IOTA: The Catalyst for a Powerful Machine-to-Machine Economy

IOTA networks deployed on a large scale (Credit: Kelly Belter)

Dominik Schiener, Co-founder of IOTA, was visiting Seoul for a few days this September. The Bitcoin Center Korea had the opportunity to not only assist him during his conference at the Coinone Blocks but also interview him. Before getting into the details of this interview, let’s review what is IOTA and how their technology differentiates them from ‘traditional’ blockchains. If you already have a good understanding of IOTA feel free to skip this part and go directly to the second part of this article: the Q&A session.

Scalability and the need to remove fees

IOTA was born in early 2015 with a primary focus on enabling Internet of Things (IoT) applications. The machine-to-machine (M2M) economy, or the idea that machines would be acting directly with others without human intervention, is growing at a fast pace. However, despite the numerous IoT applications developed or currently under development, there is no way to perform micro-transactions (really small payments) without paying fees that in comparison are huge.

For reference, a bitcoin transaction of $1 between two peers would cost around $1 (depending on the exchange/wallet). This definitely inhibits the rise of a powerful M2M economy. As an example, let’s imagine that your solar panel could perform micro-sales of your energy surplus to your neighbors (for a price more attractive than the grid’s). At the moment, neither the current infrastructures nor blockchain-based cryptocurrencies (e.g. bitcoin) can satisfy those micro-transactions (especially not on a large scale as the transaction delay becomes consequent and thus not suitable for most applications). Bitcoins owners know that if they fail to give a “generous reward” to the miners for their transaction to be proceeded, they may have to wait several hours. IOTA was built in order to respond to this need.

IOTA: a blockchain… without blocks and without chain!

During our time together, Dominik described the IOTA as a blockchain without blocks and without chains; the technology they use is called “the tangle”. Unlike blockchains that are linear (blocks are created and added to the chain once at the time), the tangle is “the next logical step to increase scalability” that uses a directed acyclic graph. For those that do not know what a DAG is, just consider IOTA’s tangle as a network growing in one direction where each transaction confirms two other transactions. All the technical details can be found in their whitepaper (Popov,2016). No miners are required for the proof-of-work to achieve consensus, which implies no mining fees. The second drawback of proof-of-work is that it creates a boundary between two clusters of stakeholders: those that make the transactions VS those that confirm. This may lead to major conflicts of interests as was illustrated by the bitcoin hardfork. With IOTA, each participant contributes to the consensus (distributed computing), which means that every single actor that wants to register a transaction has to do a little bit of proof-of-work to verify the consistency between several other transactions. One’s personal interest benefits the collectivity.

The IOTA tangle (Credit: IOTA blog)

Promising characteristics of IOTA

No transaction fees and scalability. As discussed above, the main advantage of IOTA is its tech that differs from the current paradigms. In addition to removing transaction fees, due to its inherent structure IOTA has an advantage in terms of scalability. The larger the networks become, the faster the transactions are confirmed and also the more secure it becomes.

Team. Despite the recent launch of IOTA, the founders have been active in the blockchain ecosystem since 2010. We met Dominik, a dynamic, young and clever entrepreneur who takes mainly the role at the intersection between business and technology: converting the abstract tangle algorithm to concrete applications. He also described how experienced his team is. Just to give an example, Sergei Popov, the author of the tangle paper, is a great mathematician and active member of the NXT community that was among the pioneers of proof-of-stake.

The IOTA foundation has currently a team of 35 people, two offices in Berlin and Oslo. The startup is hiring many new people at the moment and will open offices in Chicago (in partnership with Bosch) and in Shanghai (although we did our best to convince Dominik to open it in Seoul).

Ecosystem & Funding. The IOTA foundation is injecting $10M in what they call the IOTA “ecosystem”, in order to promote the development of IOTA applications and prototypes. With this ecosystem fund, developers are encouraged (and incentivized) to visit their github and contribute to the proof-of-concept.

Credit: IOTA blog

New features coming soon

In the following months, the IOTA team plans to develop several features and increase their interoperability by enabling other programming languages, Rust and C++ (currently Java and JavaScript are used), and by connecting with existing blockchain technologies and communities (with a focus on Ethereum and Hyperledger).

In addition, at the conference they announced several technical features that will be available soon. Among others, we can cite :

  1. The Flash Network protocol that supports large volumes of nano-transactions.
  2. A Masked Authenticated Messaging system which can encrypt data and manage which parties can access those. This secure data stream is especially important for supply chain applications.
  3. A new user-friendly wallet.

There are also many use-cases and partnerships with firms that will be revealed later on.

Q&A session with Dominik @ Bitcoin Center Korea

Q: Hello Dominik, thank you for being with us tonight. First question, where do you come from and how did you end up founding IOTA?

A: I come from the north of Italy, from a city where the blockchain scene was non-existent. Therefore, when I was 16 I moved to Switzerland where I was able to learn more about blockchains. At that time (around 2010), I was investing in some cryptocurrencies in order to fund my first startup. Later, I met David Sønstebø, Sergey Ivancheglo and Serguei Popov and together we wanted to tackle the problems of blockchains and founded IOTA. Popov has a Ph.D. in mathematics that designed the tangle that was then coded by Sergey Ivancheglo and myself. David Sønstebø, as an expert in business and technology, has completed the set of skills required in the team.

Q: What is the IOTA foundation”?

A: The term “foundation” represents our status. In fact, we allocated 5% of the total IOTA supply for development work. As a non-profit foundation we are also eligible for funding by the German government. You can find more information about what our foundation do on our website.

About the roadmap

Q: When are we going to be able to develop applications using IOTA as a mean of performing micro-transactions on a large scale (say 1 million devices)?

Dominik Schiener, IOTA Co-founder, giving a conference at Coinone Blocks in Seoul

A: IOTA, like other cryptocurrencies, is still in a proof-of-concept phase. We expect to be able to deploy large scale applications around mid-2018.

Q. Elon Musk always talks about how important it is to have a democratization of artificial intelligence (AI) and he created OpenAI for that purpose. With increasing involvements in the IoT world that are powered by AI, does IOTA have any plans to join/collaborate with Elon Musk or OpenAI?

A. That is a great point. Although we do not have immediate plans to join Elon Musk or OpenAI we will definitely look into that and speak to some industry leaders such as Peter Diamandis whom we know very closely.

Q. I was watching the Terminator Genisys movie again and thought that “My gosh, IOTA can become the Skynet”! Does that thought ever come across your mind?

A. Haha, well no. This is actually the first time I hear something like that, but that is very interesting.

About the technical side

Q: Why is IOTA written in Java?

A: Well, our core developer is proficient in Java, so we decided to go ahead with it.

Q: Are you planning to expand to other programming languages?

A: Definitely. Sticking with only one programming language would limit the portability and security. We have an idea about C++ and Rust, and we’ll get to work on it soon.

Q: Are you issuing new IOTA tokens?

A: All the IOTA tokens were issued at the genesis, which is the first ‘block’ of the tangle. No other coins will be created nor destroyed and the total number will therefore stay the same (2,779,530,283,277,761).

Q: What is a full node? What would be needed to run one?

A: Basically, a full node is an IOTA node that can constantly exchange information (status of the network) with neighboring nodes. It is important to notice that those neighbors need to be added manually to your node by adding the IP address (see our slack channel #nodesharing). In order to run a full node, you do not need much, just a CPU (4GB of ram) and a static IP address.

Q: Is there any incentive to run a full node? Why would I give some of my computer power to run the network?

A: As there are no mining fees, there is no money incentive to run a full node. However, a company may be willing to host a full node because they need the IOTA technology. In fact, it may be necessary to effectuate numerous transactions and it is therefore better to not rely on light nodes (in addition, full nodes increase the speed and are enabled to keep a copy of the database). An individual may also act in order to benefit the whole network, to make it more secure by hosting this full node.

(Fun fact: following the interview, together with Dominik we went eating at the Jell in Seoul, a nice steak & wine restaurant that will soon be one of the first places in the world accepting IOTA payments.)

Conclusion

IOTA is disrupting the blockchain technology and beyond. It may enable large scalability and microtransactions by removing the related fees and ensuring data security. I strongly believe that it is the catalyst that the internet-of-things needs to rise and become a powerful machine-to-machine economy.

The team seems to be working really hard at the moment to build a strong ecosystem, partnerships and develop new use-cases. Their rapid expansion and increase in popularity indicate an increasing awareness about IOTA within the blockchain community.

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