A better blockchain: Bitcoin for nothing and transactions for free?
Imagine a blockchain-like protocol that promises to remove what is seen as the two biggest deficiencies in blockchain: inefficient mining and soaring transaction fees. IOTA is working on a fix.
What is the blockchain exactly? A big ponzi scheme or an opportunity and a new technology that we can all use to transform society? Depends on who you're asking, but a good starting point is to disassociate crypto-currencies such as Bitcoin from blockchain, the underlying data structure and related protocols.
One thing to note for crypto-currencies is that they implement what is called Distributed Ledger Technology (DLT). DLT is essentially a distributed database where records of transactions are kept. However the difference with traditional distributed databases that have been around for years is that DLTs are open networks in which nodes are not controlled by a single entity.
The way this typically works for blockchain-based DLTs is through what is called mining. Mining is a process through which transactions are verified, and also new coins are added to the coin deposit. In Bitcoin for example this is achieved by solving a cryptographic challenge which requires intense computational resources.
Miners are nodes of the network that do the verification. Since they have to spend resources for this, they are incentivized by being rewarded with coins for their effort. In addition, solving similar types of cryptographic challenges independently of verification is the way to mint new coins.
On the one hand, this safeguards the DLT from collusion and allows it to work in an open environment by imposing trust, which arguably is the most valuable aspect of the blockchain. On the other hand, this is incredibly inefficient. Not only does new coin creation not correspond to any real-world value, transaction verification also needs a lot of work that is essentially wasted.
This is exacerbated by the fact that miners compete, which means that many of them are working on verifying the same transaction at the same time. The first one to finish is awarded, for the rest the work is simply wasted. What's more, the design of Bitcoin is such that it makes mining progressively more demanding the more the network expands, meaning waste of resources is ever-increasing.
Based on the above, running a DLT is one of the most wasteful things you could possibly do, as it all comes down to generating power and processing resources. Mining, at least for Bitcoin, is at this point not something your average computer can do. There are special mining rigs dedicated to this task, and the energy required for a single transaction at this point could power a household for a week.
Blockchain for climate
How could a hackathon on climate + blockchain make sense then? What were the people at the UN thinking when they decided to host one during the COP23 in Bonn and invite 100 participants from around the world to join?
Working on themes such as Identification & Tracking of Emissions or Sustainable Transport & Land Use sounds commendable, and DLTs could have applications there, but isn't using such a wasteful technology an oxymoron?
This is where IOTA comes in. IOTA is the platform on which participants will work on, and was chosen on the premise of removing the wasteful aspects of blockchain-based crypto-currencies. David S?nsteb?, IOTA's co-founder, says it all started from organizations such as the Center for international governance innovation, the Climate Ledger Initiative and Cleantech 21.
Distributed ledgers and energy efficiency are at odds today, but IOTA says this does not have to be that way. Image: IOTA
It was through them that the connection was made, the hack4climate event was organized and IOTA got to be the platform on which participants are asked to build. What did these organizations see in IOTA? IOTA promises to achieve the same benefits that blockchain-based DLTs bring - decentralization, distribution, immutability and trust - but remove the downsides of wasted resources associated with mining as well as transaction costs. S?nsteb? elaborates:
"DLT has a role to play in efforts against climate change. It can secure data, ensuring accurate logging from sensors, it can safeguard data from oblivion should there be efforts to remove them. It can be the basis on which to build things such as self-regulating smart grids to optimize consumption, and we are excited to see what participants will come up with.
But in Bitcoin or Ether the mining is just ridiculous, and does not serve any purpose except giving miners rewards. It's a complete waste and as it grows it will only get worse, so it's important to get rid of this".
Who would not want that - the question of course is how. So let's take a step back to see what S?nsteb? and his co-founders came up with.
Meet IOTA
S?nsteb? met his co-founders Sergey Ivancheglo, Dominik Schienerin and Serguei Popov in 2013. He says all of them have been in the DLT space since at least 2012 and "have done lots of pioneering work. With Schienerin we built the first identity and supply chain platforms, and Ivancheglo ranks up there with Satoshi in terms of technical achievements".
S?nsteb? says the origins of IOTA date to 2014: "Ivancheglo and myself were working in the IoT realm, and this got us thinking on how we could possibly use our DLT background to incentivize opening up the IoT. Even though the image we have of IoT is all these devices connecting and sharing data and resources, that's not what's happening in the real world. We have all these walled gardens, all these closed clusters.
We figured what's needed is a transactional settlement protocol and a data integrity protocol to incentivize different stakeholders to open up their data streams and resources to create the IoT we've all been dreaming of, this ubiquitously connected world. Because of our backgrounds we thought of using Bitcoin, but Bitcoin does not even scale to a neighborhood, how is it going to scale to millions of devices?"
The tangle is a directed acyclic graph. A different data structure to replace the blockchain, promising to keep the advantages of distributed ledgers while getting rid of the inefficiencies. Image: IOTA
This is when S?nsteb? and his team went back to the drawing board and started questioning what could replace the block after block sequential chain that is the blockchain with something else. What they came up with is the Tangle, a directed acyclical graph that is the underlying data structure for IOTA.
"When issuing a transaction in IOTA you validate 2 previous transactions, meaning you no longer outsource validation to miners thus decoupling validation from use of the network. It's an intrinsic property of the network, and kind of resolves all problems:
The more active a ledger is, the more validation there is. The more people use it, the faster it gets, and you don't need to subsidize miners, so there are no fees on transactions.
It also resolves the centralization issue. Bitcoin is heralded as the epitomy of decentralization because it does not rely an a central institution, but in fact it is not. Both proof of work and proof of stake always center around those with more resources - it's an inevitable economic race.
In IOTA every node is a an equal validator and there is no difference between you and the richest miner in China, because you can't mine anything or aggregate resources".