The central theses
- IOTA is at risk of running out of money, compounded by tensions between the co-founders and the lack of commercial use cases of Tangle, the protocol’s consensus mechanism.
- IOTA remains centralized and its ecosystem is still small.
- Still, IOTA is showing signs of maturation as it adapts to the realities of the market.
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IOTA is working to expand its market opportunities through a more pragmatic approach to developing its technology. However, the team has not yet overcome the project’s critical issues.
The main barriers to IOTA’s development are centralization, lack of commercial use cases, and a small ecosystem. Additionally, the team could run out of money soon, and one of the co-founders is eager to empty what is left of the coffers.
It’s a sink or swim moment for IOTA and now it’s time for the team to prove themselves.
So that the IOTA technology works
IOTA started in 2015 when the Internet of Things (IoT) market, IOTA’s most important business area, was still in its infancy.
Five years later, the IoT space is growing much faster and so is the critical infrastructure be actively built. Hence, IOTA’s adoption prospects will only increase.
In order to take advantage of the growing opportunities, IOTA must offer companies and organizations practical work solutions. Previously this was an issue as the team focused on fringe innovations such as: ternary logicwhich is still not fully adopted by hardware manufacturers to this day.
However, in 2020 the project took steps to prioritize conventional software development.
Without leaving innovative ideas aside, the team focused on improving the usability and efficiency of the current version of the Tangle. The improvements like faster transactions, automatic connection to neighboring nodes and reusable addresses come with the mainnet Chrysalis, an interim update prior to the network’s decentralization event, Coordicide.
Although the team has not yet provided specific timeframes to users, it did provide some level of transparency via a live version of the Roadmap and frequent updates on social media. The release of Coordinate specifications and the start of the IOTA 2.0 test network Indicate the team’s determination to deliver a working product as soon as possible.
The team’s commitment is visible on GitHub. The GoShimmer knot software, which is an essential element of Coordicide, saw an increase in development activity in 2020.
Additions and deletions in the GoShimmer repository. Source: GitHub
Still, Coordicide isn’t a new concept, and it was announced a while ago.
Since then there has been no deadline for implementation. The Negative feedback The development process of a former member of the former IOTA developer Advocate of the Ecosystem team, Philipp Blum, is cause for concern.
Overall, the fact that the team has been prioritizing conventional development practices over innovation for the time being is somewhat encouraging.
Given that the project spent years researching, problems with domestic policy change should come as no surprise. It is more important that the team start delivering working solutions.
IOTA Foundation is running out of money
The increase in team activity is determined by the exhaustion of the financial resources of the IOTA Foundation. The foundation currently has just over 59.6 trillion MIOTA (Ti) tokens valued at $ 23.8 million at current prices.
Last year, the project’s average monthly burn rate was 4.6 Ti. At such a rate, the IOTA Foundation has until August 2021 before its crypto holdings are depleted.
There is a Fund for the development of the ecosystemand some cash might be left of the initial EUR 1 million (USD 1.17 million) from the co-founders. However, given the team’s spending, these sources are not enough to reduce the risk.
The crypto market is crashing March 2020 made the situation worse. Although IOTA followed the Altcoin uptrend, the price recovered to pre-crash levels in August. In the meantime, the foundation paid out at a discount.
One of the co-founders of IOTA, Sergey Popov, told Crypto Briefing that the project is also being funded by some companies and government agencies.
Although Popov couldn’t share the exact percentage of the grants in the token liquidations, he stated that the inflows from partners are significant.
In the meantime, the team is trying to expand its partner network and secure more funding. One of the most recent initiatives is creating Tangle EE, a working group for organizations with which solutions for companies can be developed Dell Technologies and STMicroelectronics.
The greatest difficulty in partnerships can result from the long business development cycle. The project needs to increase its commercial acceptance in order to increase cash flow. However, corporate products can take months or even years to launch. It’s a common practice, but IOTA doesn’t have a large runway to familiarize itself with waiting.
The risk of the IOTA Foundation going bust is compounded by the tensions between the co-founders of the project.
Sergey Ivancheglo, one of the former board members and co-founder of IOTA, divided Images of a letter to the IOTA Foundation asking the team to transfer over 80 Ti to their wallet, which means almost all of the project’s crypto holdings.
IOTA has one long story the internal conflicts of the core team. Ivancheglo’s seemingly peaceful departure from the project’s board of directors in July 2019 led to a heated argument between him and IOTA founder David Sønstebø.
Ivancheglo’s letter was sent from a law firm based in Minsk. If he filed a lawsuit and won, the IOTA Foundation would be in a difficult position. Even if he doesn’t, the damage to reputation is not small.
In both cases, IOTA suffers because it is still centralized in the hands of contending founders.
Decentralization means unstoppable progress
The initial centralization is a consequence of the IOTA architecture. Without the centralized coordinator node, the network could be abused by malicious actors.
While the team tries to kill the coordinator, it still works, which means the IOTA Foundation is still in full control of the tangle. The newest incident Using the project’s official wallet, Trinity shows the negative effects.
Trinity had a critical security vulnerability as it shared users’ private keys with a third-party payment platform Moonpay. The vulnerability was eventually exploited and hackers stole MIOTA between $ 300,000 and $ 1.2 million.
Due to the hack, the foundation paused financial transactions on the network for almost a month. So if something happens to the IOTA Foundation, the system may lose some or all of its functions. This makes the Foundation a significant single point of failure.
Since IOTA’s biggest risks are associated with the foundation, the best course of action is to split control of the tangle among large, reputable companies.
This is a reasonable step for a business-oriented project based on examples like Hedera hash graph.
Decentralization by corporations and governments could not only remove the central point of failure, it could also fuel the growth of the IOTA ecosystem. Node owners would also benefit from driving IOTA adoption among their large user base.
To do this, the co-ordinate must take place and the Foundation must step down as the entity controlling the network.
It includes both rapid software development and the professional approach of the core team.
The probability of failure is high
Despite the positive changes in IOTA’s strategy, the project still has significant obstacles to overcome. It is pressed for time and the cost of failure is high. IOTA still has a chance to make it, considering the team’s approach. But this chance is decreasing day by day.
UPD (Aug 30, 2020): After the article was published, the IOTA Foundation contacted Crypto Briefing and denied that the project’s runway would end by August 2021.
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