I’ll try to explain my view why I chose IOTA over all other projects in this space.
I’m by no means claiming that I’m an expert or that you should follow me blindly.
I think it may be helpful to get to know me a little bit better, so you can understand my views.
I’m a software engineer and for my entire life I’ve always been into finance. Crypto was the perfect blend for me to combine these two passions.
As most of you, I started with Bitcoin, next was Ethereum and then I dipped my toes into a few other projects, with one of them being IOTA.
At the beginning I didn’t really know what I was buying. I was attracted by the philosophy of being your own bank, having something that no one can take away from you, regardless how powerful they were.
As long as I kept my private key safe, I was the only one who could access my funds. There was no Government telling me what I can or can not do with the Bitcoin I possessed. From an economical point of view I was amazed that there could exist a distributed system where boarders didn’t exist, everyone was treated equally and had the same opportunity, regardless if they were born in a prosperous nation or a developing country. Everyone was free to join and all the participants agreed to follow the same rules. Ethereum quickly followed and introduced smart contracts, which were game changing. You didn’t have to trust anyone. You trusted the network and knew that the network would always follow the code by which it was programmed. Participants agreed upfront what the rules are and what are the outcomes when specific conditions are met. If someone didn’t like it, there was nothing they could do, because the network would automatically execute the contract which the parties agreed upfront. No central authority was needed to solve the dispute and if they wanted to, they couldn’t do it.
Bitcoin, Ethereum and most crypto projects share this trait even IOTA, but there was one key differentiator for me. As a software engineer and future developer, I can’t build solutions on top of these chains. The operational cost of using them is not known in advance. They’re slow and expensive by design. While they are permissionless, secure and decentralized they’re unusable for many use-cases by design. Don’t get me wrong. They are still awesome and revolutionary and without them this market that we all love, wouldn’t most probably exist. We should all be grateful for the technical breakthroughs these projects made and continue making and the ecosystems they’re building and the philosophy they’re spreading. They’re empowering every single one of us in their own ways.
The Key Differentiator:
Being interested in tech my entire life, I quickly started diving into the technology behind these projects. When I understood how blockchains worked, how they achieve consensus and how they resolve conflict, I knew that those networks in their current form couldn’t scale and that fees would be ridiculously high as adoption kicked in (supply — limited block space/ demand — a lot of users bidding for that limited block space). The algorithms were designed to stall by keeping the mining difficulty at a certain point so the network couldn’t produce a new block, while the existing block is gossiped and verified by all nodes. Simply, as the number of nodes increases in the network it takes more time for that block to arrive to all nodes and get verified. If block time was low, many blocks would be produced at the same time by different actors and Nakamoto consensus couldn’t agree on a single outcome. Different nodes would simultaneously see different chains as the longest.
They solve this by setting the mining difficulty to be high so that the block time is, on average, 10 minutes. In those 10 minutes different actors try to create a block but usually only one succeeds. Everyone else drops everything they were doing, accept the winning block and try again. There are times when multiple actors (usually 2) get lucky and create a valid block at the same time. Half of the network accepts 1 block and the other half accepts the second one. This is solved by the next miner finding the next block and appending it to one chain. That chain is the longest and thus, it wins. All nodes accept it as valid. This is how it’s done in PoW and even though there are no miners in PoS the concept is similar. Nodes need to agree on one block before they start producing the next one. As the number of nodes increase, so does the network delay (time for the block to be gossiped to all other nodes). Because Nakamoto consensus is synchronous consensus, it can at best solve 2 out of the 3 (security, decentralization, scalability).
This is known as the blockchain trilemma.
The asynchronous nature, where every node is allowed to produce transactions at the same time, while interacting with a subset of nodes for consensus, while using a nonlinear data structure, is why IOTA is not a victim of the blockchain trilemma.
I explained how transactions work in IOTA and gave a few examples to illustrate the differences compared to traditional blockchains in my previous post (here).
This is part of the technical argument why I chose IOTA over blockchain, but IOTA is so much more.
Another topic that most people care about in the crypto space is token economics.
While I won’t go into the token economics of IOTA here, you can read my view on it in my first post (here)
IOTA chose to have a fixed supply that’s fully distributed from the get-go. Bitcoin chose to have a max supply of 21M Bitcoin, but it’s not fully distributed yet. Still a lot of blocks to mine. With each block you get diluted, but if you measure your Bitcoin holdings in regards to those 21M, then you’re fine. PoS on the other hand is a whole other story, where they pay your rewards with inflation. Essentially you have the same % of the network after you’ve received the reward or in some cases you even have less… If you don’t stake, you’re guaranteed to be diluted and if you stake, your funds are locked, so you have opportunity cost. Crypto is getting regulated in pretty much every place in the world and most tax agencies treat block rewards as income. If you calculated the tax that you have to pay on those rewards, that are not really rewards but dilution, you’ll quickly figure out you have a negative real rate of return. Yes, they sometimes increase in price, so you think it’s passive income, but it’s more like passive dilution and they can also dump.
IOTA too can go up in price and it can go down, but you know you don’t get diluted and all returns you manage to get are real returns. Your IOTAs are not locked, so you don’t have opportunity cost. It makes an even stronger argument for a store of value and as a medium of exchange.
The security and decentralization in these networks are directly proportional to how much economic incentive the participants who govern these networks have. Even decentralization is an argument which we can talk about, considering that a few mining pools in China control the majority of the hashing rate, but that’s more related to market forces than to the design of these networks. The PoS system will follow a Zipf distribution over time, so you can argue about the decentralization of those systems too. In IOTA the security and decentralization are not proportional to the economic incentive that its participants who govern the network have, because there is no incentive. You run a node because you need it to access the network. You know your operational costs which are a few $ per month and you know how many transactions you’re entitled to. That doesn’t change as adoption increases. We can even argue that it will get cheaper over time with adoption increasing. Why? In order to shard you need to guarantee that shards have high security. As adoption increases and as more participants run nodes, the security of the network increases and the likelihood that it will shard into multiple shards also increases. More shards = more TPS. Remember, you’re entitled to the same % of overall TPS given the mana you possess so when it shards you get to utilize even more TPS.
These are some of the economic and technical reasons why I chose IOTA over other blockchains in the long run.
The ecosystem around IOTA is designed to be fair and to operate in everyone’s best interest.
The idea is to give everyone the option to choose and to be their own bank in a system that scales and is feeless, permissionless and, of course, decentralized and secure. To have everything that Bitcoin promised but didn’t deliver and on top of that numerous other features like Smart Contracts, colored coins, data transactions, access, streams, stronghold, digital IDs… A one stop shop for everything.
Even though IOTA went through many iterations with the Tech and there was a lot of drama within the foundation (it’s solved now), the core vision never changed.
The entire IOTA Foundation is working tirelessly to deliver on their vision in which we all believe in. They have a clear goal, well thought design and are now executing at full speed to provide us with all the components.
They work with Governments around the world through various Government funded grants.
They take feedback from their Enterprise partners, validate and build their solutions with the industry while also getting standardized.
IOTA is one of the few projects that’s actually getting utilized as a solution for real use-cases.
They’re providing us with the tools we need to build our solutions.
We can also add other arguments like low energy consumption of the network which benefits our green future, the climate initiative by the foundation with partners, smart cities, smart mobility, supply chains and the list goes on…
You can look at all the partnerships on IOTA’s official website.
I didn’t cover them here, even though they’re important because they’re more of a result of IOTA’s good design and tech than something that’s unique to IOTA on its own.
The last few years for IOTA have definitely been interesting and the best years are yet to come.
I’m just a community member and these views are my own and by no means are meant to be treated as investment advice. These posts are available as they are, for free to everyone that’s willing to read them. This is my way of contributing back to the ecosystem that taught me so much.
I encourage everyone to join the IOTA Discord (here) where they can interact with the community and ask questions and if you have any questions for me or suggestions you can leave them in the comments or reach out to me on Twitter (here)