Vision: IOTA in 10 years / Part 1

Every beginning is difficult ...

Before I discuss the future vision of IOTA, I'd like to start with a few basics for everyone. Often I am asked how Blockchain, for example, Bitcoin works at all before going to the question of how IOTA delimited from it. What everyone has noticed, however, is the huge hype that was made around the cryptocurrencies last year. Many jumped on the bandwagon without really knowing what's really behind it.

Due to uncertainties such as the danger of regulation, the statements of central banks and governments and not least the really heated hype, it then came as it had to come. A crash took place. Now, a bit of calm has returned and the questions about the demarcation of IOTA are coming back. But many people still have also questions that are at the very beginning of those who are not yet busy with the field. For example what is the Distributed Ledger Technology or the directed acyclic graphs at all.These are all terms that are not trivial, but may represent very complex mathematical entities. I would like to try to explain these things as simply as possible, so that they are generally understandable.  First, I'd like to take a little trip into the basics of Blockchain and the DAG on which IOTA is based and then, in a next step, to build the truly revolutionary vision of IOTA. Someone who is new to the subject of cryptocurrencies and IOTA may wonder what a DLT is and what it all has to do with IOTA. We will see. An official definition of the term DLT is in Gabler's economic lexicon:

Distributed Ledger Technology

1.) Distributed Ledger Technology (DLT) is a special form of electronic data processing and storage. A Distributed Ledger or "Distributed Accounts Book" is a decentralized database that allows users of a network to share read and write permissions. Unlike a centrally managed database, this network does not require a central instance that makes new entries in the database. New records can be added at any time by the participants themselves. A subsequent update process ensures that all participants have the latest version of the database. A special feature of the DLT is the blockchain.

2.) Configurations: Dependent on the access possibilities of the participants in a network Distributed Ledgers can be subdivided into "permissioned" and "unpermissioned" Ledgers. While the latter are openly accessible to anyone (such as the Blockchain in Bitcoin network), access to the account book is regulated at the former. Participants in networks with permissioned ledgers are generally registered and meet certain requirements for access to the account book. The choice of the circle of authorized users (open or limited circle of participants) also involves the choice of the consensus mechanism. For example, proof-of-work mechanisms are primarily used for unpermitted ledgers, since the validation of entries requires no trust among the participants. On the other hand, permissioned ledgers use proof-of-stake or PBFT consensus mechanisms that require less computing power. The establishment of a basis of trust in this case already takes place through the admission of the participants to the network.“

 

Quote:

Al Gore; Former Vice President of the United States, Image Shutterstock

“When bitcoin currency is converted from currency into cash, that interface has to remain under some regulatory safeguards. I think the fact that within the bitcoin universe an algorithm replaces the function of the goverment …[that] is actually pretty cool.”

 

Sometimes pictures show more than a thousand words

 

Blockchain / Bitcoin

The blockchain is a common public booking system on which the entire bitcoin network is based. The blockchain is a way to store data. In Bitcoin, this is transaction data, that is, information about payments: who paid whom, when, how much Bitcoin, etc. From this, the "account balance" of each Bitcoin user can be calculated. The blockchain is thus a peer to peer system based on a cryptographic code.

A block contains a certain number of transactions, for example "A paid 0.1 bitcoin to B". In other words, multiple transactions are grouped together. All confirmed bookings are saved in the block chain. Each block refers to the previous one. So the blockchain is a chain of blocks. Hashing plays an important role here. A hash is a kind of digital fingerprint of data. Every record, every transaction, has its own fingerprint, which distinguishes it from other records. In this way Bitcoin Wallets can calculate their account balance and new transactions can only be executed if the bitcoins actually belong to the sender. The integrity and chronological order of the block chain are ensured by cryptography.

A transaction is a transfer of an amount between Bitcoin wallets entered into the block chain. Bitcoin wallets have a secret block called the private key, or "seed," which is used to sign transactions by providing mathematical proof that they come from the owner of the wallet. The transactions from each block are combined into a hash tree. In addition, each block is described by a header. Each header contains the hash of the previous block header, pointing to the corresponding block. In this way, the blocks form a chain.

The signature also prevents the transaction from being modified after someone has sent it. All transactions are distributed among the users, and within minutes, network acknowledgment begins with the help of a process called mining. Satoshi Nakamoto had a simple but ingenious idea: the hash of each block header must be smaller than a certain value. As a result, a node can not simply calculate the first hash. He has to find a suitable hash with brute force. This process is called mining.

Mining is a distributed consensus system used to validate waiting transactions by adding them to the block chain. It enforces a chronological order of the block chain, protects the neutrality of the network and allows different computers to agree on the status of the system. To be confirmed, transactions must be packed into a block. This must comply with very strict cryptographic rules that are verified by the network. These rules prevent previous blocks from being modified because a change would invalidate all subsequent blocks.

 

Bitcoin Whitepaper

Satoshi Nakamoto's original paper is still recommended reading for anyone studying how Bitcoin works.

 

A diagram shows the mining at Bitcoin

IOTA

As ingenious as this system works, there are a number of problems in practice. The rise and success of Bitcoin during the last 8 years proved that blockchain technology has real-world value. However, this technology also has a number of drawbacks that prevent it from being used as a generic platform for cryptocurrencies across the globe. One notable drawback is the concept of a transaction fee for transactions of any value. The importance of micropayments will increase in the rapidly developing IoT industry, and paying a fee that is larger than the amount of value being transferred is not logical. Furthermore, it is not easy to get rid of fees in the blockchain infrastructure since they serve as an incentive for the creators of blocks. This leads to another issue with existing cryptocurrency technology, namely the heterogeneous nature of the system. There are two distinct types of participants in the system, those who issue transactions, and those who approve transactions. The design of this system creates unavoidable discrimination of some patricipants, which in turn creates conflicts that make all elements spend resources on conflict resolution. The aforementioned issues justify a search for solutions essentially different from blockchain technology, the basis for Bitcoin and many other cryptocurrencies. In this paper we discuss an innovative approach that does not incorporate blockchain technology. This approach is currently being implemented as a cryptocurrency called iota, which was designed specifically for the IoT industry.

Directed acyclic graphs (DAGs)

IOTA  is a distributed ledger technology that takes a different approach than traditional blockchains. No miners, no chain and no blocks - this is to make IOTA efficient.

IOTA uses the new Tangle approach as Distributed Ledger. Tangle is a further development of directed acyclic graphs (DAGs). This is not a traditional block chain in which individual blocks are hung together. Instead, the network is made up of many nodes that are connected to each other.

IOTA runs just like Bitcoin on a peer-to-peer network but there are only the equal nodes. As a special feature, there are not even miners in the network. What the miners would do otherwise, do the transactions themselves here.

Let's say I want to send a transaction. The miner would validate those and take money for his service. To submit my transaction, I have to select and validate two pending transactions myself. Likewise, my transaction is validated by the next user, who in turn wants to send a transaction.

IOTA also uses the term proof-of-work. This is because, in fact, validating a transaction is a mathematical task. But IOTA's proof-of-work protects against spam and does not play a crucial role in network convergence. Unlike Bitcoin, IOTA is not centrally based on proof-of-work.

Validating two transactions now creates a graph. The most recent transactions are on the right. Each transaction points to two older transactions - we call these the "parents". Mathematically speaking, we see a directed graph without a compass. The children point to their parents.

The gray transactions have no children, so they have not been validated yet. These non-validated transactions are called tips (tip). The red transactions have already been validated, so they have at least one child. Now for the green transactions:

A transaction is green if there is a way to this transaction from each tip - gray.

Why does this matter? When I validate a transaction, I check it for accuracy. But to ultimately check the accuracy of a transaction, I must also check that the parent is pointing to the transaction correctly!

For green transactions, we can say that all current transactions agree that they are valid.

First of all, in fact, the Tangel IOTA's way of solving all the challenges that Bitcoin has solved with blockchain and proof-of-work. And the key point is that each transaction points to two parents. It starts very easy. In the beginning there was the Genesis transaction - which is correct by definition. Subsequent transactions must of course meet the obvious criteria

  • IOTA is no longer issued as available
  • The transaction is signed by the legal owner

I can check that for all transactions based on my parents. This Tangle physics leads to the following characteristics that make IOTA so outstanding:

  • speed
  • Transaction independence
  • No transaction costs
  • Safety

I hope I could clarify some things. Now, in my opinion, the prerequisites have been laid for venturing into the future and that brings us to the actual topic: "Vision: IOTA in ten years". We will dedicate ourselves to this broad topic in different chapters: Journey to the IOTA future, Urban living, Smart Mobilty, E-Health, Smart Energy, Industrial IOT for example. These will be published gradually

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Sources:

[1] Gabler Wirtschaftslexikon; https://wirtschaftslexikon.gabler.de/definition/distributed-ledger-technologie-dlt-54410

[3] IOTA Whitepaper; http://iotatoken.com/IOTA_Whitepaper.pdf

[4]  gustaveTangle statt Blockchain - Wie funktioniert IOTA?

 

IOTA Whitepaper

If you want to get very involved with the possibilities of IOTA and the Tangle, you can read the IOTA "White Paper". But beware: It's very mathematical and, in my view, not directly understood by anyone. But nevertheless, there are references to the great possibilities of IOTA in many places

 

Quote:

IOTA founder David Sønstebø gave an interview with Arthur Falls on his podcast Ether Review. During the interview, David describes how he began his journey with blockchain. He also explains IOTA and the plans that the IOTA foundation has for the technology.  When responding to an answer he gave, David said:

"We don’t’ tend to hype things around IOTA, we tend to be very pragmatic and down to earth about what’s actual, rather than hyping things up, so we do it casually."