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When analyzing a project, the Eden Labs team looks for projects that do something unique or do it much better than its competition. Quality projects should be able to explain complex ideas simplified to their audience. In addition, projects that rely heavily on a broad user base have to have an incentive for the first ten people to join the network before a million users is ever achievable. No project will succeed if it requires a million participants to bring any value to its users.

Summary

IOTA is a DLT project that aims to implement a transaction settlement and data transfer layer for the Internet of Things (IoT). IOTA was developed in response to the fundamental problems blockchains face today with scaling and high fees. Due to the nature of current blockchains, they are far from compatible with IoT and its millions of potential transactions. IOTA adopts a different architecture than traditional blockchains. IOTA is based on a quantum-resistant Directed Acyclic Graph (DAG) known as the “Tangle,” that serves to store transaction history. This implementation allows IOTA to have zero transaction fees while also allowing for increased scalability. IOTA is focused on the machine-to-machine economy of the IoT market; the IoT market will be heavily dependent on micro-payments with near instant settlement, needs that IOTA is aiming to fill.

Industry Need

IOTA envisions a future when millions of machines will have to transact to exchange data and value. This could potentially be smart grids interacting with homes or an electric car automatically paying a charging station. IOTA envisions a world where billions of devices will be connected at the edge. Bain, a global consulting firm, predicts that the combined markets of the Internet of Things (IoT) will grow to $520B by 2021. Thus far, IoT’s encountered setbacks have been a resulting lack of trust for the privacy of data and the costliness to transact. These devices need data that is analyzed locally to facilitate their edge use cases. Current centralized providers by nature cannot provide this service which has prevented IoT from reaching its potential. IOTA believes they are an evolution of this paradigm that will be able to facilitate a highly functioning machine economy.

Solution:

IOTA aims to create a network where machines pay other machines for services rendered. IOTA uses a Directed Acyclic Graph (DAG) called the Tangle instead of a blockchain to store transaction history. This allows transactions to be processed in parallel and, as more users join the network, theoretically increase the throughput – a result of its linear scalability. In IOTA, the roles of users and miners are merged. When a user (node) generates a transaction, they must also confirm two previous transactions with a tiny proof-of-work. The merging of roles in regards to the validation of transactions gives IOTA the potential to achieve high throughput with zero fees. The network cost instead is in the form of confirming two other transactions. This tiny proof-of-work also prevents Sybil attacks. IOTA uses Winternitz signatures to remain quantum resistant.

Tech Analysis –

At the center of IOTA’s architecture is the implementation of a Directed Acyclic Graph (DAG) called “The Tangle.” The DAG acronym explains the fundamental aspects of the Tangle.

Directed – Unidirectional nature of the Tangle. The overall graph displays the sequential evolution of transactions over time.

Acyclic – Characteristic of transaction nodes. Connections between nodes can only go in one direction and can never loop back to previously encountered nodes.

Graph – Network of nodes that are connected. These connections are called edges.

The main idea of the tangle is that, to make a transaction, a user must first approve two previous transactions. Users and miners are the same entity in IOTA. Compare this to current blockchains where there are users and validators. These two parties are opposed in their interests. Users want to use the network to transact, while validators or miners wish to extract as much money in fees as possible. This can lead to high fees and mining centralization as PoW leads to a computations arms race. Blockchains tend to centralize resources in mining pools as miners can have more predictable revenue streams. This leads to centralization in block production as the number of resources to compete becomes unattainable.

IOTA prevents this scenario by combining users and miners. Combining roles allows IOTA, in theory, to be cheaper, faster, and more decentralized. To transact on the network, each user must approve two other transactions by performing a small proof-of-work. This small proof-of-work prevents Sybil attacks and allows users to transact without paying a fee. The history of transactions can be tracked through the series of transactions and validations.

Additionally, users are not confined to a blockchain architecture and transactions can be processed in parallel. Unlike with traditional blockchains whose linear structure creates bottlenecks and prevents parallel transactions, sections of the DAG are independent and can process transactions in parallel. As the network usage increases, so does the available validators, increasing scalability. The endless amount of validators theoretically allows for increased decentralization as each new user also acts as a validator.

Markov Chain Monte Carlo (MCMC)

Once a user sends a transaction, the MCMC algorithm is used to confirm two other transactions. In IOTA, a Tip is a newly issued transaction that has not yet received approval. Markov Chain Monte Carlo is a weighted walk algorithm used to randomly select two Tips that will be referenced by a new transaction. This selection algorithm avoids lazy

Tips (Tips that approve old transactions rather than new ones). The MCMC algorithm is not mandatory, but as long as the majority elect to use it, the tree will flow in the same direction. Using the MCMC algorithm is the dominant strategy for reliably getting a transaction approved. Users who elect to use their own algorithm potentially increase the risk of having their Tip unconfirmed or referencing a malicious Tip. With MCMC, one can also see how much of the network is referencing specific transactions and the probability that a transaction will be confirmed by the entire network. Those accepting IOTA as payment can determine how comfortable they are with the finality of a specific amount.

Coordinator (Coo)

It is important to note that IOTA is still a very new project. It’s largest red flag is the use of a coordinator, which is necessary given the reality of the current IOTA architecture. GIven IOTA’s current architecture, it is incredibly susceptible to a certain type of attack. Because DAGs permit parallel transactions and favor consistency over availability, users could theoretically spend the same token in multiple parts of the DAG (a double spend). Until those transactions unite further down the line (the child of a transaction that confirmed one of the double spends interacts with a child of the other double spend transaction), the network would have no way of knowing a double spend occured. At the point that the two conflictual network states united, the network would have to decide on the validity of only one of the states. This, in effect, would “orphan” (invalidate) all of the legitimate transactions that came after the one, illegitimate transaction. This would be catastrophic as, at any point, large chunks of valid transactions could be destroyed.

In response to this vulnerability, the IOTA Foundation relies on a “Coordinator,” or “Coo” for short. The Coordinator is a unique node run by the IOTA Foundation that is used to directly or indirectly validate transactions. The source code for the Coordinator is not publicly available. The Coo is a node that makes a transaction, called a milestone, every minute. These milestones are sequentially numbered and verify two other transactions. Transactions are considered confirmed if the milestone directly or indirectly references it. These milestones act as snapshots of the network’s state that users can trust. In short, the Coo acts as a centralized operator, confirming that no double spending has occurred within the DAG. The IOTA team has reiterated that the Coordinator is temporary, but has not given a definitive date for when it will be removed. Considering that the Coo is controlled entirely by the IOTA Foundation, this makes IOTA centralized until the point it removes the Coo.

Verdict:

IOTA is an early stage project that has created architecture that is tailored for micropayments and IoT devices. IOTA has taken a pragmatic approach and focused on ways of effectively enabling transactions for their desired niche: IoT. All design decisions are centered around how they can foster a world with billions of devices that need to transfer value. That being said, like many aspects of IOTA, it has come with several controversies. The Coordinator is essentially a centralizing force that can censor transactions or carry out sets of double spend attacks. This has led the safety of the network to come into question. There have already been many instances of network downtime, customers losing funds, the coordinator being offline, and attacks that resulted in network instability. IOTA also, originally, decided to create a hash function called “Curl.” This was found to have collisions in the hash function, a vulnerability that is indefensible and goes against cryptographic norms. They have since transitioned to Keccak-384(SHA-3).

Roadmap

https://www.iota.org/research/roadmap

Research

– Coordicide

– Spam prevention and detection

– Automatic peer discovery

– Economic incentives

– Consensus Algorithm spec

– Cryptography spec

– Attack analysis

Engineering

– Hub

– IRI

– Coo-free IRI

– Qubic

– Trinity

– Local Snapshots & Permanodes

– C Client

– MAM+

Verdict

The IOTA project does not have a clear roadmap with hard dates. Instead, they provide areas in research and engineering that they are actively working on with a colored bar to demonstrate how much progress has been made. The “Roadmap” is subject to change and has not been deemed final per their website. The most highly anticipated release from IOTA is Qubic, which will bring smart contract functionality to IOTA. There is no scheduled release date for Qubic. The IOTA team is also working towards removing the coordinator, economic incentives, cryptography, and novel engineering solutions for their project. But, there are no defined dates for when these will be completed and not much transparency into their progress is available. IOTA has also had a history of missing deadlines. They initially said the coordinator function would be removed by the summer of 2017, but as of today, it is still a part of the network – over a year later.

Token Economics

Token Acronym: MIOTA

Token Type: Platform Token

Circulating Supply: 2,779,530,283,277,761

Total Supply: 2,779,530,283,277,761

Marketcap: $1.5B

Marketcap at ICO: 1,337 BTC ($584,000 at the time of ICO)

Token release schedule: total supply was created in the genesis block

Inflationary or Deflationary factors: Fee-less blockchain. No mining rewards or inflation

Intrinsic Token Value? – All IOTA tokens that will be created occurred during the genesis block. While there is a large supply, the main factors that will affect value are scarcity and network utility. As the network grows, the demand for the token will naturally increase as it is the only way to transact across the IOTA network.

Verdict:

IOTA is the most high profile DAG project. The token’s intrinsic value will, over the long term, correlate to usage on the network. IOTA conducted their ICO in 2015, well before 2017, when the ICO mania was at its peak. Based on what they have accomplished, the ICO raise was very reasonable. The IOTA token, MIOTA, serves as the means of exchange for the IOTA platform.

Team and Leadership

David Sønstebø, Founder & Co-Chairman of the Board of Directors

Co-Founder of the IOTA project

Founder of a stealth Hardware IP start-up

Dominik Schiener, Founder & Co-Chairman of the Board of Directors

Co-Founder of the IOTA project

Serial entrepreneur and founder of Finhaus, Bithaus, & Fileyy

Ralf Rottmann, Member of Board of Directors

Founder and Managing Partner at Grandcentrix GmbH

Partner of Rottmann Willnow Ventures GmbH

Degree in Business Informatics from FernUniversitat in Hagen

Serguei Popov, Founder & Member of Board of Directors

Co-Founder of Wings

Advisor to AdHive, Cartesi, Kirik, & STeX projects

Mathematics professor at Universidade Estadual de Campinas

Verdict:

IOTA has built an extensive, global team. The main founders, David Sonstebo and Dominik Schiener, are knowledgeable and have been long involved in cryptocurrency. Both David and Dominik are at the head of the IOTA foundation and have surrounded themselves with senior leadership who can aide their development. IOTA has both the technical talent necessary for the development of “The Tangle,” and the business talent to support actual use cases. While they come from impressive backgrounds, both founders have not been without controversy. David and Dominik both have examples of them insulting critics, berating reporters, and fostering an allegedly hostile atmosphere.

Advisors:

Harm van de Brink, Energy & E-Mobility Advisor

System Administrator at GGZ Nijmegen

Focused on IT architect smart grids & electric vehicles

Master’s degree in Information Science from Radboud University Nijmegen

Regine Haschka Helmer, Digital Transformation & Business Development Advisor

CEO at Seedlab GmbH

20 years expertise in digital innovation and disruptive business models

Lecturer at the HWZ Economic University in Zurich

Anes Hodzic, Digital Transformation & Business Development Advisor

Vice President, Digital Transformation & Internet of Things, at Airbus

Managing Director at Bosch

MBA from Ashridge Business School

Verdict:

IOTA has gathered advisors who all bring traditional business experience and connections from within IOTA’s targeted industry: IoT. IOTA has avoided celebrity crypto figures who provide more signaling benefits than tangible value. This should be viewed as a positive. While IOTA has many controversies, many of which deserve merit, they are a team focused on actual use cases. All their advisors are highly accomplished in their field and are looking at ways IOTA can be useful for IoT devices such as smart grids and electric vehicles.

Partners and Investors

IOT Alliance – An open source software foundation born to support the creation of secure, scalable, interoperable, and trustful IoT architecture. Enterprise members include Cisco and Bosch.

Volkswagen – German automaker that manufactures various automobiles and vans

Evernym – Blockchain based company that specializes in self-sovereign identity

Outlier Ventures – British-based venture capital firm that is focused on distributed ledger-enabled convergence.

Verdict:

IOTA has garnered significant interest from investors and companies alike. The most impressive partnership is the IOT alliance which boasts many F500 companies as part of its enterprise representation. Many of these companies deal in the IoT space and can bring significant value to IOTA. Still, IOTA has come under controversy with how it handled the labeling of Microsoft as a partner. For months in late 2017, IOTA had given off the impression that IOTA had a strategic partnership with Microsoft. This caused the price to increase 4x during that time and a groundswell of enthusiasm from the crypto community. It was later clarified that Microsoft was a “participant” and not a strategic partner. While IOTA did not personally claim to have a partnership with Microsoft, it was interpreted by many as such. It would have been prudent for the team to get ahead of the story and calm the growing enthusiasm. This communication did not happen and certainly demonstrated some negligence on part of the IOTA team.

Marketing and Social

Twitter – 116K

Facebook – 51K

YouTube – 756

Reddit – 111K

Medium – 12K

Discord – 20K

LinkedIn – 3.5K

Github –

56 repositories from 9 people

Verdict:

IOTA has a large following on all its social media platforms and maintains an active Github. IOTA posts new partnerships, professionally done marketing materials, articles, and meetups on a regular basis. They consistently interface with their community and answer questions. The only red flag is the hostility shown to anyone who questions the approach IOTA is taking. This has happened on several occasions in the media.

Red Flags

IOTA made a design decision to use balanced ternary instead of binary. This decision forced IOTA to build their custom hash function, called “Curl,” that was later found to have collisions. This problem has been fixed, but this mistake raises concerns about IOTA’s design choices and the diligence of its team. The IOTA foundation runs a full node called “The Coordinator.” Although the coordinator is temporary, in its current state, it is a centralizing force that prevents censorship resistance. There have been many documented social issues IOTA has had with anyone who criticizes their project. This hostility is an undeniable, and concerning, aspect of their community. IOTA has missed roadmap deadlines without giving an explanation to their community. IOTA originally planned to remove “The Coordinator,” from their system in the summer of 2017. As of today, the Coordinator is still in place without a targeted date for its removal. In late 2017, IOTA gave off the impression that they had a partnership with Microsoft. It was later revealed that the nature of their relationship had been exaggerated and there was no formal partnership. While IOTA did not personally make this claim, they did nothing to subdue speculation, showing some negligence on their part.

Conclusion:

IOTA is built to overcome the limitations of blockchains, especially in regards to IoT. While still extremely early, IOTA has fostered a growing community that is extremely passionate about developing their technology. DAGs present a compelling architecture that could bring massive efficiencies to cryptocurrency and micropayments. IOTA has come the farthest when it comes to its DAG and has an impressive global team working on research, engineering, and business relationships. Unfortunately, IOTA has also had technological and social mistakes that have hampered its growth and raised concerns over whether it can succeed. With the hype of 2017 behind us, it will be important for IOTA to begin delivering on its roadmap and move past the controversy. For now, it remains a questionable project – one with a solid team and vision, but vulnerable architecture and concerning red flags.