IOTA at the Crossroads

Blockchain Ghost
Feb 7 · 18 min read

On February 3rd, 2020 the IOTA Foundation had introduced its version 0.1.0 of the Coordicide alphanet, its attempt to solve the blockchain “Trilemma”:

  • Decentralisation
  • Security
  • Scalability
A picturesque representation of the Trilemma, a Vitalik Buterin’s concept

“The first open-source distributed ledger that is built to power the Machine Economy through fee-less micro-transactions and data integrity,” IOTA, is also energy efficient so it would be fair to say that their Coordicide alphanet release was one of the biggest, if not The Biggest, milestone thus far.

Dancing on the Streets? | Hold your horses

Instead of a celebration, given the possibility of a technological giant leap forward, all hell broke loose. Noisy reverberations of an ugly breakup of IOTA two co-founders (David Sønstebø and Sergey Ivancheglo) took over and the pandemonium ensued. The “Beatles” had split without Yoko even being involved.

Let us examine the kerfuffle and the whole picture alike, in a step-by-step analysis. This article is very long but composed in skippable blocks so a reader can safely glance over and/or skip all that she or he already knows better than us.

IOTA Foundation (IF) Today

The IF was officially chartered in Berlin, on November 3rd, 2017. It has been chartered as “ gemeinnützige Stiftung” a German term for a non-for-profit foundation. The European Commission maintains a Transparency Register in order to “enhance public access to information about its initiatives and European Union policies in general.”

IF’s public ID number in the EU Transparency Register: 500027331119–04.

Since than, IOTA had grown to having a team of around 110 active developers and many more advisors, community members developing their own projects including even a school project by Aroena Almeida Mendes from Netherlands. (a cool IOTA Phone Charger project)

Moreover, an alphabetical list of 700 unique entities with a known interest in IOTA, “including 121 official partnerships/collaborators, 174 entities engaged in joint projects with the IOTA Foundation, 84 known IOTA Data Marketplace participants, 93 entities that developed one or more IOTA-based proof-of-concept and 390 academic references from 235 academic institutions,” maintained by the Iota Archive (not affiliated with the IF) tells us that the IF could not and should not be easily dismissed.

And yet…

There are zero reasons to believe the IF is not a viable institution with worthy, albeit quite hefty, goals. And yet, the amount of flack, hatred and mockery hurled toward IOTA, the IF and its members is truly a mind-boggling display worth considering.

Even some blockchain luminaries like Andreas Antonopoulos or bitcoin pioneers like Charlie Shrem, a revered, reformed convict (“convicted of aiding and abetting the operation of an unlicensed money transmitting business, ordered to forfeit $950,000”) rejoice when someone is trashing IOTA. Kim Kardashian of Crypto, a “social media personality” known as “Crypto Laurianna” of the marketing fame and Tiffany Hayden, a 2016 presidential candidate and Ripple’s (XRP) tireless cheerleader, also readily join the chorus of fervent IOTA attackers. There are others that attack IOTA with fanatical zeal, quite difficult to understand. Aren’t we in the same boat wanting a better world or only only those that dance to our own tune, only a chosen few, are allowed on a ship, built and controlled by us?

“They say that human nature is competitive, that human nature is aggressive, that human nature is selfish — it’s just the opposite, human nature is actually cooperative, human nature is actually generous, human nature is actually community-minded.

What we see, with people sharing information, people receiving information, people committed to the better world, that’s actually human nature.”

(Dr. Gabor Maté, a physician specialized in neurology, psychiatry, and psychology)

Where has the cooperation gone? What has happened with sharing?

The Butterfly Effect

But if you wish IOTA gone, you also wish for all its developers to lose their jobs and for its value of $906,974,983 USD (as a market cap at the time of writing) to be gone and with it, wealth and/or investments of quite a few people. This is not something anyone, but market hyenas a.k.a. naked short sellers, should take lightly. There’s a certain responsibility in our public statements and stating something is a “scam” might even have a whiff of libelous, malicious slander in it. But we’re not lawyers and are not going to venture going down that line, we only want to emphasize that we all, each and every one of us, contributes to the well-being of this world (or its destruction) by each of our actions, words, deeds. So let us keep this butterfly effect in mind.

JINN related spat in between two of IOTA co-founders only has helped the people that look at the IF and its work with a less than a supporting eye to enjoy the show and display a whole new level of mockery and joy over someone’s bad situation. (those are the same characters that take pleasure in public divorces of known people, disregarding personal pain or well being of anyone involved) But let us do this properly and ponder the issue we call “IOTA at the Crossroads” from various angles.

“Laughing” at the Ternary (as concept)

Before IOTA it was JINN. The IF was chartered on November 3rd, 2017 but we have to go back to October 2014 when Jinn was described as “a general purpose processor chip that operates on ternary logic (true/false/unknown) as opposed to the currently universally used binary (true/false) system” and the money was raised. (more about it, with numbers, and links later)

Alas, it seems to us that almost every attempt to innovate, to divert from the blockchain tech is, by default, met with mockery by the Bitcoin maximalists and, well too often, unfounded attacks from the competitors. But than, a five thousand plus cryptocurrencies listed on the CoinMarketCap make a task of following other projects an impossibility so most of them are automatically deemed scams, without giving them a second look. Such was trinary (ternary) chip idea. (i.e. JINN)

But, is/was it really so laughable?

Back in 2012, Douglas W. Jones, the Associate Professor at the University of Iowa, Department of Computer Science wrote that “there are some very serious reasons that ternary logic may have value.” Then, in December of 2018, Adrien Prost-Boucle, Alban Bourge and Frédéric Pétrot from the Université Grenoble Alpes and the French National Centre for Scientific Research (CNRS) wrote a paper titled High-Efficiency Convolutional Ternary Neural Networks with Custom Adder Trees and Weight Compression. Forward a bit more and in 2019 Samsung was supporting ternary computing research. You can see it here.

This is to say the world did not stop revolving and the tech innovations did not stop with the Bitcoin’s White Paper. Otherwise we’d still be using Gordon Gekko’s satellite phone.

Graphical Abstract from “Can Ternary Computing Improve Information Assurance?” paper by Bertrand Cambou, Paul G. Flikkema, James Palmer, Donald Telesca and Christopher Philabaum from School of Informatics, Computing and Cyber Systems, Northern Arizona University and Air Force Research Laboratories

While the Bitcoin’s blockchain is indeed an insanely reliable network, it kept crawling around at the snail’s pace for over a decade, without any true progress toward solving the Trilemma.

Yevgeny Zamyatin wrote about true literature when he said, “it can exist only where it is created, not by diligent and trustworthy functionaries, but by madmen, hermits, heretics, dreamers, rebels, and skeptics.”

We could easily say the same for the technologists and visionaries. Without “the madmen, hermits, heretics, dreamers, rebels, and skeptics” we’d have no progress and the people like Thomas Watson, president of IBM, 1943 (who famously said “I think there is a world market for maybe five computers”) would still rule the world molded by their rigid, unmovable stance. It were the dreamers and lunatics, Thomas. Their value is incalculable. And it was also Mick Jagger who said “Lose your dreams and you might lose your mind.”

So, while the Bitcoin is lagging behind, the progress in computer science is a stuff made of madness; quantum computers are being developed; cognitive computers, combining artificial intelligence and machine-learning algorithms, are being worked on. The Intel Lab is developing a neuromorphic research test chip named Loihi.

Imagine the maximalist’s take on all of that: “halving” & “moon” come to mind, unless a “lambo” squeezes in first. The blockchain size, at 261.255 gigabytes at the time of writing, comes next. 262 GB that would grow in perpetuity!? On every damn computer using it. Does that make any sense? Truly? Not even the banks, hell, not even the dreaded I.R.S. keeps a ledger of every transaction forever. But the blockchain, drudging on ‘till the end of time while gobbling up enormous disk space and energy, is here to stay and to block any attempt to progress, it seems.

“I have a dream” | “You are not allowed to dream”

In the crypto world, dominated by the tech capable of 3–4 transactions per second, for over a decade, dreaming is not allowed. Or they would have to wake up. (they want to dethrone Visa, for example, a payment processor that performs thousands of transaction a second; the numbers vary from 1,700 tps over 24,000 tps up to 65,000 tps per second for Visa)

Yes, granted, it was totally insane for David Sønstebø and Sergey Ivancheglo to dream about ternary computers and to take on a gigantic, multi-billion dollars chip industry from that proverbial garage. It was bonkers. They were flat out of their minds. So was Satoshi Nakamoto.

The Roots | How IOTA was born

Those two visionaries, now sadly engaged in an ugly dispute, were outlining the Qubic vision, well before IOTA (“it (Jinn) is also going to be the backbone of the long term Qubic project”) in their Jinn offerings. But that very same idea goes even further back, all the way to September 25th, 2012 when it was Sergey Ivancheglo, better known as Come-from-Beyond (CFB), who outlined the upcoming IOTA vision:

Inspired by Bitcoin and its forks, the author of Qubic began to think of a currency that would have advantages of Bitcoin but would not have its disadvantages. After a while he came to a concept that was named “Qubic”.

He also listed a quick comparison with Bitcoin (we removed all miners references, not only for the sake of brevity — Duh!, coming from us, but in order to emphasize IOTA root’s, that Qubic vision had outlined:

  • No fees
  • Transactions can’t be scrutinized
  • Network-bound proof-of-work instead of CPU-bound one is used
  • No need to download gigs of data from “a blockchain”
  • Transfer of money in Qubic is supposed to be much faster than in Bitcoin
  • Qubic is more Eco-friendly as it doesn’t require a lot of electricity to be spent

Note how every single criticism of the Bitcoin today was foreseen as a problem to be solved by the “madmen, heretics, rebels.” And those days were relatively civil days, so David and Sergey went on building the future.

Now, let us get back to a mining reference. “Qubics are created (“minted”) by nodes (“providers”) that run special software,” CFB wrote. Guys, good folks of crypto, it was 2012, mining was the talk of the town for many and reality for some. No one had thought outside the blockchain parameters. That was soon to be changed.

Directed Acyclic Graph (DAG) was Born

Sure, there were people thinking out of the blockchain box, but it wasn’t a mainstream. It still isn’t. “Around the same time Serguei Popov, who had authored the first academic paper on Proof-of-Stake, was tinkering with the idea of using a Directed Acyclic Graph (DAG),” wrote David Sønstebø in his “Letter to the IOTA Community” so you’re getting an idea about how the whole project — IOTA, had been developed, a bit by bit.

Sønstebø and Ivancheglo were pondering quantum treat, insane fees imposed on the blockchain based transactions, Industry 4.0 and its M2M, Machine-to-Machine economy. If BTC is so slow and its transactions so expensive, there’s no way in Hell micro-transactions, much less nano-transactions would be ever possible. And for sure not once gazillion tps are needed for the future Data based economy.

The narrative that’s slowly being pushed now as a new mantra, that BTC is not in fact meant to be a transactional protocol rater a “store of value” (digital gold, you name it) was already clear to them. And it was clear to Dominik Schiener and Serguei Popov who joined forces with Sønstebø and Ivancheglo. Something has to be done.

  • Miner’s had no place in the new vision
  • Fees had no place in the new vision
  • Scalability problem must be solved

Thus, the IOTA, its Tangle as it is now known, that glorious Directed Acyclic Graph (DAG) based protocol, has been truly born.

Financial Roots of JINN Dispute

“Triangle” a.k.a. David Sønstebø, but effectively David and Sergey Ivancheglo, were selling 10% or 100,000 Jinn assets (Asset ID: 3061160746493230502) on the NXT Asset Exchange. At the time of writing the Asset Issuer still owns 941,802 JINN or 94.18% so it seems they managed to sell only 5.82% out of 10% allocated for sale. JINN asset is still there:

At that time, September 21st, 2014, it wasn’t a lot of money, on the contrary. BTC was at $404.54 and NXT was at 0.00007357 BTC. So, a back-of-the-envelope calculation based only on that day alone (we do not recall how many days the Jinn sale was ongoing or how many NXT was for one JINN) and a subject of possible gross misrepresentation gives us:
58,200 JINN via NXT @ 0.00007357 BTC x $404.54 BTC
TOTAL of $1,732.15

The ICO craze started in 2017 when people were raising millions for idiotic project that went nowhere. You go and try creating a whole new chip with $1,732.15. Even if our calculation is off for 10x or even for 100x this is still not a lot of money, for sure not for a venture that went on in a “stealth mode” for over five, six years. (will get back to the stealth and venture later)

It is none of our business to wonder how much money of their own any of the IOTA co-founders had in any moment of time, but if those guys were working around the clock, for months and years, it is safe to assume they have spent a lot of their own financial resources in order to move forward. This is also something one might wish to take into consideration while attempting to dismiss anyone with one scornful tweet, independent of reality or any true research or insight.

At the time of writing, the same calculation would give us the following:
58,200 JINN via NXT @ 0.00000143 BTC x $9,799.60 BTC but now with 750 NXT for one JINN
TOTAL of $611,686.13

Far from millions but not too shabby. For shits and giggles one could put the whole 941,802‬ JINN the “Asset Issuer” (David) still holds and you’ll get a phantom market value of JINN in the amount of: $9,898,405.88 (only a several days ago, before the spat, on February 1st, 2020, JINN was going for 4,588 NXT so the market value would have been: $60,551,848.28.

Alas, JINN is effectively worthless for there isn’t a market for it, not at the moment.

So, when David is magnanimously “giving away” a 100% of JINN to Sergey he does two things:

  • he gives a phantom value of $10M-$60M away, hurting Sergey
  • he give away his baby, how his life work had started and is hurting himself.

Thus the disputed IOTA value in between those two men comes into play. A source of two visionaries pain, struggle and public shame. All the usual suspects and many out of the woodwork IOTA haters start orgasmically cackling and renew their wows: IOTA must be a scam.

65 Ti IOTA | Where they came from? | What does all of that tell us?

Now it is a sorry public knowledge that Sønstebø and Ivancheglo are locking horns over the 65 Ti IOTA, at the time of writing valued at $21,487,622.00. Again, it would be none of our business to wonder what they are doing with their funds but there are a lot of speculations and insinuations about it so it’s a fair game to examine those accusations.

There are a total of 2,779,530,283 MIOTA (Mi) in a circulating supply. One Gi is a 1,000 Mi and one Ti is a 1,000 Gi so disputed 65Ti represent 2.33852% of all the IOTA. Founders are not allowed to eat? Vitalik Buterin tweeted that he had about 0.9% of all ETH. Evan Duffield of Darkcoin/DASH fame had 2.74% of all the coin’s supply. Satoshi’s 700,000 BTC is about 3.845% of the bitcoin’s supply today. Charlie Lee of the LTC had even more but he had sold all of his coins. Ripple had/has an insane amount of XRP but 2.33852% of all tokens over which Sergey and David are disputing are a big deal?

So why the fuss over 2.33852%?

It is the fact the IF was funded by donation of its holders, up to the 5% of the total raised that miffs and confuses people.

Many are conflating issues.

Those 5% were donated to the IF. At the time it was about $500,000.00 total raised. ROI was huge. So, at the time of writing, the IOTA MC is about $919,746,526; the donated 5% are worth $45,987,326.30! But, by conflating the issues, the people, hostile to IOTA, are now comparing those 65 Ti ($21,487,622.00) to the value of IOTA donated and claim some sort of nefarious activities were taking place.

The Origin

Should you wish to see those disputed IOTA tokens you can do it here, and if you do so, you’d also notice they were moved on October 8, 2018 and not touched since. If they fully belong to David or to Sergey or if they should be split 50%-50% is, again, none of our business. Perhaps our business is to find out how come that David holds so much IOTA, comparatively to the donations that so many are accusing IOTA of being a scam, even worse than some of those “pre-mined” scams galore?

Please note:

- IOTA did NOT mine tokens so those could not be pre-mined
- IOTA is not an ERC-20 token, but an entirely new protocol that issued all of its tokens at once, so those tokens can not be burned
- IOTA co-founders had to purchase their own tokens on the open market.

An Intermezzo Note on Ternary

Given all the FUD around the issue, it is important to present the IF developer Hans Moog’s take on the ternary/binary dilemma raised regarding the Jinn project and IOTA focus. It helps us understand the nuts and bolts of the IOTA development (he wrote that after the start of David and Sergey’s dispute):

Ternary is not dead — it’s an interesting and promising research topic that has the potential to replace binary in the long run. And since we already have so much expertise in this area (see troika), it would be stupid to not continue research in this direction. But I tend to agree that building a trinary system for a binary world is not necessarily the best idea. If you want to become a global standard, then you should at least be compatible with existing standards, first (and this is not my thinking but based on feedback from corporates and partners).

Since IOTA is software and software can be upgraded, we can easily add trinary support “once its ready”. Since trinary computers can execute binary code without loosing performance (they just ignore 1 of the inputs), the protocol would anyway be “backward compatible”.

It doesn’t make sense to ignore today’s world, when trying to shape the future. People will only be able to “understand and follow you” if you are willing to “understand their needs” first.

Back to the Facts

Now, please remember those data:

- Qubic, IOTA predecessor was announced on September 25, 2012
- JINN token sale via NXT Platform took place during October, 2014
- IOTA was announced on October 21, 2015 and it held and held the crowdfund soon-after
- the IF was chartered on November 3rd, 2017
- Jinn had raised a minuscule amount
- IOTA had raised about $500,000.00
- The IF was funded by the community donations (5%).

David Sønstebø and Sergey Ivancheglo are the only link that ties those two projects together. (sure, IOTA always had ternary Jinn processor in mind, but it was always “radix neutral i.e., allowing for both binary and trinary.” (David Sønstebø)

Now again, back to those 65 Ti everyone seems to be so concerned about

During the IOTA claim process it was clearly stated: “If you did not claim your iotas in the automatic claiming period contact @David over at where you will be given further instructions to manually claim your tokens. Tokens not claimed by 11th of July 2017 will be forfeited and considered donations.” (also note the people had over a year, almost two years to claim their IOTA tokens so everyone was given more than ample opportunities to get them)

IOTA tokens sale and claims announcement

As said, unlike those idiotic, fraud enabling ERC-20 tokens IOTA’s could not be “destroyed” or “burned” so what were creators to do than to use what they have, with a 100% clarity, had claimed — to consider them donations, after so much time has passed for claimants to, well, claim them. (more about it later) Would a “scammer” wait so long and would he gave so many chances to people to get what they wanted?

At that time, those 5% out of 2,779,530,283 Mi were 138,976,514 Mi (138.976 Ti) were valued at $500,000.00 or $3.59 per Gi. The IOTA tokens that were not claimed, those 65Ti or 46.70% of the tokens purchased at the time were therefore worth $233,850.00 so many forgot about them. Now, when this turned out to be worth $21,487,622.00 some strange sort of perverted greed over missed opportunity has possessed haters.

That’s also why David keeps talking about “making so many millionaires” with IOTA. He miffs people because he does not elaborate. But can you blame him? Any anonymous poster without memory can spew garbage toward him, no questions asked. IOTA tokens sale provided early investors/believers with an insane ROI. In fact, it was 424,084% ROI back in 2017. Now it is much less but still 92,219% ROI at the moment of writing. How many haters did not claim but are ashamed to admit? How many people hate the fact they missed the train and would love to see it derailed?

(note: our math was indeed off, something we tried to fix in the 2nd draft)
Again, even if our math is off the mark, David and Sergey clearly stated those would be “considered donations,” what they were supposed to do? Burn those “un-burnable” tokens to satisfy trolls several years later?

Those un-claimed donations have taken place TWO YEARS before the IF solicited 5% donations for its work and that money went to David’s IOTA AS company, in charge of JINN.

Self-righteous are loud now. The people are taking sides, babbling about the money. Imagine what money does to you if other people’s money drives you insane?

Our only question to both Sønstebø and Ivancheglo

What the fuck was Jinn Labs doing all those years? It is clear that none was taken advantage of; the investors put such a meager amount of monies into JINN, those disputed IOTA tokens were worth near to nothing back than and have not been spent. Jinn Labs must have been:

a) funded by Sergey and/or David and who knows who else
b) in a sleepy and not a stealth mode.

Had the IF not grow so big that today is be irrelevant that Sergey is gone and it would be irrelevant even if David is out, that would be even a more serious question. While it is obvious that the IF is working full throttle on so many parallel projects (the UN Global smart city project with the city of Trondheim being our favorite with the ST Microelectronics partnership, just to mention two of hundreds of projects involving the IF) it is not clear what was JINN doing?

We can state the IF is a separate entity with its own path, and it is, but this ugly spat questions the very integrity of the key people involved. With Ivancheglo out, the responsibility, the need to clarify this peace of puzzle is fully on Sønstebø’s shoulders. In his mind he gave up Jinn Labs, all its JINN tokens, years of his life for those 65Ti (he plans to use for the IF and not for private purposes) but Ivancheglo is not happy with the Jinn project he was “given.” Why is that?


David Sønstebø is a brilliant, multi-layered mind capable of tackling enormous societal issues as well as technological on the edge developments. Sergey Ivancheglo sowed the seed of so many cryptocurrencies related projects and had a vision that took us all to the IOTA of today. Both of them put a lot of ingenuity, sleepless hours and money into projects that awe us.

Paracosm is obviously Sergey’s priority as much as the IF is David’s. Different visions sometimes split and that’s life. It is a personal tragedy, we think, for both of these men to be lacking horns in such undignified, while fully understandable, manner sucking so many people into the drama that can’t produce anything of value.

The IOTA Foundation, especially David and Dominic always emphasize how the community is important. Well, this insane spat should not be dismissed as a “normal crypto drama” for it is not; it hurts the community, hurts the co-founders and it will not go away, and will keep hurting anyone involved.

The IOTA Foundation should not stand passively aside, pretending it is those guys’ own issue, unrelated to the IF. If Dominic Schiener or Dr. Popov or anyone else from the IF do not want to be personally involved in this spat, they should offer a moderation. Sergey, feeling hurt, might have behaved like a petulant child and David like someone entitled to anything because he is also hurt, but someone like ex Board Member Ralf Rottmann or an independent mediator should step in for everyone’s benefit.

Help the guys who created this fantastic vision, embodied in the IF, no matter “whose side you’re on.”

“Every now and then, something comes along that might just change everything. And this is one of those moments.”
Elmer Funke Kupper

Blockchain Ghost at your service

PS IOTA at the Crossroads (2) article, “A ‘Scammer’ that Never took a Penny” has been published here.

JINN holdings disclaimer:
We own an infinitesimally small amount of JINN, bought via the NXT platform, eleven (11) in total; worth $101.41 at the time of writing.

IOTA holdings disclaimer:
By the stroke of luck we have sold all our IOTA in December of 2017, almost at its price’s peak, for $4.83 and, until recently, we owned no tokens at all. We purchased a small amount, total of 5.106 Gi when the price went down to $0.20 or lower; worth $1,675.96 at the time of writing this article.

Prices note:
At the time of writing this article, February 7th, 2020, its wee hours US ET, the crypto currencies mentioned here were priced as follows:
- BTC at $ 9,768.14
- IOTA at $ 0.328763 or 0.00003365 BTC
- JINN at 750 NXT
- NXT at $0.014321 or 0.00000147 BTC

Blockchain Ghost

Written by

I live on the blockhain. I dig cypherpunks.

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