Understanding IOTA: Not Another Bitcoin
For original blog post with clickable links please visit => https://seekingalpha.com/instablog/49024966-migueue/5090835-understanding-iota-another-bitcoin
Summary:
-A brief summary on the difference between a cryptocurrency and a token.
-The Internet-of-Things (IoT) growth and the probable dependance upon a transactional settlement layer to move technology forward.
-IOTA's prime position to help aid as the transactional settlement layer for the IoT.
-How Bitcoin's underlying technology (the blockchain) cannot be used for the growth of IoT.
This article is a direct response to the article written by John Peabody, titled “Iota Is Not The Next Bitcoin.” While he may be correct that it is not the next “bitcoin,” it is however the fundamental transactional backbone of the inevitably rising machine-to-machine (m2m) economy. It's the underlying platform for machine transactions, which is why it is so revolutionarily different. As someone who currently holds mIOTAs (1 mIOTA = 1,000,000 IOTA's) and did a large portion of my investment well below $1.00, I can advocate on why it is amazingly different than any other cryptocurrency on the market today.
To better understand why, I will need to mention some background information that perhaps many will not be familiar with. I will also expound on the difference between a cryptocurrency and a token which is vital for those who wish to understand and are serious on investing in the space; especially if you're new to crypto markets. This article is written assuming that you understand the underlying technology behind bitcoin known as blockchain and because IOTA does not utilize a blockchain, I will not be discussing it here. My goal in writing this article is to explain IOTA. I’ve seen this crypto field blow up so much over the last couple of years that I have to help properly inform people of the potential. Let us begin.
What is the difference between a cryptocurrency and a token?
I believe that many people do not understand the difference between a cryptocurrency and a token. A cryptocurrency functions as transactional value implemented upon a distributed ledger (there are exceptions), better known as a blockchain. It serves as a trust in value between people that is accepted as a means of exchange just like Federal Reserve Notes. A token however should be viewed as sort of value for a specific entity or business. To be clear, it should be seen as a means of exchange inside the business; in other words it has value for/to the business.
To convey this, we can compare a cryptocurrency to our current money supply. It is agreed upon by our region-specific society as form of value. For example, we don’t transact US dollars in China but instead use the Chinese Yen. Just like if someone from China were to come to the USA, they would have to use the US dollar. The only difference now is that it is a digital currency in form of hard money. For those of you skeptics who still believe that digital money is not feasible, then I have a point to make. Please look around you. The whole world is moving digital in every aspect. What makes you think that your currency isn’t?
A token we can compare it somewhat to a Chuck-E-Cheese token. It serves value to the business, in this case Chuck-E-Cheese. It is transacted solely within the business. In this case, it brings the business value as the only way you can use their machines is by buying their tokens. The difference now is that unlike a Chuck-E-Cheese token, it can now serve as a way for businesses to collect funding/revenue for a given product, they may aim to utilize in their startup. In modern day, funding methods like these can be used in a variety of new ways to help businesses grow. If you are familiar with the cryptocurrency scene, these are what are referred to as an Initial Coin Offering’s (ICO’s). This a term I covered in a previous article but unfortunately was struck down by the editors because SeekingAlpha does not currently cover ICO’s. I for one believe that people out there need to know this type of information so that they can be informed of how ICO’s work, as well as why they work so well, and what you should watch out for when investing in one. It is also a vital start for many new businesses using cryptocurrency's, including IOTA. There is a reason why big names like Mark Cuban (Unikrn token) are backing and also investing in ICO’s in this growing space.
The Internet-of-things: what is it and do you understand it?
The Internet-of-Things (IoT) is the growing network of Internet connected devices that are capable of storing information and collecting data, as well as able to transmit it to other connected devices. In other words, it is almost everything we use today. Think about it. In today’s modern world if something can’t connect to the Internet, it is virtually obsolete and will be forgotten about quickly. From a developer perspective, if a program or application cannot connect to the Internet, it’s virtually useless. Those video games your children play; they’re all connected to the Internet. When you’re pumping gas and watching current events from the pump monitor; it’s connected to the Internet. Any modern car you decide to buy at a dealership; it can connect to the Internet. Your phone, alarm clock, watch, your dishwasher, the refrigerator, washer, dryer, A/C, etc., almost all home appliances now can connect to the Internet. Hell, Nike even has shoes that connect to the Internet. You can control and operate them with a push of button from whatever app on your smartphone it may have to sufficiently and efficiently benefit from the product. Thanks to technology, industrial giants like GE are now able to profit as data firms. Everything already is or will be connected to the Internet. Government hacks? Yeah, even government can’t hide. This is the network of the IoT. Surely you’ve noticed, and as we further into the future it's inevitable that everything we know will one day be connected.
Okay, now imagine that this network of devices (which is enabled by the internet) could somehow now communicate with each other through sharing data. Mind you that all this is being done without any human interaction at all. This is what is known as the coming of the machine-to-machine economy that will spawn from this growing network of devices. It is predicted by IBM that this growing network of interconnected devices will comprise of almost over 50 billion connected devices by the year 2020 with the economic benefit to be 2 trillion dollars shortly after. Fifty billion devices in what will be a trillion-plus dollar market that has yet to come, but all this speculation is extremely dependent upon a transactional backbone that can enable this communication of the IoT. It’s kind of crazy to really think about it. Some people unfortunately cannot comprehend it. It is something that is already happening and businesses can now gain a competitive edge with its true potential. They’re the true benefiters of all this data. The backbone must be infinitely scalable to allow for the growth and eventual transactions for everyone imaginable, affordable so that every one can utilize it, secure so that it cannot be compromised by human interactions (think Artifical Intelligence), and able to be integrated into everyday devices to serve as this transactional layer between them. It’s said that data is the new oil of the future, and I for one agree.
What is IOTA? How does it work?
IOTA is an open permisionless open source distributed ledger technology (DLT) that was created out of necessity for the data transactions between machines and like John Peabody mentions, it is implemented via Digital Acyclic Graph (DAG). It is the underlying transactional platform enabling the Internet-of-Things, so that one day in the future, objects will be able to communicate with each other through this settlement layer. The blockchain is useful for a variety of different sectors ranging from real estate to healthcare to governance, but it cannot be used for the implications of machinery communication for near-instant uninterrupted potential due to its protocol hashing algorithms. This is characteristic that undoubtedly all blockchains share. I do believe blockchain is revolutionary and will change the world in various fields, but the tangle is headed in another direction. A direction that is also necessary heading into the future. Instead, IOTA’s DAG protocol is termed the “tangle,” and it allows for the network (of underlying platform connected devices) to achieve consensus, thus creating a variety of revolutionary features.
IOTA’s critical technology "tangle" is implemented to communicate transactions through nodes (something that is both a signaler and receiver of information) in the network. These nodes can be computers, devices, cars, etc.. With this new protocol, I will explain how transactions work like this: for an IOTA transaction to proceed, a user must verify two other transactions on the tangle by performing a proof-of-work type of transaction. So again, in order for the user to transact his payment, the user must verify the payment of two other transactions from two other different users. Basically those are the conditions that I (the user) must do in order to get my transaction through to the other side (my wallet to yours). This is the payment that I must make to use the network; it is a non-stop transactional cycle in which the user must verify two separate transactions in order for his own to also transact. All of this is being done without either you or I knowing it’s happening. How crazy right? And because everyone is transacting the same currency as you, then people using the network are simultaneously confirming and transacting one another’s individual transactions. We call these sorts of transactions micropayments. This allows for instantaneous transactions without any fees because verification of others IS the payment the user commits to, to be able to send their own transactions. So every time you send money with IOTA, the amount you send is the exact amount to be received, and it's very fast. As a user and holder of IOTA, I love not having to pay any fees to send money anywhere (unless on an exchange) and how fast it is.
A response to the unanswered questions posed by Mr. John Peabody about IOTA
Mr. Peabody, please allow me to possibly bring some things to light so that I may help you and others understand the whitepaper. The “genesis” transaction referred to in the whitepaper explains the initial dispersion of IOTA tokens and how the first pre-existing node had to transact in the DAG. That is a reason it is referred to as the "genesis" transaction. The original transaction was a transaction of all IOTAs in existence to every founder address at the time to enable the tangle network. When IOTA was in its infancy (still is), it had to be done this way in order to the begin the tangle. As the development team and IOTA has progressed, especially with more nodes and wallets now being enabled by those who are adopting it, there is a creation of more nodes for the network to disperse transactions through. All of these IOTA's in circulation, if not stored in a wallet are committed to confirming transactions in the network.
The Co-Founders have explained in various talks about how their ICO distribution was handled; the initial ICO was to help start the funding and initial development of IOTA. They raised $500,000 US to be able to start, and in return gave out a limited number to tokens to the initial investors. This amount of money raised is literally nothing like other ICO’s that are claiming outrageous claims (over one million dollar-plus) in funding for their startups. However, thanks to the money they raised and the community behind IOTA, the foundation has only retained 5% of the total IOTAs in circulation. From their ICO, the $500,000 raised is now worth 9 million and has been one of the key agents in allowing their growth. The remaining IOTAs are either all the ones initially given in the ICO or are committed to a founder address.
The ones in the founder address are the ones the IOTA Foundation plans to be acquired by companies that will utilize it. They team itself is working on grants from governmental agencies and being paid through partnerships. In my honest opinion, I do not believe IOTA is a ponzi scheme but instead a rising technological giant to fathom in the future that profited and began on the beginnings of a new era in startup methods for initial funding. This is also another reason why I believe ICO’s are not going anywhere. You can actually hear more about how it works and how the initial distribution happened in a video from IOTA Co-Founder Dominik Schiener which I have attached below. It’s a fantastic video explaining most of your questions if I could not answer them fully.
The “genesis” block or transaction that was brought into question also refers to the initial transaction posed at any given time to transact from position A to position B. For example, when I send my transaction to my loving mother all the way in Mexico then there will have been an already existing transaction known as a “genesis” transaction to which my own (transaction) may or may not confirm in order for it to go through. More importantly though, it is necessary to realize that every transaction can be considered a “genesis” transaction because a pre-existing transaction must be in the network to confirm a transaction that is going to be sent. Therefore, my transaction can also be considered a “genesis” transaction that will act and confirm on another individuals transmitting transaction. This is the way the tangle was designed. Hopefully, I was successful in helping understanding what was meant.
So what are these use cases and what is currently happening with IOTA?
It is not to crazy to believe that one day in the next ten to twenty years, I will no longer have to pay at the pump with my card for gas. Instead, my car will hold value in some type of transactional layer between machines and will automatically send money to the pump for gas. These true micropayments between machines will have zero fees, with IOTA being theoretically infinitely scalable as the number of transactions on the network increases. The more and more people use the network, the faster and faster, and larger the it will becomes. So you see, even though IOTA is designed for becoming the backbone of the IoT, its features are sufficiently adept to a variety of other use cases. Those who profit from IOTA which I will discuss further below, are those who start to use IOTA.
In short, IOTA will allow for the transactions between things and is the only platform that is uniquely position to serve as this settlement layer. They have a first mover advantage and have come a very long way from their early inception in 2015. The IOTA Foundation’s recent partnerships and participation with companies like Samsung, Microsoft, Bosch, Volkswagen, and over 30 other tech companies worldwide is a testament to the growing consensus that tech companies and production companies alike know that the IoT is inevitable and forward coming. So those who stand to gain from it are primarily the early adopters of this technology such as the giant tech companies who are purchasing IOTA to implement in their devices.
This incentivizes big tech companies to have a reason to make IOTA work in having it in their manufactured devices/products because it allows for the growth in value for both IOTA and the company who is utilizing its underlying structure. Recently announced by the team is that on December 19th, 2017, Bosch’s venture capital arm Robert Bosch Venture Capital (RBVC) acquired a "sizeable" amount of IOTA tokens to hold for later implementation of the m2m economy. This is very big news, especially as an actual investor of IOTA. Let’s say Bosch helps make it happen and does implement the IOTA protocol, then the value of IOTA will increase and because Bosch has already bought IOTA then it too will profit from that increase in IOTA's price, as well as from the technology it brings to help their manufactured devices communicate. The announcement of IOTA's partnerships and participation by so many tech companies for their data marketplace is HUGE! What this means is that these companies are now in a collective agreement to give IOTA a chance at being the settlement layer and working on implementing the IOTA protocol with their devices.
Just today as I write this article, Dominik Schiener also announced IOTA’s selection by the Tokyo-Metropolitan Government Program which is aimed at establishing IOTA as a legitimate contender to possibly become Tokyo’s main IoT platform to build upon for their local companies, government, and infrastructure heading into the future. The participation will last two months as the team starts to inform and mentor about 18 companies in Tokyo, including big names like Honda and Toyota, on how to begin implementing IOTA for testing. I have posted the link below for any interested readers.
IOTA Going Forward.
In John’s article, he states that what IOTA brings to the table does not necessarily mean it will be “adopted or displace an existing system/network.” He is correct in that statement. It does not mean companies will want to use IOTA in their devices or will want to adopt the technology. However, my passion and work in this space leads me to believe otherwise. As I mentioned above, IOTA has already made numerous partnerships and participation from financial, governmental, and corporate institutions. IOTA is gaining an increasingly amount of corporate interests as well as even academic interest, and is already in connection with many corporate and academic institutions. For those of you still wanting to understand the true potential of IOTA, I have linked some videos that can better explain some of IOTA's use cases below as well as talks by corporate leaders in IoT; all of which I think will change many minds about their perception about IOTA and even cryptocurrencies.
Thank you for reading.
If you enjoyed this article and have benefited with some understanding of IOTA please follow me, as I also like to discuss other relevant cryptocurrency's that are up and coming. This is in no way financial advise in any way or form, but my sole opinion based on facts and evidence that surround IOTA’s current events, as well as my in depth understanding of IoT implementations. The way I like to explain to people who are barely getting their feet wet in cryptocurrency and wishing to invest is like this: Bitcoin is just like IBM when they introduced some of the first computers made. They were one the first ones. That being said, Apple did it better. This is just how I feel about Bitcoin. There are other cryptocurrencies/tokens out there that I personally believe have much more potential and are better than Bitcoin.
To close, if you are interested in learning more and wanting understanding crypto please stay tuned as I begin to publish a lot of what I know in this space regarding investing and trading. I'll be attending some upcoming events and conferences regarding fintech, blockchain, their uses, and will be actively writing about my opinions and reviews of blockchain technology and its future. I do not receive compensation for this article besides SeekingAlpha, and am in now way affiliated with The IOTA Foundation or any other cryptocurrency for that matter. I am a full time crypto trader and invester. Also, please know that I would never write about something that I myself either do not hold or have not invested in. Thank you.
Links and Information:
Some use cases for IOTA:
Introducing IOTA in Smart Charging
IOTA - Autonomous Cars and the M2M Economy
Dominik Schiener on IOTA & The Tangle | Revolutionizing Blockchain Technology
IOTA being integrated into the Tokyo-Metropolitan Government program for the next two months:
IOTA selected by Tokyo Metropolitan Government Program
You can also see some of the current partnerships with the IOTA Foundation here on this reddit post:
List of known IOTA Partnerships & Corporate Interests. * r/Iota
Here is an amazing presentation given by Bosch CEO Volmar Denner about Bosch's future plans and integration of IoT into their products that was given in March ‘17:
Tech deep dive on fog computing, cloud, IoT networks, AI and blockchain
The Bosch Group investing in IOTA:
The Bosch Group Is Investing in IOTA
The RBVC Group investment in IOTA, Focusing on IoT:
RBVC Group Undertakes Massive Investment in IOTA, Focusing on IoT | Finance Magnates
IOTA co-founder Dominik Schiener explaining IOTA, its origin, its use cases, and ICO distribution:
MAKERS Rooftop Talks Vol. 4 in cooperation with nakamo.to: Dominik Schiener on IOTA & The Tangle
Disclosure: I am/we are long COIN.
Additional disclosure: I am an avid investor in IOTA, and am fully holding my positions long term as I firmly believe that IOTA is in a excellent position to become the settlement layer for the Internet-of-Things.