There’s a growing trend of uncritical enthusiasm in cryptocurrency media. You only need to look as far as the latest ICO launch sites to find mainstream writers endorsing hucksterism without a second thought. Is IOTA prey to this dynamic, or is its buzz well-placed?
This piece is an attempt at a measured, levelheaded review of one of the more popular tokens, evaluating the technology instead of the marketing.
The IOTA Elevator Pitch
If IOTA’s messaging is to be taken at face value, it’s a decentralized utility token for IoT microtransactions and other things, with a robust API and arbitrary scalability due to its unique DAG structure they call “the tangle.” In addition, they are pitching the underlying IOTA network as a transport protocol with quantum computation resistance.
That’s a lot all at once for a single protocol or token, so let’s go through each feature and see what it offers and if the token actually delivers on its marketing claims:
Robust API and Transport Protocol
IOTA actually goes a lot further than most newer tokens in providing some semblance of utility. They have a demo for storing instant messages on the tangle available on their developer site, as well as libraries/wrappers in a few different languages. They haven’t yet delivered on the messaging protocol portion (MAM) of their utility pitch, though, so perhaps judgment on this feature should be reserved until they deliver
Things start to get hairy when you look at this proposed use case pretty quickly. Sure, you could technically implement IOTA as a layer for microtransactions on IoT devices, but the horsepower required device-side for settlement and automatic pricing against market speculation makes centralized solutions a lot more attractive by comparison.
Never mind that there’s no hardware support or dev boards for this proposed use case. Even if you only want to use IOTA for zero-value transactions for IoT communication, you’d need a lot more storage and computing resources than the average IoT device can ship with economically. Even if MAM gets implemented and some sort of SPV scheme emerges for IoT nodes, you’re just looking at a really expensive way to do encrypted IoT server callbacks. There just doesn’t seem to be a whole lot to this use case in reality.
IOTA makes a big show of using trinary (base 3) data formatting for “quantum resistance,” though it’s not clear as to why exactly that is. No established post-quantum hashing algorithms seem to find this necessary.
Even if it does convey some benefit I’ve failed to grasp, IOTA PoW is used as an anti-spam mechanism more than anything else, and only takes a small amount of the total transaction cycle in the first place. They even state this fact in their white paper.
“Features” like this are stock standard in modern crypto. They’re designed to take advantage of tech-illiterates and low information investors. As far as I can tell, using non-binary formatting is meaningless outside the marketing department, even though it doesn’t seem to harm the post-quantum efficacy of their PoW scheme, either.
The Tangle and Decentralization
I really, really wanted to like the Tangle. Honest. Even with the Sybil attack compromises and allowance of zero-value transactions, I was fascinated the idea of discrete 1tx “blocks” in parallel. It just had a beautiful sort of logic to it — at least superficially.
Unfortunately, this is where IOTA’s premise really starts to fall apart. To simplify things a bit, the network relies on a 66 percent majority of nodes on the network operating honestly and verifying each thread of the tangle many times.
Security is essentially a function of how many honest transactions there are on the network, so nodes are encouraged to make many zero-value transactions to secure the valuable ones. Lots of valueless transactions makes the tangle’s size inflate proportionally, and no limit on frequency of transactions makes that growth much faster than the linear track of BTC and other cryptocurrencies.
1/ IOTA generates PoW from user txs, but since that's not enough users are encouraged to spam 0 value txs to strengthen it constantly
— Eric Wall (@ercwl) October 26, 2017
This growth is so fast that the only way the IOTA devs managed to curtail it was implementing an undocumented gatekeeper called the “coordinator,” which, from what little information is available on it, is a central management service that snapshots the tangle when it becomes too large and deters attacks on the network.
That’s a huge problem.
It makes the tangle beholden to a centralized authority controlled by a few interested parties, and it indicates deeper systemic problems inherent to the tangle’s design. The devs have said that it’s only a temporary measure until adoption is such that the network can defend itself from bad actors, but with sufficient adoption, the tangle’s growth will be so rapid that it outpaces the storage capacity of all but a few large tech companies.
It’s a chicken and egg problem, but both are different centralizing incentives. A Tangle big enough to protect itself can only be hosted by our Googles and Facebooks, and a Tangle with a coordinator is controlled by the gracious hosts.
If nothing else, IOTA is interesting. It delivers on more promises than your average token, even if those promises are badly designed and implemented. When the bar for delivery is absolutely nothing on most ICOs and token sales, that’s not exactly a monumental task, but it’s still something to consider.
If I had to characterize IOTA in a phrase, it would be “misguided and mismanaged.” The consumer-focused UX and marketing raised red flags, but some of the proposed features hold superficial appeal. With a little scrutiny though, it becomes abundantly clear that there’s not really much to differentiate IOTA from a basic speculative token when you get right to it.
What’s your take? Is IOTA revolutionary in your eyes? Sound off in the comments below!
Images via IOTA.org, Tangle Blog