-das-blockchain-trilemma/

[15] https://support.trustwallet.com/en/support/solutions/articles/67000632070-what-are-network-fees-

[16] https://blog.iota.org/incentives-to-run-an-iota-node/

[17] https://v2.iota.org/

[18] https://coinmarketcap.com/alexandria/article/a-deep-dive-into-iota

[19] https://www.btc-echo.de/news/streit-bei-iota-dominik-schiener-zum-ruecktritt-aufgefordert-54427/

[20] https://www.capital.de/wirtschaft-politik/hacks-und-streit-unter-gruendern-was-ist-bei-iota-los

[21] https://de.cointelegraph.com/news/iota-lays-out-plan-to-re-enable-network-after-20-days-offline

[22] https://iotaseed.io/

[23] https://blog.iota.org/a-year-of-transformation/

[24] https://iota-beginners-guide.com/future-of-iota/iota-x-0-ternary-vision-abandoned/

[25] https://roadmap.iota.org/

[26] https://coinmarketcap.com/historical/20171219/

[27] https://www.iota.org/solutions/partnerships

[28] https://blog.iota.org/together-iota-and-dell-technologies-demonstrate-project-alvarium/

[29] https://blog.iota.org/building-a-local-green-currency-on-iota/

[30] https://digital-strategy.ec.europa.eu/en/news/european-blockchain-pre-commercial-procurement

[31] https://assembly.sc/

[32] https://lendexe.fi/

[33] https://tanglesea.com/

[34] https://www.iota.org/solutions/digital-identity

[35] https://soonaverse.com/

[36] https://web3.soonaverse.com/

[37] https://blog.iota.org/iota-shimmer-and-assembly-staking-roadmap/

[38] https://coinmarketcap.com/de/view/dag/

#analyse
#crypto
#altcoin
#dag
#esel