The Potential of IOTA – The Drake Equation

Original Post –
All credits to Kamesh Darisipudi

These past few weeks have perpetuated a sense of FOMO due to skyrocketing Bitcoin prices. Crowds and crowds of crypto-enthusiasts are hoping to ride this roller coaster in the hopes of getting rich and cashing out quickly amidst the volatile nature of market. But amongst this population, to what degree is is it fair to label these investors as “crypto-enthusiasts”? What proportion care solely about their returns and what proportion care about the technology and applications of the cryptocurrency they are investing in?

For the latter subset, it’s probably a fair assumption to guess that they were drawn towards crypto and Blockchain due to the promising applications of transparency and security with the intent to revolutionize industries ranging from healthcare to supply chain. However, as Blockchain is being rolled out, transactions on the Blockchain, specifically with Bitcoin, are facing challenges.

  1. Backlogs

As of early November, there were 115,000 unprocessed Bitcoin transactions, freezing almost $700 million USD. The main culprit behind this is the transaction approval rate of Bitcoin. Bitcoin approves 4.5 transactions/s as compared to Ethereum, Paypal, and Visa which approve at rates of 13/s, 115/s, and 4000/s, respectively. This challenge was the impetus behind SegWit2x, which aimed to increase the block size to 2MB, which ended up being called off and prevented a hard fork (at least for now).

2. Scalability

Backlogs and scalability go hand in hand. As long as a backlog exists with Bitcoin, it will be very difficult for it to scale. Furthermore, Blockchain has an inherent challenge given that all participating nodes in the network need to process the transaction to achieve consensus. That being said, as we add nodes to a given blockchain, we increase the inter-node latency logarithmically.

3. Microtransactions/Transaction Fees

The aforementioned backlog isn’t just a result of block sizes — it can also be attributed to the fact that miners tend to choose and approve transactions transaction rewards they deem worthy of their time and effort.

So how do we solve all three of these challenges? The most intuitive solution would be to pivot from Blockchain.

Enter IOTA.

IOTA is a cryptocurrency that uses Tangle for consensus as opposed to more “traditional” Proof of Work and Proof Stake consensus protocols. The Tangle uses directed acyclic graph (DAG) instead of blocks, and every user is a miner. Furthermore, Tangle is trinary, meaning that it uses -1,0,1 instead of binary systems that use 0 and 1.

In order for a transaction to be verified on the Tangle, a user must approve 2 or more previous transactions before the user can get their own transaction approved. The result is a network of verified transactions as opposed to a chain of blocks. As a result, the more people on the Tangle network, the faster the network as a whole gets.

But the ease of Tangle/IOTA’s scalability doesn’t stop there. IOTA is lightweight to the point that phones, tablets, and laptops are able to send and verify transactions. This enables accessibility to the masses and vastly contrasts the expensive hardware, GPUs and electricity that Blockchain miners must spend and rely on.

Furthermore, IOTA has no mandatory fees on its transactions while at the same time providing the capability to process micropayments (without paying fees more than the transaction itself).

But IOTA’s potential doesn’t stop there.

Many have dubbed IOTA as the spark for the “4th Industrial Revolution” given IOTA’s ability to enable machine to machine payments and leverage IoT.

Imagine a solar grid being able to purchase excess solar energy from a neighboring solar grid. Or imagine an self-driving car find its way to a charging station and pay for the recharge. The potential applications of IOTA stretch from asset tracking, payments, remote monitoring, and smart energy, which is perhaps the reason that Bosch recently made a significant investment in IOTA.

While the applications of IOTA seem promising, it’s important to keep in mind that IOTA is still in its infancy — it’s still quite a while before the technology and infrastructure is ready for IOTA to be adopted on the large scale. The Tangle is currently on training wheels with a “Coordinator” that is expanding the network and setting up milestone nodes.

Will Tangle and IOTA be the disruptors of tomorrow? We’ll have to wait and see, but the future looks promising.