Analysis of IOTA

Marvin Neuefeind
Jun 7, 2018 · 11 min read
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One of the most popular coins, which is also dividing the community, is IOTA. IOTA is a Tangle based cryptocurrency which main purpose is to serve the economy, namely Internet of Things. In the following article we are going to conduct a complete Fundamental Analysis, which orientates on the guideline of our book ( Amazon.com: Cryptocurrency — A Trader’s Handbook: A Complete Guide On How To Trade Bitcoin And Altcoins eBook: Marvin Neuefeind, Marcin Kacperczyk: Kindle Store).

We will start by giving you a broad idea what IOTA is all about and then conclude to the core research and the additional research.

IOTA was the first cryptocurrency which utilized the Tangle technology. The Tangle is different from the traditional blockchain in which each block follows another in a certain order. Tangle on the other hand is completely confused as you can see in the picture below.

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A characteristic is that each transaction has to approve two predecessors, which allows the cryptocurrency to run without any transaction fees and to provide an infinite scalability. This is the reason why the Tangle is perfect for IoT.

Enough of the crypto basics let’s take a closer look at the cryptocurrency IOTA.

Core Research

TEAM

We will start off with the Team. The structure of IOTA is very well organized, due to its enormous size. The cryptocurrency IOTA is administered by the IOTA foundation, which is a non-profit organization (established in Germany). The foundation was established by Dominik Schiener and David Sønstebø (Part of the founders were as well Sergey Ivancheglo and Serguei Popov).

In general IOTA’s team is very good. The supervisory board of Johann Jungwirth (CDO Volkswagen), Richard Soley (CEO OMG) and Rolf Werner (Head of FUJITSU Europe) provides lots of positive influence to the foundation. The basics are good but not as good as it could be. IOTA has less team members as you would expect for a foundation of this size. Due to this reason the development is not as fast as it would be necessary. The issues of Tangle need to be explored and solved faster, because the Tangle is still not as far developed as the traditional Blockchain. Furthermore, it is hard to contact members of the team, because the demand for research, questions and so on is greater than the actual work force of IOTA.

Another important point is the previously mentioned experience in the industry. IOTA has lots of connections to several industries such as VW (Jungwirth), Bosch (Jiang), Lufthansa (Nilles) and many more. These connections allow them to work hand in hand with the big players on the market. Especially Volkswagen is of great interest to the foundation, as micropayments would work great for the automotive industry.

The team was strengthened by Ralf Rottman, who joined the board of directors in March 2018, in order to support the two founders. This was necessary, because one of IOTA’s largest weaknesses is the missing experience of Dominik Schiener and David Sønstebø. Due to their young age they made a couple of “mistakes” in the past, which did not help IOTA’s image. Just currently David Sønstebø insulted a journalist, which was reporting against IOTA.

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In 2017, Dominik Schiener said a woman needs to be slapped, after Amy Castor was spreading FUD about IOTA.

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Even if the accuses were wrong, this is not a way to present a billion dollar foundation on Twitter he should have known better.

Besides that, the team is good and has the resources (financial & knowledge) to become an even more powerful cryptocurrency. If the founders manage to fulfill the expectations and manage not to be as “impulsive”, the development can be very positive.

IDEA

The idea behind IOTA is the most valuable thing for many investors, as its potential to revolutionize the industry is enormous. The Tangle is the basis of the current and future success as it has the power to set new standards in the market. The product / service IOTA is providing, is highly depended on the Tangle and could not be substituted (there are new other ways but even less explored than the Tangle).

The innovation IOTA is aiming to provide could have an immense influence on lots of industries such as the automotive industry or any other, which could make use of micro payments and infinite scalability.

These aims (or prospects if you want) are not as complicated or technical as other projects and therefore very easy to understand. This is very important for a crypto project as it needs to attract as many investors as possible.

Whether or not the ideas can be fully implemented is the biggest question surrounding IOTA. The Tangle is a comparatively new technology with lots of uncertainties. The 34%-attack is a great danger to the system and currently IOTA is deploying “coordinators” which prevent hacks by saving the blockchain. This on the other hand results in great criticism, because those coordinators are centralized and therefore making the currency partially centralized. (IOTA is running them only as long as the network needs to become resistant against this thread. Nevertheless, it is perceived as a huge downside, as the investors do not know how long the coordinators will be online.)

Development

The development of IOTA is hard to judge due to the great uncertainties of Tangle. There is no working product yet, as IOTA focusses on the implementation of the currency in other projects (as a payment system). Due to this reason they are working together with VW in order to release a system, able to make payments adjusted to the needs of an automotive.

The newest protocol of IOTA is Qubic which is an implementation to the IOTA network. Qubic’s purpose is to enable smart contracts and many other options. Qubic is a quorum-based computation. (https://en.wikipedia.org/wiki/Quorum_(distributed_computing)).

Qubic is adding data to the Tangle through the so-called Oracle, which is the connection between Qubic (the digital world) and external data (the real world). Due to this connection it is possible to enable smart contracts which are processed through the Oracle. This is the first implementation done by Qubic and is very important to the system as it allows the network to receive real world data, like weather, sports or whatever is demanded.

The second key feature is the smart contract ability, which widens the possible usage of IOTA to maybe even compete with NEO or ETH. These smart contracts can be paid with fiat money as well, which could be from great interest to companies not willing to risk the fluctuation of cryptocurrencies.

The other new thing Qubic brings to the system is the ability to “outsource” the computing power (for devices that have not enough capacity). Just like in mining these computing power needs to be rewarded by client. The idea is to make more devices compatible with IoT, by giving “bad” devices the opportunity to outsource the computations.

This protocol is still in progress, therefore it cannot be said whether it will have a great impact or not.

As you can see on this example and the release of the trinity wallet, IOTA is a very active cryptocurrency which consequently tries to improve and add features related to the Tangle and the Blockchain.

From a development point of view there is a lot of work to do for the IOTA team. The Tangle technology still is in an early development stage and has not proven its abilities yet. This is the main reason for the skepticism against the project.

Another issue is the functionality of the wallet and the transactions. It can happen that transactions take a long time to be processed or the wallet needs too long to show the available balance. This is not consumer friendly as many people have to take delays in their dealings due to this issue. (IOTA’s wallet is a deterministic wallet.)

The last major issue IOTA is facing from a technological point of view is the danger of replay attacks. A replay attack is a process in which a valid transaction is repeated or delayed. This is a major security breach, interfering with the security protocol. Even though it is not impossible to solve, it is a great threat to the security of its users and therefore a big “contra”.
(Find more on this topic and how to solve it here: https://github.com/joseph14/iota-transaction-spammer-webapp/blob/master/replay%20attack.md)

The Tangle has not proven its full abilities yet. It is still connected to a great uncertainty and needs more development. The features added (Qubic, Trinity Wallet…) show a positive movement, but the way for IOTA from the development point of view still is very long.

If you look for more information on the technological point of few you can check:
https://twitter.com/Jogenfors/status/1001059522511867908

Coin Metrics

Coming to the monetary aspects of IOTA we need to discuss some of the basics related to potential growth, coins supply and many others.

The market cap of IOTA is round about 4.7b $ (07.06.18), trading at a current price of 1.70$. That means this currency is already ranked 8th so it probably experienced the most extreme growth already. IOTA’s market cap already reached 15b $, trading around 5$ a piece.

The total supply is something that is confused very often. IOTA is trading in MIOTA that means, if you buy 1 MIOTA today on an exchange you will buy 1 million IOTAs. Having that in mind it puts the circulating supply of 2.7b in a different perspective. (This is not negative, as it is done to match the requirements of microtransactions.)

As the technology is based on Tangle it is obvious that the circulating supply equals the maximum supply.

Additional Research

Community

One of the greatest advantages of IOTA is the community which is very strong. For some people it became the number 1 cryptocurrency, which is defended against all the negative aspects. Sometimes it appears to be a “religion” and can be compared to the communities of Verge (even though it might not be as strong as Verge’s).

The aspect of the community should not be undervalued because as you can see with many other examples this is a strong indicator for exponential growth.

Partnerships

IOTA is one of the best cryptocurrencies related to partnerships as they managed to cooperate with Volkswagen, Bosch, DNB ASA and many more. (you can read most of them here as the article is not too old: https://steemit.com/iota/@nateq/every-partner-and-affiliation-that-iota-has-the-tangle).

This provides the necessary insight into each industry and backs the currency with more competitive power.

Advisors

One thing that firstly appears to be negative but can be judged positively is the lack of polarizing advisors. IOTA has many advisors but none of them has a name such as “John McAfee” or “Roger Ver”. These advisors would create way more hype around the coin but would probably be less valuable to the project itself because they wouldn’t actually work with the team.

This is why the advisors are good the way they are, because for most of them IOTA is the only cryptocurrency they advise, so they can fully concentrate on IOTA.

This point is highly subjective, as I prefer working people instead of people using their name, but this can be seen differently of course.

Token utility

The IOTA currency has a straight forward usage, it is designed to be the payment method of IoT devices. With the Qubic update these usages could be expanded to smart contracts. It is an essential part of the system.

Distribution

The distribution of IOTA is quite good for such a huge coin as the top100 addresses hold around 60%. (For comparison the top10 EOS addresses hold 50% of the coins.) That means the most wealthiest addresses have not gathered most of the coins yet, so it is less vulnerable to dumps and cannot be manipulated that easily. Furthermore, the overall fairness of the system is greater than in other currencies.

(You can see the current distribution here: https://thetangle.org/statistics/tokens-distribution )

Competition

There are lots of other competitors to IOTA in the IoT industry, but they are far away, as IOTA has already build a very good position for themselves. One time, NANO came close to IOTA, but the hype ended as the bull-run did and NANO couldn’t recover a spot in the top 20.

Most of the competitors are coming from the Asian market, such as INT and CPC, but as IOTA is already the epitome of IoT currencies it will be a hard job for an upcoming cryptocurrency to actually get on IOTA’s spot.

Roadmap

The Roadmap of IOTA can serve as a good example, because it is detailed and explained. It is important for cryptocurrencies to define their goals. The complexity is given as well as the diversity of the projects and milestones. Whether or not they are attainable cannot be judged by myself, but IOTA does not have a history of not matching the roadmap.

Presentation

The presentation is one of IOTAs best aspects as it appears to be one of the most professional cryptocurrencies out there and in fact it can be considered as such. IOTA’s name has become very popular and famous, there were even German rappers rapping about it. Besides that, the site looks professional and there are no catch phrases, which supports the professional image as they don’t need to advertise with slogans such as “next gen Bitcoin” and so on. The team is open to contact and can be seen by everyone.

Market Liquidity

The market liquidity is, as for all of the coins in the top50 very good. The issue with market liquidity only occurs with small coins and therefore has no relevance here.

Conclusion

IOTA is a very promising coin and will probably remain the number 1 IoT coin for the next year. Depending on the overall market conditions it could still be a profitable investment, but the uncertainty is comparatively high for a coin in the Top10.

Qubic could bring some massive value to the currency and allows IOTA to compete with Ether and NEO, but it is still in a development stage, so it is impossible to make any valid prospect.

Another great uncertainty is the Tangle technology as a whole. We cannot say whether the technology is to succeed, and the coordinators will be shut down one day. Because the Tangle still is a very new technology it is not as tested as the Blockchain.

The small issues with the wallet might rise some doubts as well, as there are many people which are annoyed by the delays.

The overall impression of the project is good, considering the growth potential and the negative aspects it is a considerable position in everyone’s portfolio. Important to remember is, that there is not only the enormous growth potential, but also the comparatively new technology with great uncertainties.

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