What is IOTA?

This article is a translation of the German IOTA Beginner’s Guide by Schmucklos.

What is IOTA?

IOTA is not a blockchain. IOTA is a scalable open source communication protocol with tokens (cryptocurrency) used for value transfers. It is developed and provided by the non-profit IOTA Foundation (foundation under German law) with headquarters in Berlin.

The name IOTA comes from the ancient Greek alphabet (Ἰῶτα “the smallest letter) and means “something small”. The iota is the 9th letter of the ancient Greek alphabet and was pronounced identically in ancient times as it is today, namely i; the Latin letter i is also derived from it. In the IOTA communication protocol, the i stands for 1 iota and is the smallest tradable unit of value in the network, which completes the circle to “something small”.

The goal of the IOTA Foundation is to create a Trust Layer for the Internet of Everything (IoE), which enables devices to exchange data and values immutable and free of charge. IOTA is working with the industry and the Object Management Group to standardize its communication protocol. With a high level of interoperability IOTA will be the “Ledger Of Everything”. Its infrastructure can also be used by external applications without permission.

IOTA Beginners Guide 1
Source: IOTA Foundation

IOTA allows a fast, tamper-proof and decentralized transfer of values and data over many nodes. Thereby value and data transactions are handled fundamentally different. While value transactions must be validated by full nodes, data transactions are confirmed directly and are notarized. Now, some may ask, why do I need the IOTA distributed ledger technology for a pure data transaction, since I can simply encrypt and sign the data and send it via TCP/IP.

Well, aside from the fact that “Man in the Middle” attacks would be possible, signed data only proves that the data came from you. It does not allow me to prove when you sent it, nor whether you sent the same data to everyone. You could send a certain piece of information to one person and another piece of information to another person. Signatures alone will not protect anyone from such things.

“Notarization” can be used to prove that an electronic document existed in a certain form at a certain time and has not been changed since it was created. When a notarization is created, a unique hash (fingerprint) of a document is calculated and stored together with a timestamp in the IOTA Ledger (Tangle) in an unalterable way. If at a later time it is to be verified that the document in question existed at the claimed time and / or has not been altered, the data is retrieved from the Tangle and compared with the available information.

If the IOTA Tangle is used as a transport medium, then these types of attacks are not possible and there are many use cases where it is critical that all parties involved can be sure that everyone is working on or with the same information (e.g., supply chains, oracles, synchronized remote control systems, etc.). It is therefore primarily about use cases that cannot simply be transferred via TCP/IP, otherwise one might as well use BitTorrent for this. Sender and receiver need a transparent form of transmission between multiple parties or organizational units.

The bottom line is that it is not only about nobody manipulating the data during transmission, but also about the receiver not manipulating this data. Example: A sensor (with IDoT chip) has measured / collected some values and sends this data via the IOTA Tangle, which stores the hash of this data. If this data is to be sold later, this hash can be presented as proof and prove to the buyer by means of the Tangle that the data from the sensor has not been changed afterwards. The IOTA technology (Tangle) thus acts like a kind of fingerprint. It can be used to verify all data sent. Note: To prevent misuse scenarios and in an efficient way to enable machine economy, nodes and devices will receive a unique identifier (ID) in the future, see also Identity of Things (IDoT).

The credits on the addresses are known to all participating full nodes at all times, but beyond that, IOTA does not see itself as a data store. So the transaction history on the full nodes is not stored over a longer period of time – similar to the TCP/IP traffic of the Internet, which is also not stored. If a user or a company also wants to retrieve or store the transaction history over several years, additional solutions must be used for this. This could be a selective permanode, a separate second-layer application or, in the future, a smart contract that pays several nodes for this service.

The communication protocol is modular. This allows faster and simpler updates in the future. For redundancy in the network, a lot of nodes are needed. Every car, machine, router, etc. can be a node in a few years. The more nodes participate in the network, the faster and more secure the network will become.

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Jmx0O2lmcmFtZSB0aXRsZT0mcXVvdDtJT1RBIGV4cGxhaW5lZCBpbiB1bmRlciAzIG1pbnV0ZXMhICgyMDIxKSZxdW90OyB3aWR0aD0mcXVvdDs1MjUmcXVvdDsgaGVpZ2h0PSZxdW90OzI5NSZxdW90OyBzcmM9JnF1b3Q7aHR0cHM6Ly93d3cueW91dHViZS5jb20vZW1iZWQvM21RZmQ1WXh4UkE/ZmVhdHVyZT1vZW1iZWQmcXVvdDsgZnJhbWVib3JkZXI9JnF1b3Q7MCZxdW90OyBhbGxvdz0mcXVvdDthY2NlbGVyb21ldGVyOyBhdXRvcGxheTsgY2xpcGJvYXJkLXdyaXRlOyBlbmNyeXB0ZWQtbWVkaWE7IGd5cm9zY29wZTsgcGljdHVyZS1pbi1waWN0dXJlJnF1b3Q7IGFsbG93ZnVsbHNjcmVlbiZndDsmbHQ7L2lmcmFtZSZndDs=
Source: Everything Tangle

Technology

In order to achieve the above-mentioned goals the following features are of essential importance:

  • Scalability – Processing a significant number of transactions per second over a large network of nodes with fast confirmation times.
  • Lean system – Low-performance devices should be able to participate directly in the network.
  • Free of charge – Transactions should be sent without paying network fees. If 50 MIOTA are sent 50 MIOTA will arrive.
Fee comparison between IOTA, BTC and ETH
Source: IOTA Foundation

Data structure

In addition to the fees conventional DLTs such as the blockchain have other limiting factors and are therefore unsuitable for achieving the goal of IOTA. For example, the inherent speed limitation of blockchain networks, commonly referred to as “block chain bottleneck”. In the blockchain there is only one side to which new transactions can be attached – the end of the chain. The resulting negative effects on network throughput are shown in this simple graphic:

Visualisation of bottlenecks in blockchains
Source: IOTA Foundation

In contrast, IOTA does not string together block by block and does not require miners to validate transactions. The core data structure in IOTA is highly scalable, made possible by a simple rule: each transaction references and approves two existing transactions. This rule defines the underlying data structure of IOTA – the tangle – which is mathematically called a directed acyclic graph (DAG).

  • a set of transactions is connected by paths
  • each of these paths has a clearly defined direction, so it is a directed graph
  • if no path that returns to its starting point can be found the graph is acyclic (circular paths would be cyclic)

Transaction status

Visualisation of the Tangle
green = completely confirmed / white = partially confirmed / grey = unconfirmed (Tips)

Instead of being limited to a single point for attaching new transactions as with the blockchain, DAGs offer several points where transactions can be attached. Users can attach new transactions to different parts of the tangle without waiting for confirmation from other transactions:

Visualisation of new transactions in the Tangle
Source: IOTA Foundation

In this chaotic order, all transactions are processed in parallel and allow for a very high scalability, since with an increasing number of transactions, the confirmation rates also increase instead of developing in exactly the opposite direction, as currently with traditional blockchains.

Consensus mechanism

In the blockchain the network is divided into miners and users. Miners consume large amounts of computing power and thus fulfill the proof of work (PoW) required for creating the blocks. Miners are motivated by the fees that users are willing to pay to have their transaction included in a block. This fee-based incentive structure would be a significant barrier in a machine-to-machine economy, where micropayment values between machines can be lower than the fees charged.

In IOTA there is no difference between miners and users. All nodes can participate in the consensus. This means that an IOTA node plays a completely different role than a Bitcoin miner. IOTA nodes only perform basic operations that do not require much processing power (e.g. storing the ledger, validating transactions). Users can set up a node at minimal cost and actively participate in network consensus, thus increasing network security.

The consensus mechanism determines how the nodes agree on which transactions are trusted, thus ensuring network consistency. In the current IOTA implementation (as of June ’20), nodes only trust (value) transactions that are referenced and approved by milestones issued by the coordinator. Similar to Bitcoin (checkpoints until June 16, 2014), the use of this centralized “finality device” is currently still necessary to ensure the security of the network, which is still in its infancy.

Note: The Open Source Coordinator can only validate transactions. It cannot bypass consensus rules, so it cannot create, freeze or steal tokens. For monitoring, this rule and the address of the coordinator is hard-coded in every node. The coordinator’s influence on the tangle is therefore very limited, because the tangle is additionally monitored constantly by all other nodes.

Visualisation of the Coordinator
Source: IOTA Foundation

IOTA without coordinator

The coordinator will be switched off in the near future (Coordicide). In this context all research work has been mostly completed and reviewed by several universities. IOTA’s development roadmap to production readiness and adoption has been defined and is currently being implemented. The IOTA network has already been fully optimized with a very large pre-Coordicide update called Chrysalis to already provide an enterprise-ready solution for the ecosystem.

The pending shutdown (expected Q1/2021) of the Coordinator ensures that the network will reach consensus without the Coordinator, while maintaining the following characteristics:

  • Scalability: The transaction rate in the network is not limited by the protocol, an unprecedented scalability is enabled.
  • Security: An attacker cannot influence the consensus.
  • Decentralized: All honest nodes can be part of the consensus.
Trilemma of DLT: Scalable, Decentral, Secure
Source: IOTA Foundation

Current blockchain solutions can solve a maximum of two of these three properties simultaneously. The algorithms are designed to keep the mining difficulty at a certain point so that the network cannot produce a new block while the existing block is being created and verified by all nodes. This means that the larger the number of nodes in the network, the longer it takes for the block to reach all nodes and to be verified. If the block time were small, many blocks would be produced simultaneously by different actors and the Nakamoto consensus could not agree on a single outcome. Different nodes would see different chains as the longest chain at the same time.

They solve this by setting the mining difficulty high so that the block time averages 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, accepts the successful block, and tries again. There are times when multiple actors (usually two) get lucky and create a valid block at the same time. Half of the network accepts one block and the other half accepts the other. This is solved by the next miner finding the next block and attaching it to a chain. This chain is the longest and it wins. All nodes accept it as valid. This is how it is done in PoW and even though there are no miners in PoS, the concept is similar. Nodes have to agree on a block before they start producing the next block. As the number of nodes increases, so does the network delay (time for the block to be sent to all other nodes). Since the Nakamoto consensus is a synchronous consensus, it can at best solve 2 of the 3 issues (security, decentralization, scalability).

This problem is called the “blockchain trilemma”.

PS: Limited block size creates another problem. As more and more transactions are sent over the network, miners choose to validate the transactions with the highest fees, leading to increasing transaction costs and long waiting times. The revolutionary nature of this PoW-based solution should not be underestimated – but at the same time, the associated network throughput constraints should not be neglected.

IOTA is fundamentally not a victim of the blockchain trilemma due to its asynchronous nature. Each node is allowed to simultaneously produce transactions while interacting with a subset of nodes for consensus, using a non-linear data structure. With IOTA 3.0 (i.e., including sharding), IOTA will offer a solution that circumvents the trilemma and thus actually solves it (matter of opinion). What is sharding: IOTA nodes have an upper limit on transactions per second (TPS) they can process. Through a form of database partitioning (breaking a very large database into smaller ones) into more manageable segments (shards) each shard would contain a unique set of account balances and nodes would then be assigned to individual shards to validate transactions.

Sharding
Source: IOTA Einsteiger Guide

The goal is to increase transaction throughput by splitting the Tangle into more manageable segments. The trilemma will continue to exist within individual shards, but as soon as the network throughput exceeds the processing capacities of the nodes in a single shard, another shard will be formed dynamically (fluid sharding). Due to the novel very flexible sharding, theoretically infinite high transaction speeds are possible with IOTA.

The tangle allows users to attach new transactions to any part of the tangle. Due to the DAG structure, all that is required is that each new transaction authorizes two other transactions. By allowing multiple attachment points and avoiding the need for blocks, the Tangle is inherently scalable. There are really no protocol-related bottlenecks. Scalability is limited only by hardware and the laws of physics.

Currently, the coordinator is one such bottleneck, which prevents the protocol from scaling. In addition, while the coordinator ensures network security, it also represents a single point of failure and thus also prevents IOTA from being a fully decentralized network. Therefore, removing the coordinator from the consensus mechanism is the main goal of the IOTA Foundation.

The improved Tangle after Coordicide: decentralized, scalable and secure

The removal of the coordinator (project: Coordicide) alone is not sufficient to solve the scalability trilemma in a secure and decentralized way. For such a network, additional security modules must be implemented that do not stand in the way of a high transaction rate. The core of the solution is an additional security layer with the proactive voting mechanism called Shimmer, through which nodes request the opinions of other nodes to decide which transactions should be included in the tangle and which should be rejected (orphaned).

Visualisation of the Tangle after Coordicide
Source: IOTA Foundation

In order to remove the coordinator a number of issues need to be resolved. Due to the complexity of the solution, the Coordicide is broken down into different components. This approach means that the Coordicide proposal and the future protocol will be modular. Each module can be replaced independently if new research results lead to further improvements in the future.

Note: If you want to get a deeper insight into the Post Coordinator consensus mechanism, please read the Coordicide section (not up to date anymore). An upwardly open scaling will only be possible with Sharding. This will be introduced after Coordicide, but there are already the first articles in the Sharding section.

IOTA 2.0 Development Network (DevNet)

After years of hard work to implement the theoretical foundations into code by the team and academic partners and nearly a year of extensive testing, validation, and iterative development together with the community, the IOTA 2.0 Development Network (DevNet) was launched in June 2021. It is the first fully decentralized, scalable, and royalty-free IOTA network as envisioned when the project was founded in 2015. DevNet 2.0 includes:

  • No fees.
  • No blocks.
  • No chain.
  • No miners.
  • No wasted energy.
  • No censorship.
  • No centralization (without coordinator).
  • No permissions.
  • Total freedom!

Key factors of IOTA Distributed Ledger technology in production-ready state (after coordinator removal)

  • Complete decentralization: As a globally distributed network, IOTA is resilient and robust against attacks. Without the coordinator, no instance will play a special role in the network. To be clear: Once the Coordinator is disabled, the IOTA Foundation will not be able to restart it.
  • Permissionless access to the network: Anyone can join the network at any time to add and validate transactions. Whenever other DLTs need to limit their node count or even implement an allowed approach to scalability, IOTAs approach includes additional nodes. A larger number of honest nodes improves network security by increasing the percentage of honest votes.
  • Partition tolerant: A production-ready tangle is partition tolerant, which means that a part of the tangle can be disconnected from the main tangle for a period of time and continue to run without an Internet connection. These parts can be reconnected to the main Tangle when the Internet connection is restored.
  • Finality within seconds: The voting process allows the network to make and complete decisions on transactions very quickly without having to wait for several additional approval processes to increase security. In addition, the network can achieve “true finality” (deterministic rather than probabilistic) because an attacker with unlimited hashing power could not “reverse” the ledger state.
  • Reliable timestamps: Also known as Tangle Time. It is the last timestamp in a message that was confirmed. Tangle Time cannot be attacked without controlling enough Mana to accept false timestamps, making it a reliable, attack-resistant quantity.
  • Scalability: Increased network activity reduces transaction processing times. There are no protocol-related bottlenecks. Scalability is only limited by hardware and the laws of physics. The elimination of the coordinator as a single unit that processes and verifies all transactions is the basis for a dynamic Sharding that provides “true” unlimited scalability.
  • An adaptive rate control algorithm that works on a node-by-node basis will make it impossible for attackers to flood the network with unhealthy spam, while honest nodes can still operate normally.
  • Increased reliability: Determining the preferred part of the tangle by voting allows the implementation of different tip selection strategies that will pick up most (if not all) honest transactions. This reduces the need for reattachments and promotions.
  • Security / Mana: The novel Sybil protection mechanism results in extremely high mana shares and, together with the additional security mechanisms of the voting mechanism, secures the network even if there are a large number of opponents.
  • Intelligent and stable auto-peering: The elimination of manual peering reduces the maintenance effort for node operators and makes the network more stable.
  • UTXO model: Each token on an address is uniquely identifiable and each output specifies exactly the token it wants to move. This enables faster and more accurate conflict handling and improves the resilience and security of the protocol.
  • Charge-free transactions: The absence of miners makes IOTA transactions completely free of charge: Send 1 cent, receive 1 cent. This enables real micro payments for the machine-to-machine economy, making it possible to implement payment for small quantities or consumption-based payments in a meaningful way.
  • Less documentation: Companies do not have to document transactions for the tax office or store them for years.
  • Local snapshots allow nodes to store only a subset of the history of the ledger, so that nodes with limited hardware resources can participate in the network.
  • Fairness: All transactions are treated equally. There is no way to pay a premium (e.g. by increasing fees) to get a higher priority for the processing by the network.
  • Lean system: Designed for devices, such as sensors, that participate in a low-energy network.
  • Modularity: A modular design allows the components of the protocol to be developed independently. The multi-layer approach will allow further extensions of the basic protocol in the future in a similar way as the Internet Protocol itself. A protocol that cannot be updated is not a protocol.
  • Reliable management: The non-profit organization under German law behind IOTA optimizes the acceptance and future development of the network. The absence of miners makes it possible to implement new features without conflicts of interest.
  • Open Source: The technology is free, open source, and anyone can build solutions on it.
  • Immutable: The technology ensures that the information is trustworthy and cannot be manipulated.
  • Data transactions: Independent of value transactions. The so-called “messages” enable use cases that go beyond finance. The vast majority of all transactions will be pure “messages” (without value). The data can be traded on marketplaces, collected by sensors or exchanged by apps and many other use cases. The picture below shows how the IOTA architecture alone favors the fast exchange of data and values compared to the blockchain.
IOTA's parallel architecture
Source: IOTA Foundation
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Source: 42

Solutions for different use cases

Ensuring truthfulness is exactly what Distributed Ledger technology enables. IOTA is a protocol that achieves consensus on the current status in a network by providing a single cryptographically secure source with a unified truth. This will lead to a huge technological boom of innovation in the future, enabling completely new use cases or business areas with accompanying economy, which were impossible in the past because they were centralized, not scalable, too expensive, not secure or violated the rules of data protection.

IOTA will offer solutions for a large number of these new use cases. In the following an idea about the most important aspects will be given:

  • Versatility: The IOTA protocol can also be used as a tool to maintain a free and open Internet by improving privacy and security in an open network. 
  • Microtransactions: Charge-free transactions, allow for the first time for real micro-payments both for human beings and for the machine-to-machine economy making it possible to implement payment for small quantities or consumption-dependent payments. 
  • Machine-to machine economy: A machine-to-machine economy (M2M) is an economy in which machines are self-determined market participants who have their own bank accounts. The growing use of IoT and advances in artificial intelligence (AI) enable networked intelligent machines to act autonomously. This means that machines will communicate directly with each other, exchange data and pay each other for services without the need for human interaction. 
  • Digital identity: The Internet forms the basis for many of our interactions in the modern world. It has created new business opportunities, improved customer satisfaction and enhanced our daily lives. However, it lacks essential attributes of trust and privacy. With a decentralized digital identity protocol, IOTA will add these qualities to online interactions. 
  • IOTA Stronghold: Stronghold is a collection of multi-purpose libraries for secure management of passwords, personal data and private keys. It is a secure software implementation with the sole purpose of protecting digital secrets from hackers and accidental leaks. It uses versioned, file-based snapshots with double encryption that can be easily backed up and securely shared between devices. The extremely developer-friendly libraries integrate the IOTA protocol and serve as a reference implementation for anyone looking for inspiration or the best tools in their class. The low-level libraries do not contain any cryptocurrency and can be used entirely without the high-level libraries. In other words, anyone from any industry can use them.
  • IOTA Streams: Streams have an integrated method for sending messages to IOTA nodes. However, they are also flexible enough that you can extend them to send messages in other ways, such as HTTP URLs. It is a multifunctional second layer data transfer protocol that can be used for different types of data transfer (e.g. streaming data). For example, it enables sensors and other devices to encrypt entire data streams and store them in the IOTA-Tangle. The IOTA consensus protocol adds integrity and authenticity to these message streams. Given these characteristics, IOTA streams meet an important need in industries where integrity, privacy and immutability meet.
  • IOTA Access: This is an open source DLT framework for building policy-based access control systems and enabling pay-per-use functionality at the edge of the network (endpoints). IOTA Access is designed to enable fine-grained access control for any machine, device, or building without relying on a centralized system or requiring a permanent Internet connection. Access is about enabling services and security on a large scale. If there is a device that can provide a service, then Access can be integrated into that device to automate that service through embedded access control policies. In this way, device users and owners can grant or request access to their device or data stream in a remote, unauthorized, contactless, and auditable manner.
  • Digital Assets: These are earmarked tokens based on IOTA (on Top) that can represent real-world assets. These assets can be stored tamper-proof on the Tangle. They are not intended to be used to trade monetary assets – they could be used, for example, to redeem something or settle ownership issues.  Keyword: Tokenization of assets 
  • IOTA Smart-Contract: A Smart Contract is a programmed agreement that is completely deterministic and automatically enforced by encapsulating the contractual obligations between buyer and seller in the software. This makes it impossible to contradict this agreement.
IOTA Smart Contracts Multichain

The main difference between IOTA Smart Contracts and traditional smart contracts (e.g., ETH) is the multi-chain environment, which is secured by the Tangle and can run many regular blockchains in parallel. IOTA Smart Contract Chains run asynchronously, so the activity of one smart contract does not affect the speed and throughput of the others.

IOTA Smart Contracts Fees

Volatile and unpredictable fees are a barrier to the adoption of smart contracts. In IOTA Smart Contracts, fees are defined by the owner, start at 0, and are known in advance. There is no “bidding war” as in regular blockchains. Costs can be calculated with predictable business models and revenue streams.

IOTA Smart Contracts Commitees

IOTA Smart Contracts are highly flexible. Committees can be formed by an individual, a consortium of companies, or through an open, permissionless marketplace of validator nodes.

IOTA Smart Contracts Virtual Machines

IOTA Smart Contracts are scalable. Multiple smart contract chains operated by different virtual machines and can run simultaneously / in parallel across multiple committees.

  • IOTA Oracles: Oracles are designed to build a secure bridge between the digital and physical worlds in a decentralized, permission-free way. They bring off-chain data to decentralized applications and Smart Contracts on the IOTA network.

In general, Oracles suffer from the ancient “garbage in, garbage out” problem. If the data entering an Oracle can be manipulated or censored, it is possible that “wrong” data will lead to “wrong” results. Some Oracle solutions attempt to address this problem by ensuring that the Oracle uses inputs from a sufficiently large number of independent sources. Other Oracles on the market have proposed a set of standards to bring off-chain data to the chain, but they too suffer from inherent bottlenecks that can prevent real-world deployment. From IOTA’s perspective, optimally trusted data must come directly from the originating source where the data is generated, while being processed and secured in a decentralized manner.

IOTA Oracles

The potential for data tampering is greatly reduced if the source (e.g., a sensor) passes the data directly to a tamper-proof distributed ledger without going through multiple intermediaries. The simplest IOTA Oracle is the so-called first party Oracle. IOTA first party oracles do not use external data sources or data processed by a third party and made available on a DLT, but rely on data submitted to the IOTA Tangle by the data publisher itself. In the context of IoT networks, the “data issuer” would refer to the sensors themselves, without being manipulated or reformatted by anyone or anything. Once IOTA Smart Contracts are live, first party oracles can be used to feed data directly to smart contracts without having to worry about an intermediary retrieving, processing, hosting or maintaining the data. Unlike some other solutions on the market, the IOTA Foundation never interacts with data provided by data providers. For this purpose, a Confidence Score can / will be added to the data using Alvarium.

  • Flash Channels: This is an offline payment channel for deposits and withdrawals. It enables instant transactions with high throughput. This is possible because there are only two transactions in the IOTA tangle, opening and closing a flash channel. Essentially, it provides the two business partners a way to trade at high frequency without waiting for each transaction to be confirmed on the public IOTA network. 
  • Digital marketplaces: Data has been called the new oil of the digital world for some time. A basic idea of IoT is the exchange and trading of such data sets. With “machine-to-machine” communication devices can autonomously trade all kinds of data among themselves, but it could also be very interesting for humans to receive data or goods directly from the end user without having to go through a third-party platform. The creation of data marketplaces is an inevitable consequence of the IoT revolution. It will fundamentally change the way we connect, interact with or trade data. 
  • Digital twins: A digital twin is a digital representation of a tangible or intangible object or process from the real world in the digital world. The Industrial IOTA Lab Aachen, Pickert and the Digital Twin Consortium are driving the technology for IOTA.

Fields of application

Basically, almost every industry is being digitized, linked to IoT and thus benefiting from its advantages. The IOTA Foundation describes some use cases in a published interactive brochure. Furthermore, many PoC of current projects are described in this guide.

Use Cases 2
Source: IOTA Einsteiger Guide

Cooperation

To make IOTA the gold standard of Distributed Ledger technologies, the IOTA Foundation is working with partners in the following areas to standardize the IOTA protocol and enable truly flawless communication between all users and industries

Standardization organizations

A key figure in the standardization of IOTA technologies is IOTA Supervisory Board member Dr. Richard Mark Soley, who has been Chairman and CEO of the Object Management Group® since 1997 and actively drives the standardization process with his organization. Please read this article.

  • Object Management Group (OMG): OMG is an international, open, non-profit consortium for technology standards. OMG standards are ultimately determined by vendors, end users, academic institutions and government agencies. OMG develops enterprise standards across a broad range of technologies and industries.
  • Industrial Internet Consortium (IIC): IIC is part of OMG and the world’s leading organization that transforms businesses by accelerating the Industrial Internet of Things (IoT). The goal of the organization is to bring together technologies needed to accelerate the growth of the Industrial Internet by identifying, compiling and promoting best practices. The members consist of small and large technology innovators, market leaders, researchers, universities and governmental organizations.
  • World Wide Web Consortium (W3C): W3C is the committee for standardizing technologies on the World Wide Web. It was founded on October 1, 1994 at the MIT Laboratory for Computer Science in Cambridge. The W3C is a member organization. Its founder and chairman is Tim Berners-Lee, who is considered the inventor of the World Wide Web.

Important organizations / regulatory authorities

International Association of Trusted Blockchain Applications (INATBA): INATBA’s core policy is to promote the use of DLT technology by developing a predictable, transparent and trust-based global framework. INATBA provides a global forum for DLT developers and users to interact with regulators and policy makers to take DLT and blockchain technology to the next level.

INATBA Organization 1
Source: INATBA

The IOTA Foundation is a founding member of INATBA. Dr. Julie Maupin is the Chair of the Board of Directors. Until spring 2020 she was Director of Social Impact & Public Regulatory Affairs at the IOTA Foundation and is now a member of the IOTA Adivsory Board. Dr. Maupin is a leading global expert on the regulatory impact and use cases of DLTs, cryptocurrencies, intelligent contracts, artificial intelligence and IoT technologies in the public sector. She is also a reason why the IOTA Foundation is now funded by the EU in various projects.

Open Source and Non-Profit Organizations

  • ECLASS was founded in the year 2000 as a registered association and non-profit organization by twelve companies (Siemens, BASF, Audi/VW, e.on, SAP, Bayer AG, Degussa, Wacker Chemie, Infraserv and Solvay). In the meantime, more than 150 companies or large public sector organizations have joined the association as members (including the state of NRW, VW, BASF, RWE, Fujitsu, Bosch and Hella), which together generate an annual turnover of more than 1 trillion USD. In general, the association receives strong support from all sectors of the international economy and is financed by contributions from members, grants and income from the sale of their standard. The aim of the association is to enable all companies to work together globally by exchanging standardized data. ECLASS is a worldwide reference data standard for the classification and unambiguous description of products and services. It is the standard language for industrial companies for a faster and more reliable exchange of product information without consideration of the organizational structure or language barriers. ECLASS offers standardized product data for 44 industries and has become internationally accepted as the only ISO/IEC-compliant cross-industry standard, from which more than 3 companies already benefit. There are more than 500 companies worldwide, which already use ECLASS. ECLASS and the IOTA Foundation are entering into a promising partnership. This will help IOTA on the way to the M2M industry standard since the ECLASS standard is already integrated in many software systems, such as SAP. IOTA will participate as a part of the ECLASS M2M communication and trade.
  • The Eclipse project was originally founded in November 2001 by IBM and supported by a consortium of software providers and developers. From this project, the Eclipse Foundation, based in Canada, emerged in January 2004 as an independent non-profit organization that acts as an administrator of the Eclipse community (several million developers). The independent non-profit organization was established to build a vendor-neutral, open and transparent community around Eclipse. Several different projects are formed under the Eclipse Foundation to promote open source collaboration and commercial acceptance. Companies and universities will come together to develop tools and to take a pioneering role in important IOTA application areas. The first two IOTA-based projects in the newly formed Tangle EE working group will focus on decentralized marketplaces that enable real-time trading of data and services, and decentralized identity that enables a unified identity for people, organizations and devices.
  • Founded in 2016, the FIWARE Foundation drives the definition standards that enable the development of intelligent solutions in a faster, easier, interoperable and affordable way, promoting a sustainable business ecosystem. The FIWARE Foundation does this with the support of a growing global community that shares a common vision and is combining its efforts to make FIWARE the open source technology of choice for industries, governments, universities, and associations to realize its full potential and intensify its activities to open new markets and expand its business. FIWARE has pioneered the development of a standard API for context information management and provides a catalog of open source components to help companies develop next-generation intelligent solutions. The FIWARE API is now a standard adopted by ETSI (a European Standards Organization). In addition, FIWARE Context Broker technology was selected to provide the basis for the exchange of context data across Europe at the right time. The Context Broker is surrounded by a number of additional platform components that deliver context data (e.g. from various sources such as a CRM system, social networks, mobile applications or IoT sensors), support data processing, analysis and visualization, or support data access control, publication or monetization. The European Commission (EC) recently officially adopted the FIWARE Context Broker technology as a central Connecting Europe Facility (CEF) building block. The initial core focus through the IOTA Foundation’s collaboration with FIWARE is to enable context-aware capabilities to expand beyond the tangle by implementing developments of IOTA capabilities into FIWARE Context Broker. Benefits of this implementation: Context-dependent data management at the tangle, scalable decentralization of FIWAREs context-aware capabilities via the IOTA protocol, increased interoperability with IoT sensor integrations, reduction of development work on dynamic intelligent solutions through joint developments, an increased security environment for existing FIWARE solutions through decentralization and immutability, and high potential for acceptance by existing FIWARE integrations.
  • The Linux Foundation and the IOTA Foundation will join forces in an open collaboration through LF Edge. The LF Edge Framework is another instance of the Linux Foundation. It is an umbrella organization that aims to create an open, interoperable framework for edge computing (decentralized data processing at the edge of the network, data is processed where it is generated, at the network periphery) and the future of IoT, independent of hardware, cloud or operating systems. The more than 60 global founding members from IoT, telecom and cloud industries are working on a common framework for hardware and software standards that are critical to maintaining current and future generations of IoT and edge devices. By bringing together industry leaders, LF Edge will foster collaboration and innovation in a wide range of industries, including industrial manufacturing, cities and government, energy, transportation, retail, home and building automation, automotive, logistics and healthcare, all of which will be transformed by edge computing in the future. By creating a software package that delivers the best of telecommunications, cloud and entrepreneurship, LF Edge will help ensure greater harmonization to accelerate deployment among the rapidly growing number of edge devices. For the broader IoT to succeed, the currently fragmented edge computing market needs to be able to work together to identify and prevent problematic security vulnerabilities, and to develop a common, constructive vision for the future of the industry. The LF Edge framework has been recognized worldwide as the leading open source software package for IoT, edge and cloud interoperability, but a key piece of the puzzle is missing: The Distributed Ledger technology. The first step of the IOTA Foundation towards open collaboration is to join the Linux Foundation to complete its technology package with Distributed Ledger technology and to drive the development of a truly interoperable solution for the integration of IoT, Edge and Cloud. Initial focus will be on integration with the EdgeX Foundry, where the IF will work with other members to demonstrate the power of the IOTA protocol in terms of securing, scaling and increased interoperability in the Edge and Fog areas of the software package. EdgeX Foundry focuses on the Industrial IoT Edge. The EdgeX Foundry uses cloudbased principles (e.g. platform independence), but is designed to meet the specific requirements of the IoT Edge, including the inclusion of IP and non-IP based connection protocols, security and system management for widely distributed computing nodes and scaling to low resource devices.

Consortia

  • Hyperledger is an open source cooperation under the roof of LF Edge. The goal of the development is to promote cross-industry blockchain technologies. Hyperledger is by far the largest permissioned blockchain project in the industry and is also used by smaller companies and start-ups. It is a global collaboration developed and driven by the Linux Foundation (LF Edge) and includes the leading companies in finance, banking, Internet of Things, supply chains, manufacturing and technology. The driving forces behind Hyperledger include Linux LF Edge, IBM, Intel, Fujitsu, Oracle, SAP, VMware, Cisco, Red Hat, Bosch and Samsung. Important: The project itself is only available to a closed community and requires approval. Anyone wishing to access the project must first become a member of the Foundation. The data functionalities of Hyperledger that require approval have been combined with the approval-free data functionalities of IOTA. When the IOTA Foundation joined the Linux Foundation to work together on LF Edge, it was already known that the IF has been working on an internal Hyperledger bridge for some time to further promote the distribution of the approval-free IOTA functions for data and value transfer. This development work was successfully completed and the IOTA technology was migrated into the hyperledger ecosystem. As the Hyperledger Fabric project becomes increasingly popular in the industry for supply chain and asset tracking projects, the IOTA Foundation introduces the IOTA Connector, which allows data to be mirrored from Hyperledger to the Tangle, enabling Hyperledger to take advantage of all available IOTA features such as royalty-free payments using Iota tokens, encrypted data transactions and public/private message chains (IOTA streams). At this point, IF considers the Hyperledger fabric DLT – where all data is first stored and managed – as the primary source of truth. Through the symbiosis of these very different technologies, the IOTA Tangle can act as a connecting element between different Hyperledger Fabric-based systems requiring approval in different companies. Since Hyperledger is mainly used for internal business processes, the interaction of the two technologies enables a tamper-proof external data exchange for data silo based systems requiring approval. Furthermore, a direct monetary compensation (Iota-Token) of this data is now possible on request.
  • The Digital-Twin-Consortium™ was created by the Object Management Group® (see standardization organizations) and the founding members Ansys, Dell Technologies, Lendlease and Microsoft. The digital twin technology enables companies to prevent problems before they occur. It prevents downtime, improves customer experiences, develops new ways to drive innovation and performance, and uses simulation to plan for the future. The members of the Digital-Twin-Consortium™ will work together across industries to learn from each other, develop and apply best practices. This new organization, which is open to new members, will promote consistency in vocabulary, architecture, security and interoperability to drive the adoption of digital twin technology across many industries from aerospace to natural resources. Digital twins, virtual models of a process, product or service that enable data analysis and system monitoring through simulation, can be challenging to implement due to lack of open source software, interoperability issues, market confusion and high costs. To ensure the success of the Digital Twins Consortium, several leading companies involved in digital twins technology joined the consortium before its creation. This category of early innovators includes Luno UAB, Geminus.AI, Air Force Research Lab, Idun RE Solutions AB, NSW State Government, Executive Development, Gafcon, Inc, WSC Technology, Bentley Systems, Willow Technology, IOTA Foundation, IoTIFY (owned by IOTA co-founder David Sønstebø), imec, UrsaLeo Inc, Systems Analytics Solutions, Ynomia, Transforma Insights, YoGeo, Inc., Connector Geek Ltd, Association of Asset Management Professionals, IoT management, Bandora Systems, BEC, Autiosalo Ltd, ECS Solutions, ielabs, Ricardo PLC, Building 4.0 CRC, DataCities, Twin Building GmbH, Piprate, Jitsuin and Trendspek.
  • The Dig-it project is a research initiative that brings together a consortium of 16 partners from all over Europe. Over a period of 48 months, the Dig-it consortium will mobilize EUR 7 million to digitize the supply chain of the mining industry (gold, copper, charcoal) and create a more sustainable mining industry. IOTA was awarded earlier this year as one of the recipients of the Dig-it grant, a new collaborative project funded under the EU’s Horizon 2020 program, following a competitive selection process.The project is coordinated by ITAINNOVA, a research and development organization based in Spain, and includes a number of technology partners and adopters directly involved in the mining industry.  The designated technology partners are: Brunel University, Core Innovation, Tau, Rotech Technology, LIBRA AI, ICCS Research, EUROCORE, STRATAGEM, Libra, SINTEF Molab, SINTEF Helg. & Schneider Electric and the IOTA Foundation. This makes IOTA the only DLT technology selected to create a trusted level of data exchange for the mining supply chain of the future. The goal of the Dig-it project is simple: to collect data from the mining industry using a platform for the industrial Internet of Things, and to transform it into knowledge and measures aimed at improving the health and safety of the industry’s workers and the industry’s impact on the environment.
  • ENSURESEC is a collaborative project funded by the European Commission and granted to a consortium of 22 different partners to lead the future security of e-commerce into a new era. The IOTA Foundation is the sole provider of the Distributed Ledger technology and will work with a number of other partners, including universities and research organizations, small and medium enterprises (SMEs) with e-commerce expertise in cyber security, and large corporations consisting of system integrators (i.e. ATOS and engineering) providing the e-commerce infrastructure. Banks are providing the necessary payment network. The IOTA Foundation will provide the technology (the IOTA Tangle) and expertise to build a robust distributed audit trail infrastructure. The IF will develop a set of interfaces to IOTA Streams that will make it easier to generate and share the audit trail information required by different systems and facilities. ENSURESEC will use the IOTA identities to ensure the authenticity of the information and the associated physical assets and stakeholders. Off-Tangle components will also be developed that will be connected to the IOTA Tangle for data search and verification. In a complex scenario such as e-commerce with multiple parties and assets interacting simultaneously, the need for a trusted and neutral infrastructure is of utmost importance, especially to enable forensic analysis of incidents when prevention is not sufficient. However, if it is to help against cyber security attacks, this infrastructure cannot be vulnerable in any way.
  • MOBI is a member-led consortium that works with forward-thinking companies, governments and NGOs to make mobility services more efficient, affordable, environmentally friendly, safe and less congested. Through research, education, innovation platforms and working groups, MOBI strives to create and promote high industry standards for the adoption of smart distributed ledger technologies. Mobi believes that Distributed Ledger technologies will increasingly influence the delivery of mobility services by enabling enterprise networks to reduce the cost of coordinating their activities.
  • Nedo is Japan’s largest public administration organization that promotes research and development and the use of industrial, energy and environmental technologies. The project aims to develop technologies to strengthen the safety, longevity and durability of critical infrastructure facilities in Japan and abroad, digitizing maintenance data and processing it by an artificial intelligence system to predict when and which parts in a facility need maintenance. This will reduce unplanned outages, improve asset availability, and lower costs by reducing unnecessary inspections and repairs.
  • Alvarium with Dell and Linux is about creating inherent trust across very different systems. The project will bring together systems across industries to create a common platform that enables trust from data generation to an operational platform.
  • EIT Climate-KIC is a Knowledge and Innovation Community (KIC) with currently over 370 partners working to accelerate the transition to a carbon-free economy. With the support of the European Institute of Innovation and Technology, they identify and support innovations that help society mitigate and adapt to climate change. The KIC believes that shifting the way we do business to a sustainable economy is not only necessary to prevent catastrophic climate change, but also offers a wealth of opportunities for business and society. On September 27, 2019, the IOTA Foundation officially announced that they have partnered with the European Institute of Technology (EIT) and the EIT Climate KIC, the European Union’s leading bodies to connect and scale sustainable solutions across the continent.

Companies & Start-ups

I don’t know at all where to start and where to stop. Please just browse the guide, I only link a few selected promising projects here:

  • BiiLabs from Taiwan has several projects underway, and the company is also gathering additional partnerships in Asia.
  • BLACKPIN is a mobile business app for agile, location and time independent work. It is made and hosted in Germany. The BLACKPIN app enables secure teamworking in an absolutely encrypted and closed system. Team members communicate, exchange and archive data. With BLACKPIN you can work faster and more effectively in exchange with colleagues, customers or partners. But not only communication is possible. In the future, users will be able to bill their services, products or services via the system. With innovative features around the processing of transactions such as digital identiy, smart contracts, digital wallets, time tracking tools or geodata tracking, processes will be automated and logged. Communication, transaction and data exchange is done by complete encryption and archiving of data based on certified highest German standards.
  • Zühlke is working on the innovation “Machine-as-a-Service” for the industry, including subscriber and sharing models.
  • PAGI – Pay-Per-Use made simple. Pagi is building an ecosystem that enables any electrically powered device to receive payments, negotiate prices, issue refunds and act as a responsible economic operator.
  • EDAG is a company founded in 1969, which is developing into one of the world’s largest independent engineering service providers in the automotive industry and an active creator of future mobility. Urbanization is one of the megatrends shaping our future, which brings challenges that need to be overcome. More and more people are moving to the cities, traffic and pollution are becoming major problems and endangering our planet. Individualization is another megatrend: it is driving individual transportation and delivery and increasing traffic and environmental pollution even further. To solve these problems, EDAG has developed the CityBot, an autonomous and modular vehicle that can be used in a variety of different scenarios and applications, thanks to the various CityBots’ Hero’ modules, which it can change depending on the current task.
  • Freighter is a distributed messaging service (second layer) that provides a robust way to interact with large amounts of data and send it over secure channels. The goal is to create a distributed gateway in the digital world that reduces redundancy, improves access to health data, and accelerates the development of robust health apps and tools.
  • DXC Labs has now created a secure framework for connecting cyber-physical systems using Distributed Ledger Technology (DLT). 
  • NKT / THINKT Digital has developed a self-managing cable drum with its own wallet. This is a very good example of the emerging possibilities offered by IOTA.
  • Selv is first of all a digital Covid-19 health passport. It is GDPR compliant, freely accessible, private, secure, scalable and interoperable. The application area will be significantly expanded in the future.
  • ST Microelectronics: Integration of the IOTA Tangle in the STM32Cube extension software.
  • Jaguar: Jaguar Land Rover’s new Smart Wallet technology uses the IOTA Tangle for data and value transmission. With the integrated Smart Wallet, the vehicle can not only make micro-payments for services (fuelling or parking), but also exchange information such messages or small files, making the Smart Wallet a gateway for connected services.
  • EIT Climate-KIC is a Knowledge and Innovation Community (KIC) with currently more than 370 partners. It is committed to accelerating the transition to a carbon-free economy. With the support of the European Institute of Innovation and Technology, they identify and support innovations that help society to mitigate and adapt to climate change. The KIC believes that a shift to a sustainable economy is not only necessary to prevent catastrophic climate change, but also offers a large amount of opportunities for business and society.
  • Senseering – RWTH Aachen has the goal to create audit trails in decentralized supply chains and to connect IoT with industry. Thus new ways of Machine to Machine (M2M) interaction shall be enabled. The machines should be self-managing, optimize their own production processes autonomously in real time and store all collected data securely.
  • Zebra Technologies is a US-based provider of various devices and software for data collection and processing. Zebra Technologies develops and sells barcode scanners, RFID readers, mobile computers (tablets), as well as printers for printing labels, tickets and receipts or similar. The company’s devices are used in a variety of industries, including merchandise scanning in retail, labeling for picking in the logistics sector, and manufacturing. The IOTA Foundation is working with Zebra Technologies to connect RFID and barcode scanners to the Tangle. This is expected to enable Zebra Technologies’ products to exchange data easily and with confidence in the future. In addition, the Digital Green Certificate has been developed to allow travelers within the EU to present identification confirming that he or she has been vaccinated against, tested negative for, or recovered from COVID-19.
  • Use cases: here you can read more than 60 further descriptions of partners and projects, I have sorted all projects into different sub-themes.

Tokenomics – Uses, Benefits and the Value of the Token

The IOTA token used in the network is a digital form of currency and is required for the transfer of value within the IOTA network. The maximum token number is limited to 2,779,530,283 MIOTA. There is no inflation. 1 IOTA will make up the same proportion tomorrow, in a year and in a decade and so on, of the total IOTA tokens in circulation. All tokens have already been issued (pre-mined) and are in circulation. The four founders had to finance their tokens themselves using their private assets.

The credit balances on the addresses (ledger state) are known to all participating full nodes at all times Beyond that IOTA does not see itself as a data store, so the transaction history on the full nodes is not stored over a longer period of time – similar to the TCP/IP traffic of the Internet, which is also not stored. If a user or a company also wants to retrieve or store the transaction history over several years, additional solutions must be used for this purpose. This could be a selective permanode, a separate second-layer application or, in the future, a smart contract that pays several nodes for this service.

The value of the IOTA token is derived from other people believing in it. But there is one key difference from other cryptocurrencies. For example, those who own Bitcoin are not entitled to the resources of the Bitcoin network. Those who own IOTA tokens have guaranteed access to a portion of the network’s resources, regardless of its value in dollars, Bitcoin, or any other currency.

In IOTA, there are no miners and no stakers who can charge a fee for processing transactions. Transactions are free because it is in the interest of all participants to exchange value in a feeless, permissionless, secure, scalable, and decentralized manner.

To ensure all of this there is a scarce resource in the IOTA network called Mana. It is best thought of as a tool that is used for various tasks in the network, such as defense against Sybil attacks or tools like FPC, autopeering, and congestion control. Mana can be thought of as a parallel reputation token to the IOTA token, which is held by addresses in proportion to the IOTA tokens. This is called pending Mana, which is pledged to the executing node in value transactions. When a certain amount of IOTA tokens is transferred from one address to another, an executing node selected by the issuer is rewarded with Mana, giving that node “trust”. The amount of Mana this node receives is proportional to the amount of IOTA tokens sent in the transaction. Mana aims to give a ranking / reputation to the nodes participating in the network. This makes it possible to distinguish honestly operating nodes with a secured history from maliciously operating nodes and, if necessary, to give preference to those nodes when processing transactions.

Unless the inbox is empty, each node processes messages at a rate specified in the protocol. This rate determines the maximum throughput. If the network is close to its processing capabilities, someone who wants to make many data transactions in a short time will need Mana for the executing node to be given preference over other transactions (possibly spam). This can best be compared to buying higher bandwidth from an Internet service provider. If you don’t have Mana and the network is congested, you can’t issue transactions and have to wait. Herein lies the economic model, which is unique compared to other cryptocurrencies.

How does it work? Just like everything in life. When a company needs office space, they have 2 options. They can either buy it or rent it. The same is true for Mana. If someone wants to use the Tangle but doesn’t want to own the tokens, they will rent Mana from people who own it, the same way someone rents a property from a landlord. People often confuse this with a fee. It is NOT a fee. It is an allocation mechanism where people who contribute to the network by owning tokens and / or running nodes get priority in network resources.

In traditional blockchains, you have to pay a fee whether you hold tokens or not. It’s a permanent fee and you don’t get it back. With IOTA, you have the option to own tokens and thus have a part of the network TPS for free, forever. Even if you choose the approach of not owning tokens and renting access, you have a fixed cost and reliable throughput.

In traditional blockchains, you can even own tokens and not know your operating costs because the fees are dynamic. Transactions compete for the limited block size and make bids. The highest bid wins, so operating costs can’t be known in advance. At IOTA, you either have 0 operational costs or you know exactly your expenses.

The Mana concept is similar to staking (Proof of Stake), but the difference is that you don’t lock / stake tokens to earn on them and the returns are real returns. With PoS, the rewards are paid out through inflation (some may or may not come from fees, but most is from block rewards – inflation). This is the illusion of returns. Payment is made by minting new tokens and thereby increasing the total supply.

Mana is pledged to a node ID, and can be acquired in three ways

  • Holding tokens: Node operators can buy tokens and pledge the mana generated by those tokens to their own node.
  • Rent (Mana-as-a-Service): Mana can be acquired in exchange for rental payments from other token holders. This can be done with IOTA tokens or cash (as with Amazon Cloud Credits).
  • Value transaction processing: A node can process payments in exchange for the Mana pledged in those payments (tokens).

Summary of key points

  • There are currently two separate values for Mana. These are called Access Mana and Consensus Mana. While Access Mana can be lent / leased, on the other hand there is no reason to do so for Consensus Mana.
  • Value transactions always bring their own Mana for processing by the nodes, so there are generally no restrictions here.
  • It will still be possible to send data transactions without Mana – Mana will only be used in times of congestion to give more priority to nodes that have more Mana to ensure minimum guaranteed bandwidth in the infrastructure. Mana will not be a requirement to send transactions for a long time, because currently even systems with FPGAs cannot spam that many TPSs to push the network to the edge of its processing capabilities. In the future, Sharding will also significantly increase network capacity and solve the problem of theoretically possible congestion.
  • Those holding IOTA tokens are entitled to a portion of network resources regardless of their value. This is very important for security-critical industrial and real-time applications whose information must pass through the Tangle promptly.
  • For security in business use cases, suggestions have been made (transactions despite congestion) to run your own nodes, hold the token and also use it.
  • Those who do not have their own node and IOTA tokens may have to pay to use other people’s nodes if the network is busy and many transactions are to be made in a short time.
  • Those who own IOTA tokens may be able to rent out Mana and generate a kind of passive income.
  • If a company does not want to have anything to do with cryptocurrencies, Mana can also be purchased with cash from a service provider.

Other applications that require the IOTA token

Digital Assets

Digital Assets or also called Colored Coins are designated tokens that can represent real-world assets, based on IOTA (on top), on the Tangle in a tamper-proof way. With them you could for example redeem something or regulate ownership. Basically, they remain “normal” IOTA tokens, but in a certain context or in a specifically created app, they can mean different things and may also have a higher value.

Digital assets can only be based on value objects (smallest unit = 1 i), since you can’t own message objects. For a possible implementation, an existing regular IOTA token (1 i) would get an additional label (transaction hash / hash ID) when sent by the creator that identifies it as a token with a special meaning (asset).

Smart Contracts

IOTA Smart Contracts (SC) use the logic of the UTXO digital asset. To create a SC, 1 new Digital Asset must be created and sent to the address of the SC. This sending transaction becomes the originating transaction (genesis) of the SC. No additional fees or anything else are incurred during this process. This created Digital Asset representing the SC remains at the SC’s address during the SC’s lifetime, thus it is owned by the SC.

To send a request to the SCs, 1 Digital Asset must also be created in this request transaction and sent to the SC’s address. This request coin is always sent to the SC and remains the property of the SC (on its address). This only temporary Digital Asset will be converted back to the original IOTA token when the request is processed (settled, confirmed) and will remain in the SC. Since the originating transaction usually includes an initialization request to create an SC, at least 2 IOTA tokens are needed to create an SC.

Charges are necessary, they are an incentive to get nodes to run the SC code. With this solution, the entire network is not forced to execute every SC code (as is the case with ETH). Instead only a relatively small group of nodes are specifically selected to execute a particular SC and may be rewarded accordingly.

However, if there are other incentives to process the SC code, a fee is not necessary. For example, an already sufficient incentive might be the registration of SC state changes on the Tangle itself. An example would be aggregating raw Oracle data for further processing. Another example would be if a consortium of competing players who want to have an honest audit trail that none of them can influence. Their incentive to do an SC would be to keep an eye on everyone else.

Accounting

In discussions, there was always the suggestion that you could combine individual micro-transactions and then pay monthly, for example as with a subscription. If one would try this as a company it would require the creation of an accounting system that is able to handle millions of data-Tx.

These need to be…

  1. evaluated (because they can all have completely different prices).
  2. assigned (thousands of data tx would have to be assigned to the respective user).
  3. calculated (for each user a final invoice would have to be made and possibly be charged with their data-tex if you are a user yourself).
  4. check (that the payments have actually been made).

That would result in…

  1. an immense staff body
  2. a high risk of errors
  3. a high demand for IT and office equipment for the personnel in question
  4. thus high and hardly calculable costs.

Conclusion: Completely unnecessary effort of resources and personnel, which the protocol provides free of charge and fully automated with the help of IOTA Smart ContractsIOTA streams etc.

Btw.: All companies have to document and tax value transactions. So all data transactions have to be recorded in blockchains for accounting purposes. With IOTA, not only the fees for data transactions are eliminated but also the associated accounting including Tx storage (up to 10 years) for the majority of all transactions.

Cross-country and cross-company exchange medium

If you want to map cross-country and cross-company processes, trade or logistics between machines these transactions can take place without much delay and without having to agree on a trading currency etc. The only requirement is that machines have direct access to a stock exchange either directly or via a financial service provider to make conversions. This could be, for example, the house bank of a company, which keeps the Fiat accounts anyway. If the bank charges a small margin for this autonomous conversion job this is absolutely legitimate. A machine could autonomously submit a conversion order to the bank at any time and then have its IOTA tokens available to send them across the national border. In this case, the higher volatility is completely neglected and a machine would not have to keep tokens in its wallet permanently.

> IOTA is an open, free of charge, not centralized and ultra-fast clearing system!

More Details

Why IOTA – Medium

Sources

https://www.iota.org/

https://coordicide.iota.org/

Original source

https://iota-einsteiger-guide.de/was-ist-iota.html

Last Updated on 14. June 2021