In order to understand what sets a project apart from all the others in the DLT space, one must always start from what motivated the creators to come up with such a project in the first place. In the case of IOTA it was the realization that certain problems will prevent the blockchain from fulfilling many of the use-cases which existed (and to an extent still do) only in theory. IOTA is arguably one of the major pioneering projects that took the concept of a DLT and implementing it with a different underlying data structure to solve many of the problems with Blockchain: fees, scaling, and centralization brought about by the need for validators or miners.
The result is a network that can easily handle huge amounts of data, which the creators hope will act as a catalyst for a true machine-to-machine economy, something which goes hand in hand with the emerging technological advancements we’re seeing in Artificial Intelligence as well as the Internet-of-Things.
David Stonstebo is the Co-founder and Co-Chair of IOTA Foundation; a new type of foundation, with the focus to develop the next generation of protocols for the connected world. Here, we ask David to explain the journey so far…
How did IOTA start?
“Sergey Ivancheglo, Dominik Schiener, Sergei Popov and myself were working on Annex II, the first proof of stake project. All of us had been in blockchains since 2011. We realized through working on this, that blockchain simply cannot scale and it really disqualifies itself from so many of the use cases that it’s touted as a solution for. The reason for this is very fundamental and very simple”.
David explains that one of the aspects are the fees on transactions, which automatically disqualify it as any kind of payment network. The other is the scalability limitation, which again, disqualifies it as a payment network, but perhaps even more importantly, it also disqualifies it from being a data transmission layer. The third thing, though more indirectly is the centralization versus decentralization.
“We all knew of these problems in blockchain from just a purely theoretical understanding of blockchain. But, it was really when Sergey Ivancheglo and I started thinking about how distributed ledgers to promise immutability, when applied to the Internet of things, did huge amounts of data and machine to machine interactions that need to be secured. In late 2014, we already kind of had a draft of very, very early Tangle and then throughout 2015 we started perfecting it, optimizing it and announcing to the world”.
How does IOTA Tangle solve some of the inherent problems with Blockchain with regards to PoW and IoT?
“The way it resolves all level three is actually quite simple and elegant. So, if you think of the blockchain, you have these fixed blocks, these you can only fit a certain amount of transactions into blocks and you can only verify one block at a time. So, it’s this very sequential one dimensional distributed venture. That, of course, means that if a lot of people want to transact or send data through the network, they have to bid for priority to be in the next block. That’s where the fees come in, your fees are just like bidding, and this is also where the scalability limitation becomes obvious”.
David explains that the blocks themselves are bottlenecks of the network (It should probably be called bottle chain or something). The way this is resolved is that instead of having these two parties turn the users into validators, we make the users and the validators one and the same. So, when you issue the transaction, you also validate two transactions in a network, which again has validated their own two transactions and so on and so on and so on. In that simple solution, you solve all of these gi problems because number one, there is no longer any scalability limitation, because the more people issuing transactions, the more transactions are being validated in the network.
It becomes more and more efficient, there are no bottlenecks, so that sorts scalability and it also solves the issue of fees by the same mechanism because there is no bid for priority. There simply is no reason to have fees in a network, there simply is none. The third thing that it indirectly resolves is decentralization. It’s again the very same reason in the blockchain, it’s always this economic incentive due to the structure to gather resources in these mining pools in order to be able to collect as many fees and block rewards as possible. But in the IOTA system, there are no fees, there is no incentive to centralize resources. It also becomes a lot more decentralized just as a consequence of this architecture.
How does this coordinator actually work and what’s your plan now going forward with the technology?
“The coordinator is a very simple bootstrapping mechanism. In very simple terms, it’s just like training wheels for a bicycle. Think of any distributor network as a kid. That kid, you could, in theory, put him or her on the bike and push them down a hill. The outcome would be very bad. So, instead you put them on training wheels, you have these tools they can learn to actually balance and coordinate their legs and arms correctly. The coordinator serves the exact same purpose. It’s a temporary mechanism that issues these milestones. As a user of the network, you are completely free to ignore these milestones, just like you are free to ignore the training wheels as a kid. I would not recommend it, but you can”.
David explains that the network itself is completely decentralized, but the users of the network have this option to listen to the coordinator to know that their transactions are as secure as possible. Of course, this mechanism, just like training wheels, is meant to come off. But in order for it to come off, the network itself has to grow to a certain size or a certain self-sustaining level of throughput. This has been the plan ever since inception. There are several ways to do it and the iota team are working very intensively with researchers to figure out the best-optimized way of doing it, so that when there is this Coordicide (death of the Coordinator), one knows that it’s the most efficient or the most optimized network solution that emerges from it.
What industries do you believe would benefit most from this technology and can you provide some example of IOTA Tangle technology currently being explored in those industries?
“I would say literally every industry that has anything to do with transactional settlements or data, can use and benefit from the Tangle. If we start with transactional settlements, of course, IOTA is the first time in history where we actually had digital payments without any fees, which is quite revolutionary in and of itself. Ever since payments via internet were introduced we have just taken fees for granted”.
With IOTA, when you no longer have these fees, you can create a completely new economy where you pay for the exact quantity you use, rather than pay upfront or after the factor based on some statistical projections of how much you are going to use it. This creates for the first time in history, the real-time economy.
When you put data onto the ledger, it has data integrity, which means it can never be changed again. It can never be tampered with. That is immensely powerful and important in an age where data is literally the foundation of where we make all our decisions and autonomous vehicles will make all decisions, any kind of autonomous device makes all their decisions based on data.
Securing this data for free and effortlessly, is, of course, something that appeals to virtually every industry on the face of the earth. Here we discuss some concrete examples starting with Mobility
IOTA in Mobility
The future of mobility is of course that cars become their own autonomous agents where not only can they drive themselves, but they can also make payments or conduct maintenance by themselves. So, if an autonomous vehicle needs to charge, it can simply pay in these streams of Vulcans and received literally in real time pay for the exact quantity that they’re charging. There’s no risk for any car driving off without paying or something like that. Another very interesting use case in Mobility is called platooning.
The beautiful thing is that in platooning you essentially just utilize a concept called drafting from aerodynamics. So first, like you platoon let’s say five trucks or five vehicles whatever, kind in a row and the first car breaks the wind barrier and this creates this aerodynamic flow that makes it a lot easier for the other vehicles behind it to drive, because there is less friction or air resistance. This, of course, means that those cars behind the first one have reduced energy expenditure. The thing is, if you look at this, let’s say you have the cars lined as A, B, C, D, E you would think that like just from comments as well, it’s probably the same parole to vehicles, but the fact is that it’s actually very, very different from a four for the different vehicles where they are positioned in the platoon.
The question becomes ‘why should I ask the first truck? Why should I only receive five percent energy benefit when my competitor behind me gets 15 or 20 percent gains?’ This can be leveraged out or the benefit can be spread out by utilizing these real-time payments. So the B vehicle and C vehicle can take B and A, and so on and so forth. So, you can constantly have this complete democratization of this energy game. And that is quite a noble idea in and of itself.
Depending on how what kind of model these different vehicles are in, they have different biodynamic properties. Of course, you need to profile these different biodynamic properties and then create some sort of identity system for the vehicles themselves so you can calculate these payments. So, indeed that data needs to be verified. It needs to have this immutable property because otherwise I could tamper with this and claim that I am some huge semi-truck when I may be driving some tiny Scooter or something. Therefore, it’s incredibly important to have data integrity and that calls for virtually every single thing when it comes to mobility.
If there’s a crash, for instance, you may have every incentive in the world to tamper with the data in the black box of the vehicles, to make it seem like you didn’t do anything wrong or the eponymous vehicle didn’t do anything wrong, but if you secure that data in real time onto the distributed ledger, there is no way for anyone to do that.
IOTA in Supply Chain
The supply chain has a lot of data. There’s virtually no end to the quantity of data that goes into a supply chain. Securing that data and making it distributed so that everyone can verify it, everyone can get hold of it, that will play a tremendous role.
Currently, the supply chains have over 4 trillion dollars per year just in wasted goods and counterfeit goods. Then you can probably add a couple of trillion on top of that and then all the time that is lost when a document is false because it’s still used out there in paper documents. All of these things need a solution.
The reason they haven’t really moved on with the digital age, is that it’s so easy to tamper with this centralized databases and everyone has an incentive to do so. The insurance company has an incentive to do so. The shipping line has an incentive to do it, freight forwarders, etc., the list goes on. But if you had this single source of truth, this immutable truth that is decentralized and distributed among all the participants, that problem goes away. You can make this even more finely granular, when you invoke the internet of things, sensors into containers to track the temperature, the humidity, etc. To make sure that if the goods are delivered in poor shape, you can see exactly where in the chain of custody something went wrong. This is where, of course, data integrity comes into play and you resolve this with having a distributed ledger.
Another example is an independent group, called bIOTAsphere. They are developing solutions based on the IOTA network or the IOTA Tangle and the ecosystem around it. So, here we have real-time insurance, so when you drive your vehicles, you pay literally these tiny, tiny, tiny nano transactions you can call them, in real-time to the insurance company based on how you drive.
Instead of using these probabilistic models, which insurance is based on today, where they take your gender, your age, your driving history, into account and what sort of vehicle that is. Instead, you pay exactly as you drive. If you drive too fast your insurance may go up when you are stopping your insurance goes down. Your car can change insurance providers in real-time to get the most favorable scenario to match your current situation. This is something that they are starting to get quite a lot of interest from big mobility conglomerates and their financial services groups. So that’s also very exciting. Just a demonstration of both the data as well as the transactional tokens.