Deep Dive Project Analysis — IOTA (MIOTA)
For a hyped project, IOTA has nuances that have not yet received enough limelight. This project has a grand vision of creating a distributed ledger for Internet of Things. Such a plan comes with a unique set of challenges. Let us look at how they are doing so far.
Internet of Things
Internet of things is the next revolution where every device we own will have its own mind. For example, the refrigerator will be connected to the internet and will know when to order milk without a human interface. Currently only phones and laptops are connected to the internet but in the future we will have an exponential rise in the number of connected devices right from fridges to air conditioners to cars to baby monitors.
IOTA and Tangle
IOTA aims to connect all these devices on a blockchain for security, transparency and interoperability of data. The number of transactions to be processed on a network that connects so many devices will be very high. No blockchain will be able to scale to that level. So IOTA team has introduced Tangle and a Directed Acyclic Graph (DAG).
Strictly speaking. Tangle is not a blockchain. Tangle based on a DAG, which is a distributed ledger without blocks. Instead, transactions are confirmed by users who are required to confirm the previous two transactions called parent transactions. As a result, the chain looks like a graph which flows in one direction. Transactions are confirmed by the users who also act as miners, a MCMC (Markov Chain Monte Carlo) algorithm that confirms the previous two transactions and finally by solving a cryptographic puzzle similar to Bitcoin. This requires some of Proof-of-work but requires a 33% consensus. The proof-of-work requires very low computing power and no fees are to be paid because everyone on the network is confirming and making transactions.
This looks like the best possible outcome without the problems of Bitcoin or Ethereum. But it has its downsides which make us question the validity of Tangle and IOTA itself.
Cons of Tangle
Tangle is not blockchain. While it has not been tested like blockchain — especially Bitcoin — has been for various hacks and vulnerabilities, the main concern is that it requires 33% of hashing power to mount an attack as opposed to 51% in Bitcoin.
Second concern is that the team created their own cryptography. MIT researchers pointed out flaws in that recently and then it was later patched by the IOTA team. This raises the question of team capabilities because cryptography is not something to be compromised on.
Third and probably the most important concern is what Vitalik Buterin said in an event when he was asked about IOTA that, “DAG doesn’t solve scalability problem”. In theory it is faster than Ethereum but not nearly fast enough to process the real life Internet of Things transactions.
Currently, since most of the IOTA tokens are held in exchange wallets by traders and there is no real usage, transactions are being confirmed by a centralized “coordinator”. The team has called this their ‘training wheels’ till such a time that there are enough nodes on the network to sign the transactions. However this is a single point of failure and a very high value attack target for hackers. It would be safe to say that IOTA, in its current form, is completely centralized.
IOTA’s team is one of the best teams in the blockchain space. The founders have been in the crypto space for a long time and some team members have worked on development of the Nxt platform which is a Proof-of-Stake blockchain implementation.
The team is spread around the globe, which has advantages of many perspectives and disadvantages of focus that comes with working in one location.
IOTA roadmap is massive. They have huge goals on tech and ecosystem front. However, there seems to be no clear vision about how all of this aligns with their vision and to address the challenges are seem very real.
IOTA is a high risk high return project in this already high risk high return space. The project has big risks of centralisation and scalability issues before they can fulfil their vision. But if they manage to cross these hurdles, the rewards are enormous.