The fundamental problems with blockchain and how they are being solved.

Ermos Kyriakides 2017

This article will discuss the limits of blockchain technology in the long term. My goal is to showcase how there will always be core issues and how they are being untangled (pun intended) by a blockchainless technology, Iota.

There are some key areas where I am going to assume knowledge.

· Blockchain

· Proof of Work

· Proof of Stake

A Short History of Change

Blockchain technologies have seen an exponential boom since the beginning of Bitcoin in 2009. With Bitcoins being in circulation for nearly 9 years there have been some monumental breakthroughs in how we view our world around us. Eventually, a technology needs an overhaul or to be replaced to keep up with market forces. It is important not to lose the essence of why Bitcoin was invented. Iota emphasises why cryptocurrency is here to stay.

The current state of bitcoin is riddled with bottlenecks. There have been temporary improvements that have helped with the short-term outlook of the technology. However this article will focus on how major changes competing with blockchain will eventually replace it. Iota is starting to unhinge from Bitcoins market movements, becoming an independent force as it continues to differentiates itself.

Scalability

There are some core areas in which Iota has and will fix. One of these areas includes scale. If you are aware of the industry you will know that Bitcoin exchange eventually slows as more transactions enter the market. If you imagine a single person escalator always moving at the same rate. If the demand to get to your destination increases, eventually the escalator reaches a point of capacity. This was bitcoin at the end of 2017. A core issue impacting blockchain growth to meet market demands, a major bottleneck in the mid to long term.

David Sonstebo 2017

Solution

Iota does not need to confirm one block at a time. It is a multi-layered networked that is alive via the transactions on the network. If I send you one Iota to your wallet, I will have to confirm two other peoples transactions. This means that as the network grows, so does the capacity to confirm transactions. When the network comes under increased demand from an increase in transactions, the network naturally builds to meet demand and the rate of transfer improves. Theoretically, Iota has the potential to be as fast as the speed of light the more self-sufficient it becomes. Imagine the more demand to get to destination B and the effect is that escalators are instantly built and they start moving faster. Iota is not bound by demand, nor a fixed rate.

Iota Foundation 2017

Denomination

When using money in the real world, people naturally like whole numbers for workability. The more in demand your currency is the more valuable it becomes and vice versa. With Bitcoin, there are currently 18 million coins in circulation (out of 21 million). Currently, 3.2 billion people use the internet (Time Magazine 2015). If there are only 18 million coins in existence say goodbye to whole numbers. Instead of saying I will send you $1 USD it would be the current equivalent of saying I will send you 0.00011 bitcoins. This is a very unnatural and impractical way to interpret a currency.

Solution

Currently Iota has an official denoting structure. Currently, $2 USD is equivalent to 1 million Iota parts, however, is denoted as 1 Miota (Refer to chart below). These whole round numbers are very important for mass adoption as people don’t necessarily have to know how many Iota is in 1 Miota. As demand increases exponentially it will be like changes to a number plate on a car. Instead of saying I will send you 1 Miota it will be 1 Kiota as the value increases.

Iota Foundation 2018

Micro-Transactions

Currently using blockchain technology there needs to be an incentive for the user’s transactions to be processed. Currently, this is through the miners (proof of work or proof of stake). Astronomical computing power is needed to be profitable when processing Bitcoin transactions, receiving incentives from Bitcoin drops and fees paid per transaction. A critical problem with blockchain technologies is that as it grows, more people are competing to get their transactions confirmed. With increasing competition the cost to transact increases. As we talked about the escalator example, instead of people lining up to get from A to B, it becomes a bidding war to get from A to B by skipping the line with the highest fee paid.

We saw Bitcoin nearly reach $20000 USD (Bitfinex 2017) by the end of 2017. It costs around $45 to send 1 Bitcoin across the network. At one stage I wanted to send a smaller amount of $65 and my wallet was telling me that to send my transaction on ‘eco settings’ (cheaper but slower) it would be $18 and the transaction would take about 2 hours to confirm. That is a 30% transaction fee on my money. This is when I started to question the future of Bitcoin.

Advanced side note: Lightning Network attempts to delay the process of transactions to spread the load to the blockchain; however, if the minimum number of transactions increases, then the lightning network will be a short-term solution as it always needs to come back to the blockchain. High fees and processing time will always be a problem regardless of timing back to the blockchain if Bitcoin was to get mass adoption.

Solution

Iota establishes no miners or no need for people to stake their coins for the transactions to be processed. This is due to the sender needing to confirm two other transactions from other people on the network. This creates a fee-less exchange.

Bitcoin Info Charts 2018

I look forward to questions and comments. I hope you could take something away from this.

Next week we will discuss in more detail how Iota is different to blockchain technology.

Feel free to contact me:

https://www.linkedin.com/in/jack-lewin-33b6a720