Iota Bytes — Assembly Of Data The New Eco
In 2010, Satoshi Nakomoto was able to prove the security of blockchain technology, which is the competitive process of adding immutable cryptocurrency transactions onto a public ledger that is then distributed to all the users in a serialized process called a block. The Bitcoin system of distributed computers is interconnected and open to anyone with a connection to join the network. No central authority has power over the chain, and once a block is finalized it is difficult to overturn. Proof of Work (POW) is the consensus algorithm used in the Bitcoin blockchain. Miners compete against each other to produce the next block and are rewarded for being the fastest in solving a mathematical puzzle. One miner is selected, called a “leader” every 10 minutes and they collect all the fees within the block. With each block, the proof of work gets harder, and more energy is expended by computers. This breakthrough has paved the way for many cryptocurrency innovations and among them is Proof of Stake. The idea of proof of stake (POS) arose from recognizing that the amount of validators over time in proof of work protocols becomes centralized. Instead of making people compete and expend enormous amounts of energy, they have miners stake monetary funds and distribute the ability to produce blocks accordingly. Due to the potential loss of funds and the fees that are rewarded for blocks, miners are incentivized to be trustworthy.
In this article, I would like to talk about the underlying concepts that made cryptocurrency so relevant and at the same time has currently prevented mainstream adoption. In an open distributed computing system we have a couple of challenges to address. Ledger State Storage, fair access, and processing power are some key components.
THE BLOCKCHAIN LEDGER
HOW BYTES ARE UTILIZED,
TECHNICALLY AND ECONOMICALLY
When you want to add a transaction onto the Bitcoin ledger a fee is applied equivalent to. . .
[ Satoshi’s per unit of data your transaction will consume on the chain, or simply put satoshis/vByte multiplied by the size of the transaction — as a fee]
Note: Satoshi is the smallest denomination of bitcoin.
1 satoshi = 0.00000001 BTC
The fee is utilized to prevent spamming of the network by using economic resources as a constraint to attack the distributed system. In blockchains in order to constrain the system, economic resources, blocks, time, and byte size are utilized so that the database size doesn’t implode. One of the great strengths of POW such a Bitcoin is the fact that the amount of energy to mine a new block is a barrier economically. In order to double-spend, you’ll have to overcome the 51% of the energy consumption of miners. Proponents, say this energy is wasted and the race to produce the greenest crypto is needed now more than ever. As the climate changes, and public opinion shifts towards renewable sources, our technology should meet the demand.
Economically, blockchain is cost-driven, and the fees rise as the resource becomes scarce. Blocks fill up with bytes of transaction outputs, and access scarcity delays efficiency at a cost. Increasing a parameter whether it is block size, the time in between blocks, or the amount of bytes carried in each transaction output has pros and cons. All actions have an equal and opposite reaction on the chain. A fee in the blockchain is a service charge for verifying bytes of data, thus actual physical resources are deposited on each individual miners hardware. A chain is immutable due to the fact that the cost of invalidating all other copies would take more resources than is possible for one party to obtain. This natural conflict between the miners who secure the chain, the resources, and the cost of entry are a major reason no major adoption of cryptocurrency has arrived. What if your business needs 5 transactions per second, but the fee is variable and it becomes impossible to give your customers fixed rates. One day it is a couple of dollars, and the next it is $300.00 because an NFT takes up more resources and fills up blocks faster. Every variable; has a social and economic cost associated on the chain.
Theorized and mostly in proof of concept are ideas of using distributed ledger technology in the autonomous future. Imagine being able to order an Uber (ride sharing) and pay per mile. Maybe, an autonomous economic agent makes decisions for you in a smart city, booking a hotel, parking, and night at your favorite restaurant with one click authorization. A distributed, verifiable, and trusted web opens up the world to unimaginable use cases. Add in decentralized identities which represent you in the digital world and we become one step closer to real-world adoption. Unfortunately, it is not feasible with the current implementation of blockchain. In the block paradigm each time a block leader is selected, miners are centralized producers that extract value from the users in the form of fees for securing the network. Proof of Stake protocols like Ethereum, implemented EIP-1559, a proposal to create a hybrid fee system of base fees and the possibility to tip the miners when the network is dealing with high/low traffic conditions. Blockchain simply can’t remove base fees by design. Remember, blockchain is a replicated data structure. The resources are verified by each node within the system and miners pay for this physical storage.
To summarize Bitcoin, albeit a simple explanation
User submits transaction (Satoshi per virtual byte x size)
Block producer selected
Block organized by producer
Block fees extracted
Block broadcasted
Block solidified as network reorganizes
So in this next section, I would like to explore the question, what if we created a cryptocurrency that has no base layer fees? How would we structure the transactions, stop advisories from overwhelming the ledger state storage, and determine who has the right to write onto the ledger? While also incentivizing miners to approve transactions without a direct incentive reward (fee).
ENTER THE IOTA TOKEN DIGITAL INFRASTRUCTURE
Iota Foundation presents a new model for the store of value that cannot be achieved in traditional blockchain technology. Closer and closer to the concepts written by Jeremy Refkin in “Zero Margin Cost Society” where he theorized that the collaborative common of society would give rise to a singular internet of things platform. A platform that enables billions of people, and devices to interchange information, value, and resources. In this trust fabric, Iota looks to enable trustful communication while enabling the cryptocurrency assets to be traded in a multi-asset tokenization framework. Anchored to the protocol will be literal value in the form of deposits for bytes of storage.
Disclaimer: Many concepts written in this article are ongoing technological advancements by the Iota Foundations, Iota Coordicide 2.0 project.
Iota was designed for the machine economy of the next Industrial Revolution. Whereas, not only would it be a cryptocurrency platform but one in which data could be exchanged without a fee. In the future connected world, in the collaborative commons of open-source devices all trading information and making autonomous decisions, Iota wants to revolutionize their Distributed Ledger Technology called the Tangle. In order to do just that Iota had to theorize how to create a system that utilized circular economics and was self-sustaining. Iota decided to use a Directed Acyclic Graph (DAG) as the underlying structure. As a cooperative minerless system each user must validate two transactions. The more tips (transactions waiting to be confirmed) the faster the approval gets. The transactions are thus confirmed in parallel and don’t have to be placed into blocks. Think of it as an ever-evolving live data structure. Due to a breakthrough in how consensus is structured called On Tangle Voting. The concept was theorized by Hans Moog, Researcher, and Engineer at the Iota Foundation. Instead of a leader being selected at a strict time interval, Iota allows consensus nodes to stream their data in the form of a vote to the tangle on which branch they view as the master reality. It is similar to Bitcoin but instead of throwing away all the other blocks that were processed in parallel while deciding on a leader, Iota tracks these parallel realities and issues finality according to the active consensus nodes opinion.
ACCESS CONTROL
Iota if it was designed without an access control mechanism (rate setter) would be flooded with spam messages, and also open to Sybil (multiple identities) attacks. The ledger would bloat and fail in minutes by autonomous bot attacks. Iota thus decided to utilize a congestion control mechanism based on, “A rate-setting algorithm, inspired by Transmission Control Protocol (TCP), which allows nodes to optimize their transaction issue rate in a decentralized manner.” Thus new solutions had to be theorized and created. Here’s an excerpt from the Iota Congestion Control Algorithm.
“In the Internet of Things (IoT) domain, devices need a platform to transact seamlessly without a trusted intermediary. Although Distributed Ledger Technologies (DLTs) could provide such a platform, blockchains, such as Bitcoin, were not designed with IoT networks in mind, hence are often unsuitable for such applications: they offer poor transaction throughput and confirmation times, put stress on constrained computing and storage resources, and require high transaction fees. In this work, we consider a class of IoT-friendly DLTs based on directed acyclic graphs, rather than a blockchain, and with a reputation system in the place of Proof of Work (PoW). However, without PoW, implementation of these DLTs requires an access control algorithm to manage the rate at which nodes can add new transactions to the ledger. We model the access control problem and present an algorithm that is fair, efficient, and secure. Our algorithm represents a new design paradigm for DLTs in which concepts from networking are applied to the DLT setting for the first time. For example, our algorithm uses distributed rate setting which is similar in nature to transmission control used in the Internet. However, our solution features novel adaptations to cope with the adversarial environment of DLTs in which no individual agent can be trusted. Our algorithm guarantees utilization of resources, consistency, fairness, and resilience against attackers. All of this is achieved efficiently and with regard for the limitations of IoT devices. We perform extensive simulations to validate these claims.”
Modeling the Tangle after the internet creates a symbiotic relationship, and governs fairness within the reputation-based system proposed by Iota. Nodes will have a way to protect themselves from spam attacks, or dust attacks (small outputs- spread across multiple identities) that could be used to overwhelm the ledger. At the edge of the internet, we see the pictures, the videos, the joy, and the sorrow of the human experience. In reality, the transmission of binary ones and zeros express all we see. Packets of information move through a physical internet backbone. We pay the bandwidth as a monthly fee and often don’t think twice about it. How does Iota, rival the internet? What is the Internet of Things, or more recently called, The Internet of Everything?
LET’S EXPLORE
The Iota token can be thought of as having two sides. On one side, the amount of Iota tokens held grants access to write to the ledger during congestion, called (Mana). While the other side of the token determines the amount needed as a deposit for the virtual byte size of each output of the transaction. Unlike blockchain, the Iota base structure has inverted the economic structure. Instead of a fee system where miners are the middleman, Iota users confirm two-eight other transactions, and consequently, someone approves them. This is why Iota can then tie virtual bytes on the ledger (storage and access) to a token deposit instead of a fee. When everyone is a “miner” the economic structure becomes circular and distributed. It could be argued that Iota may end up being more decentralized than Bitcoin while holding true to Satoshi Nakamoto’s vision.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party” — Satoshi Nakamoto (Bitcoin White Paper)
No base layer fees, no miner conflicts, no dilution of the underlying asset, and in this way the more proportional use of the network naturally will induce more deposit (value)
To summarize Iota’s process
[ Iota deposit per unit of data your transaction will consume on the chain, or simply put iota/vByte multiplied by the size of the transaction as a deposit]
Note: Iota is the smallest denomination of Iota.
1 MIota = 1000000 Iota
User submits minimum deposit per output
Node weighs mana (access) rate setter-congestion control
Tip randomly selected
Weight of Branch/Reality confirmed
Transaction solidified
Thus, Iota is creating a generative economy that enables a wide amount of use cases. Industrial uses such as connected autonomous mobility, supply chain tracking, securing health data, distributed energy grids, and even encrypted streams of data from sensors within smart cities are gaining traction. Iota’s infrastructure isn’t just about transferring funds from one wallet to another but transferring real-world value in a trusted and interoperable framework. Industry 4.0, a phrase coined in Germany around 2011, describes the convergence of automation, and intelligent decision making by computers utilizing data and machine learning. Iota was built to serve this machine to machine economy.
Iota’s framework of (Access, Streams, Identity, Smart Contracts, and Layer One Tokenized Assets) enable engineers to scale and have granular control over data in real time.
Web 3.0 — Building Parallel Infrastructures
Assembly Network was recently announced as the new Iota’s layer two permissionless smart contract platform. Iota decided to create its own platform marketplace for the onboarding of smart contract infrastructure service providers. Using a proof of stake token called ASMB, each chain will lock in funds and secure their respective permissionless chains. If validators, act out against the consensus of other validators their funds will be “slashed” (burned, or rewarded to the fisherman who caught the attempt of theft).
Unlike Ethereum, Iota Smart contract chains will not validate the entire state of all contracts. Each ASMB chain will compose of its state, and state changes will happen across the Iota main net. This allows interoperability between smart contract chains, creating trustful relationships, and swaps of tokens/data/assets on Iota.
One of Ethereum’s greatest strengths is that all smart contract economics are tied together for security, and it also is the greatest weakness as there is not enough block space and thus fees rise during congestion. Iota decided to use the base layer as a fee-less asset transfer protocol and the second layer as an assembly of parallelized smart contract chains. This allows Iota to scale the smart contract platform to billions of users, while also keeping the same security as the main layer. In fact, Iota will become even more secure with this layer two orchestration due to high mana nodes on Assembly being incentivized to run WASM nodes for state change throughput on layer one. This ties the profitable economic factors of L2 nodes, and the potential of losing funds “slashing” with the L1 security without needing to have a fee-incentive on layer 1! Also, due to the open marketplace, capitalism will tend to drive the “fee” to near zero margin cost for executing smart contracts. Whereas, in other blockchains, the miners end up extorting the process of access and raising prices to gain profit. This will allow for a more equitable platform; a more zero-trust environment between chains.
A question often asked is, “What about the Iota tokens value? Doesn’t this devalue and split the ecosystem?”
This actually tremendously brings value to the Iota token, and here is why. Remember above when I described the Iota token. The first side of the Iota token is throughput, and holding more Iota allows for more mana and thus more throughput. Thus, each chain will compete for (bandwidth) access to layer one. On the other side of the token is virtual bytes per output, and the more information processed the more iota held (output deposits). Iota’s value is in the utility it creates, and services above Iota will be able to take advantage of.
One of the biggest flaws of the early Iota structure was that it couldn’t compete with the business incentives behind the infrastructure of proof of work chains. Millions of fees are collected from block producers and it has become quite a lucrative business for the most successful, “Staking, and Mining” companies.
Marathon Digital Holdings Company a blockchain mining company is the perfect example. If you had bought their stock in December 2020, you would now be up over 800% from $5.00 to around $40.00 currently at the time of writing this article. This is the result of directly securing and profiting off the base layer, and this is the elephant in the room for adoption.
ZERO MARGIN ECONOMY
Bitcoin and many other chains lack utility due to foundational cost, and Iota’s layered infrastructure can help bring forth the next web 3.0 applications and build the Metaverse. New for profit business models can be formed on Assembly Smart Contracts, and the market can help lower the cost to zero margins. Lack of supply will no longer be the driving factor, instead replaced with the demand of utility from consumers willing to benefit from the services provided by web 3.0 powered by Iota.
I would like to thank the Iota Foundation, and wonderful community support for helping create an environment of honest, open, and civil discussions around the future of Distributed Ledger Technology. Iota truly doesn’t look to be a blockchain “killer” as many have framed it, but a foundational layer 0 which enables other communities to scale their applications and services feelessly.
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