1. A brief introduction to Iota

Cryptocurrencies have been around for about 10 years, and although Bitcoin is beginning to become familiar to people on average, there still hasn’t been so called cryptocurrency breakthrough overall. Cryptocurrencies have not yet found a use/use case that would have become widespread and largely adopted. Instead of mentioning cryptocurrencies, many people first think of criminal use, a pyramid scam, or a bubble. One of the main reasons why cryptos have not yet broken through is, first of all that until a few years ago it was very unclear where to use this new technology at all. On the other hand, technology developed very slowly for the first 6-8 years and no major technological leaps occurred during that time. In recent years it has started to come clearer that if the technological constraints of the current cryptocurrencies will get resolved the possible potential of them is huge.

DLT stands for Shared Database (= Distributed Ledger Technology). The basic idea is that the same data is shared between multiple computers / devices (= node) and nodes together form a network. If one of the nodes tries to change the data, the other nodes in the network will notice this and together decide between the two different versions which version will remain valid (= consensus). The basic idea is that the majority version, whatever the definition of the majority, remains in effect and the second version is rejected. The big question is where can such a DLT network be used.

Sharing information across multiple hosts means increased data storage costs over centralized cloud services. Similarly, communication and consensus-building costs will increase significantly. The good thing about DLT is that no single party can change the data afterwards alone. The DLT network is also very difficult to hack. A hacker should succeed in making a successful attack on most machines at the same time. Different machines have different security and software, which makes the task almost impossible (assuming the DLT network itself is well designed and reliable). Another option would be to connect so many of your own machines to the network that it would form the majority of the network. This gives the hacker control over the network, but this is very expensive. Of course, there are other ways of attacking, but it doesn't make sense to go deeper into this at this point.

Creating an accounting system on such a DLT network and starting to exchange virtual money creates a cryptocurrency. In this case, transfers between nodes are stored in the shared database. However, it is only one way of using the DLT network and any data can be stored on the DLT network. Data can also be stored in a DLT network so that it is encrypted, so that the data can only be read with a key created by the recorder. This way, not all network members can see the information, even if they keep it in their node.

Another good thing to know is that data can be passed through a hash function. For example, you can run the Bible as a whole through a hash function and get a specific digest number. By making a small change to the text of the Bible, this number changes, but the number is much shorter than the Bible. So just save this short number on the DLT network and the text of the Bible can no longer be overlooked. (Sure, there are many texts that link to this number, but finding a text that correlates with another number is really difficult, and on the other hand, such a string does not make any meaningful content).

So, there is a very simplified operation of the DLT network, but then where can it be used? People have used to think that cryptocurrencies replace money and banks, but that is unrealistic. Money works well and is stable, cryptocurrencies are unstable and why people would switch something that works so well. Bitcoin advertises itself as digital gold, but this too is quite unrealistic to me, because an unstable currency is not suitable to substitute or replace gold.

However, for most possible use cases what I can think now, it is enough to store and read the data from the cloud. Large cloud servers are generally reasonably reliable, and for example, I don't have to suspect that Google would be manipulating this document. Iota refers to the abbreviation IoT (Internet of Things) and in this world the situation is different. In the IoT vision, the world is filled with a wide variety of small sensors and smart devices that consume very little energy and communicate with each other via lightweight local networks. Internet access is too energy consuming for a small sensor, and on the other hand, so much data is already being collected that it simply cannot fit into the Internet bands.

The data collected in the IoT world is utilized locally. I'm not interested in the amount of people passing by a sensor on a street side small village in Kansas, but a nearby self-driving taxi might really be interested about it to be ready in right place already when a ride is needed. In the IoT world, huge amounts of data are collected everywhere and fed through artificial intelligence algorithms. Machines optimize their operations everywhere based on this data and distribute electricity, services and maintenance wherever they are needed. In this case, the information is transmitted from one machine to another on local networks. While such technology has the potential to gain tremendous efficiencies in almost every area, it also creates a really easy way for hackers or other scammers to abuse of this data if it’s not effectively protected.

Iota's idea is to create a DLT network that can store this data locally so that once it is stored, nobody can edit it. This creates a layer of trust, a common database from which data can be read as needed and can be relied on to ensure that the data is no longer edited and is valid.

This also allows machines not only to share data with each other, but even small devices can become economic players. Deutsche Bank does not give an account to a small sensor, but Iota allows each device to have its own account. Data or services can be sold from one device to another, and yet you can trust that a hacker will not put down all the city equipment and steal all the data and money in his own pocket.

However, the IoT vision is still a long way off. There are still very few local networks (Mesh networks) and most IoT devices still work over the Internet. However, even using the Internet there is a huge benefit if IoT device have its own account and are able to make independent financial decisions. For example, an electric car automatically pays for its electricity, tolls, or parking, and on the other hand, even sells data about road breakdowns to the road service.

It would be risky if only one central entity (such as Google) managed the money on all IoT device accounts with its cloud service. One successful hacking attempt and no one could prove that billions have gone to the wrong place.

On the other hand, storing data so that it can no longer be changed is really valuable. How much is the value market for counterfeit branded products? If Michael Kors puts the QR-code in their bag and this code is read and saved each time the bag is transferred from one operator to another, the entire chain of the bag can be seen from the factory to the store shelf and the customer could check with her mobile phone is there gaps in the chain and if the product is original.

At some point when things are being automatized, we will come to the question of trust and then DLT has its place. If we want to make intelligent power networks where the machines connected to the grid will regulate their operation so that the load peaks of the grid would get equalized, then we would need reward system to the machines involved in balancing grid. Also, we would need to have way to prove impartially that the particular machine has been involved in balancing which is getting rewarded.

Above there was some of the use cases for DLT. In the future, Iota's vision is to be more of an internet-like standard than just a cryptocurrency. The standard that brings reliability, trust and security to the IoT world. Currently, Iota operates over the Internet, not through mesh nets, but the development of a mesh net standard has been underway for a few years now.

What all this requires

To be able to do the above, DLT must meet certain criteria. In reality, the topic is much broader, but here are the main ones:

No charge - Small devices can make multiple wire transfers per second. The value of the small sensor information is in fractions of a cent. Thus, a single crypto transfer cannot be paid for. In Iota, transfers are free. Each transfer consume energy however the amount of energy is so small that moving fractions of a cent makes economic sense with feeless crypto like Iota. Almost all other cryptocurrencies have way too high fees for this kind of use.

It requires also to be distributed and DLT network is basically distributed. The Iota Consensus (the way the network chooses a common "truth") is now decentralized but still requires a centralized body for consensus coordination. This slows down the network and creates a single point that can stop the whole network. A fully decentralized and fast-tracked new consensus mechanism is currently being worked on.

Scalable - The network should be able to handle hundreds of millions of transfers per second in IoT's ultimate vision. In scalability, no cryptocurrency has reached anything yet. With the current network, Iota can handle up to 30 transfers per second, and the future consensus is likely to handle at least about 300,000 transfers per second.

This is a lot (at least 100x) better than other cryptocurrencies and it is important to note that the entire network will then handle about 300,000 transfers per second. The total number of transfers can be relatively easily increased by dividing the network into small local areas, each handling 300,000 transfers per second (= sharding). However, in the IoT world most of the transfers are local. It is then necessary to find the best way to deal with inter-regional transfers, and this has been the subject of a long-standing investigation by the Iota Research Department. There are different sharding solutions in the crypto world, but the key is to find the best suitable sharding solution for IoT use.

Iota Foundation (IF)

Iota Foundation is a non-profit organization founded in Germany. It has about 100 employees and the organization is about 2 years old. Iota foundation focuses on developing the Iota DLT (= tangle) network. In addition, Iota has an extensive ecosystem/Community of enthusiasts from coders to large companies that build applications based on Iota (including Bosch, Audi, Fujitsu, Dell). Note, however, that many large companies collaborate with many different cryptos. IF also owns Iota but has received it as a donation from the Community since the organization was founded.

Crypto markets

The cryptocurrency market is fresh and almost completely unregulated. If you imagine a stock market where there is no regulator or related legislation gets in the way, but there is also a lack of institutional investors who bring in the know-how. Virtually every scam and manipulation you could imagine would happen every day in crypto markets. Iota market cap is less than 1/200 worth of Bitcoin market cap, so market manipulation is very common. IF has a limited budget and has focused its resources for two things. Development of basic technology (Tangle etc.) and building relationships with companies and organizations. I have followed very closely to Iota bit over 2 years now and still I have not seen from IF any ad about Iota for investors. IF hasn’t either started to fight about market shares. Instead, technology has progressed steadily and almost all major technology companies know Iota today.

The last thing I put into this article is that Iota still has no considerable competitors. No other project has started convincingly to create an IoT standard. The potential here is enormous, but it requires the creation of all technology from the grass root level to production readiness. That means that productive applications are yet pretty long time away. There are other projects that talk about IoT too, but they are more of an application of current blockchain technology than recreating everything to fit to the IoT world from the scratch.

There was brief description to the Iota. In the blog there is more about Iota technology in Finnish language and I am working on with English versions too, so more is coming.