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82. An Introduction to Iota (Published: 15th Dec, 2017)
In the past month, IOTA has been all over the place. The price of Miota, which is equal to one million IOTA, has gone from 70 cents to over 5 dollars and now staying around 4 to 4.5 dollars. In fact, this is not the first 5x rally of IOTA after its public availability on Bifinex, it went from 20 cents up to 1 dollar during the summer and crashed back to 30 cents after Chinese regulatory announcement on ICO and crypto trading. Cryptomover has been paying extra attentions to this project since its launch on Bitfinex. Today we are going to dig deep into the project and try to provide a well-rounded introduction.
The introduction will be from two perspectives, the technology and the application use case.

DAG technology and the tangle
Every decentralized cryptocurrency requires three opponents: consensus protocol, distributed ledger and the smart contract. For Bitcoin, the corresponding opponents are proof of work, blockchain and bitcoin transactions. For Ethereum, they are proof of work + EVM (proof of stake in the future), blockchain and solidity scripts. However, it is not necessary to tie blockchain with every cryptocurrency. IOTA revolutionizes the above system by swithing the blockchain data structure into Directed acyclic graph (DAG), or the ‘tangle’ where no chain structure is needed. In a nutshell, this is how the tangle works.

Each of the boxes in the above graph represents a transaction. It is not hard to notice that each box has two arrows attached to it that point toward the boxes on its left. These arrows represent verifications. For each transaction to be verified on the tangle, it must do some ‘work’, namely verify two earlier transactions. Also, each transaction is attached with a parameter called ‘weight’ which quantitatively describes how well verified that that transaction is. It is positively related to the number of verifiers and depth it got buried inside the tangle and it is negatively related to the amount included in that transactions. The weight plays a role of deciding which one of the two conflicting transactions gets abandoned (avoid double spend).

There are several advantages of such a system. Firstly, it is the first cryptocurrency that enables 0 transaction fee without worrying about network congestion. It is free because there is no miner to be paid for. The senders must effectively do the work that is originally assigned to miners by verifying two transactions by themselves. On the other hand, they don’t need to worry about network conjestion because firstly, it requires computation power to verify transactions and secondly, there is no block size limit and the system should be able to handle millions of transactions per second in theory.

There are several possible attacks that like the 51% attack in bitcoin associated with IOTA and some are addressed in the whitepaper. Without considering too much technical details, let’s move the focus to their business model.

The future of Internet of things
The name IOTA comes from Internet of things. Basically, what IoT does is try to connect machines with lowest human interference. Many of the connections involves payments. For example, the interaction between your car and a parking detector, the interaction between your fridge with an online supermarket and the interaction between your phone and a wifi provider. The most significant feature of these transactions is their microscopic size. Also, the transactions need to be instant because people will not wait 3 minutes for a 20 cent payment to be confirmed.

If IOTA can deliver their promise, namely 0 fee and millions of transactions per second, this can be a huge player in the crypto world. According to consultancy firm Bain, the IoT market is expected to be worth $470 billion by 2020 which is about 50 times the current market caplitalization of IOTA.

Currently, the 0 fee transactions have been realized but the transaction confirmation time has not been very pleasant to users. It is one the issues with DAG system that the more users there are, the faster the transactions get passed. In case the number of users declines, the network will become slower and some transaction might even be buried without being verified. During our test, many of our transactions are abandoned and we must rebroadcast them for not just once but many times.

Another interesting theme around IOTA is their constant collaboration with industry giants such as Cisco, Samsung and Fujitsu. Recently IOTA announced a huge project called the Data Marketplace where anyone can provide sensor and data or build data driven applications on. According to IOTA’s report, this project attracted dozens of renowned companies, associations and universities.

In conclusion, we believe that IOTA is revolutionary technology and has the potential to solve the current scaling problem of Bitcoin and Ethereum. They are also doing a great job marketing their project. However, the technology is still not mature for massive adoption and sometimes over marketing can has negative influence. For instant, recently they have been accused of exaggerating their collaboration with Microsoft. In terms of investment, we do not suggest purchasing at a level higher than 4 dollars per MIOTA.

Our thoughts
Technology wise we struggle to find the advantage of Verge over other anonymous coins. It is also not widely used judging from its coin distribution and node counts. It is hard to say if it is cheap or expensive now because in general, cryptocurrencies are hard to value. Comparatively, we think that the technology of Verge doesn’t belong to top 20 cryptocurrency right now so we do not recommend buying it at this level.

While it sucks to miss out another 10x, you learned to follow John Mcafee’s twitter, cheers.

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