IOTA: things to consider when investing in crypto
The crypto market is a psychopath.
This madman has potential, yes, but you have to know how to handle him. He can make you rich. But he can also punch you in your face. Listen to him, and he will empty your bank account. Succumb to his pleas and he will make you miserable. Be smart. Shut him up and observe his skills. Decide on his value. Don’t listen to his chatter. Put him to work. And he will make you wealthy.
This guide will focus on IOTA. I think it fits the purpose really well. I am not working for the IOTA foundation, but have a substantial amount invested. I also work on two projects related to IOTA. You can consider this as my own guideline for investing in crypto and my argument for choosing IOTA.
Be on the frontline of innovation
Investing in a completely new technology is risky. But the return is highest the earlier you get in. You get a discount for the risk you take, so to speak. The more avant-garde the technology is, the higher the return. Once it becomes mainstream and more people realise its usefulness, the return becomes limited — proportional to the perceived risk.
Take Bitcoin, for example: 2012 it still was an immature “beta” technology that was barely known beyond the geek circles. No one, except the few who understood it and its potential, would bet on it. Five years later it’s scratching 100.000% return. You would have multiplied your investment almost 1000-fold. Now people are speculating about bitcoin mooning at one million dollars. Personally I don’t believe it. Even if it happened, comparing with the current price, it would be “just” a 200-fold price increase. A much lower ROI compared to the early-stage investment.
IOTA is about the same age right now as bitcoin was back then. It is “beta” to say the least. It is is the elephant in the room that everyone tries hard to ignore. I am not afraid to say that it’s the third generation of “blockchain”. A much bigger leap forward than ethereum compared to bitcoin. A completely new protocol. It solved all the limits of a blockchain. How? It doesn’t have one! It is not a linear chain. It is a tangle, a network, a directed acyclic graph or DAG. No fees, extremely fast and limitless scalability. Possibility to work offline. Plans for specialised hardware for the IoT. No blockchain can compete with that. No matter, how much you improve Bitcoin, it can never reach limitless scalability of a DAG (unless it switches to a DAG design).
Bet on disruptive innovation. Invest in completely new concepts. Not just another “fork” of bitcoin or another ERC20 token living on ethereum. Invest in early-days ethereum. A new vision compared to Bitcoin. Blockchain 2.0, as they call it. Invest in new protocols — not altcoins copied from one another, replacing just a few variables.
Imagine Amazon Marketplace was in its early days and had an ICO. And another bunch of sellers with their own ICOs planning to work on the Amazon Marketplace. Where would you invest: marketplace or a single seller? Bet on the marketplace. Bet on the casino, not a single player. The “bank” always wins, remember? Same happens with Ethereum. All those shiny tokens are just single “players” on a new protocol. Time will tell how much of them will moon or survive at all. Ethereum profits either way.
So, if you are looking for astronomic return possibilities, look for game changers. Get in early. It is risky, but you can decrease the risk, improving your risk/reward ratio. How?
Be smart — know what you are investing in
I am not a big fan of technical analysis and the related mumbo-jumbo. I have been trading long enough to know that, as long as enough lemmings follow the same rules, the chart-reading sorcery will work to some extent. Perfect for a day-trader. Not of much use to an investor. There are more fundamental things that will decide the value of your investment long-term. And for that reason, you have to know and understand its potential.
If you do not understand what you are investing in, you are simply speculating. Your belief in that asset can be easily shaken and your are susceptible to the madman’s opinions. If you do not understand the blockchain, IOTA’s tangle or any other technology, do not invest in it. Simple as that. If you truly want, then do your job. Take a week off and absorb everything you can about the tech at hand. Really understand it. Read about the team, speak to the inventors. Ask questions. Be hungry for knowledge. Only then you will be able to assess it’s potential. At least better, than before.
Be careful with your judgements
You hear a lot of opinions out there, whether a technology has potential and is better than XYZ. My opinion on these opinions is that you should not listen to them. Do your homework. Get to know the technology. Then decide on your own. Invest if you are convinced. Then follow through.
One of the things I keep hearing about IOTA that it is “not decentralised”. While the network is still very small, there is a specialised node that makes sure the tangle is protected from the 34% attack. Don’t make the mistake to compare a toddler with an adult. Consider the coordinator as a baby walker. It’s still beta and cannot walk on its own. Simple as that. Back in the very early days of bitcoin it’s network was small as well. It would have been easy to attack it. Just as it would be easy to attack IOTA now if it hadn’t the coordinator. The only difference is that there is lots of money invested in IOTA. The appeal for attackers is higher than for a baby-Bitcoin. One way or the other, you need to protect the investor’s assets until enough adoption is made and the 34% attack becomes less and less likely.
Don’t compare pears with apples, blockchain with a DAG and Bitcoin with IOTA. They have different technological base, different use cases. Hence, they have different requirements when it comes to adoption. Yes, 34% attack is less than 51% attack needed on a blockchain. It is a downside, but a small one. If you keep in mind that the final idea is to run the nodes on IoT with huge total hash rate, this difference will mean nothing. On the contrary: Four of the top Bitcoin mining pools control more than 51% of the Bitcoin hash rate. All of them are Chinese. And these “coordinators” are permanent. Isn’t this unsettling? How a decentralised currency has become centralised and practically owned by one country? Just think, what this could mean and what it could lead to.
Again, do your homework. Decide. Follow through. Once you have decided, you need to handle the “madman” (aka the psychotic crypto market scene). How?
Be stoic
Constantly, there is news that an influencer expressed his skepticism regarding a crypto. Or a country outlining it plans to impose control or ban something. You can never know for sure whether these news are genuine or what’s the reason behind it. The madman, will react. He will scream. He will howl. He will preach that the doomsday is near. It is up to you, how you react to such events and the madman’s cries. But keep in mind the following:
There will always be a resistance from the establishment. This is just how society works. Everything new is observed with caution. Why? Because the unknown makes you fear. I wonder, how the stone age people reacted to the first uses of fire. I wonder if the inventor of the wheel was considered a madman. I wonder how many people laughed on the idea of an automobile. It’s always the same. New is fearful. It is easier to hide behind mockery than to listen and to accept. It is easier to kill the newcomer while it’s small than to fear what it will grow into.
The establishment in this case is not only the global banking order, but also the crypto-establishment. The blockchain world fears the newcomer. IOTA’s tangle is too disruptive. If it really works, if it grows, it will eclipse any blockchain. Because blockchains cannot compete with it. In an ideal world, this wouldn’t matter. Progress is positive. However:
Money is a big motivator against any progress. That’s why we still barely have any electric cars on the streets. That is why Mr Dimon expresses his concern about Bitcoin. That might be the reason IOTA is getting verbally attacked and mocked. The ego is the enemy. The greed is a powerful force. No one likes to lose money. If IOTA has no fees and no mining, there is no money for the miners to make. If it’s cheaper faster and infinitely scalable, it might replace Bitcoin for it’s originally intended use case sooner or later. Where does it leave the crypto industry that invested billions in specialised mining equipment? Will they perish without fight? Think about it.
There will always be bugs. The industry average of bugs per 1000 lines of code is about 15–50. Microsoft applications boast with 10–20 defect per 1000 LOCs (and we all know the “quality” of Microsoft applications). There is no software in this world that has no bugs. There is only software, which bugs have not been found, yet. Do not make a mistake to judge a technology, because there was a bug.
Back to IOTA. There was an article published not so long ago here on Medium regarding a possible vulnerability. This “news” has been proven wrong since then, but a lot of uncertainty and speculation is still circling around. The madman still screaming that the technology behind IOTA is not viable. Why? I do not know. The madman is crazy. He is exaggerating or might be influenced by people with their own agendas. It doesn’t really matter. Just don’t listen. Use your own judgement:
Take the baby-Bitcoin for example. In 2010 it was about the same age as IOTA is now. A vulnerability was discovered and successfully used by an attacker to generate billions of bitcoins. Just like that. Now put it into perspective with the IOTAs “vulnerability”. And did it hinder Bitcoin’s progress? No. The bug was fixed, the project marched on.
There will always be bugs and attacks. It is a kind of stress that is needed for evolution. Intermittent stress is vital: be it in technology, biology or any other system. It’s essential. Just because your baby got a flu, doesn’t mean that it’s weak and unworthy to live.
Use your head. Do your homework. Don’t listen to the news or any “authority”. They are seldom right. They often have other agenda. Learn, decide, follow through.
As for myself, in my decade as an investor and software developer, I was never so excited and convinced about something. IOTA is simply beautiful. Study it, read the code, think about the possibilities. And it will leave you in awe. Once your conviction is solid, you do not care what the madman says. Leave him terrorise the other weak souls, but you. You have an unshakable belief and will gladly take any IOTA that is offered at discount rates while the madman panics.
Thanks for reading and take care!
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A few words about myself so that you have a framework and can decide on value of my words. I am a software consultant and developer with a dozen years of experience in different technologies, including blockchain and cryptography. I did work for financial institutions and gained some knowledge in asset trading along the way. I closely watched the development of the blockchain for the past 10 years. I never had much invested in cryptos, apart of a small set of Bitcoins and Ethereum, until IOTA came along.
I am writing about IOTA on twitter. Feel free to follow!
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