TANGLED vs BLOCKCHAIN

I am reprinting this article by Jason Free that appeared in UK Cryptocurrency. I am not that technically inclined but Mr. Free explained in plain English why IOTA is the future for the Internet of Things. This is going to be huge in the next 2 years.

United Kingdom CryptocurrencyUnited
Kingdom Cryptocurrency Guidance

TANGLED VS BLOCKCHAIN
IOTA was developed to enable fee-less micro-transactions for the Internet of Things. The original BitcoinTalk forum Post explains why…

The number of connected devices that will permeate our modern landscape in the coming decade is estimated to be 50 billion(!) Each of these are designed to make the world a better and more seamless place for us. Tied to this fantastic promise are of course a ton of obstacles to be overcome, of which one major one is micro-transactions. These connected IoT devices must be able to automatically pay miniscule amounts to one another in a frictionless manner without having to compromise on product design by introducing additional hardware. This is why Iota was conceived.

This original post is an easy way to understand what the core aims of the IOTA dev’s were (and to a large degree, still are). Here we expand each of the benefits that the Tangle offers over Blockchain with relevant links from recent events in the Bitcoin space.

Comparison 1- Centralization of control

As history shows, small miners form big groups to reduce variation of the reward. This leads to concentration of power (computational and political) in hands of few pool operators and gives them ability to apply wide spectrum of policies (filtering, postponing) on certain transactions. Although there are no known cases where pool operators abused their power, there have been several instances where the opportunity were present. This possibility in a monetary system powering a multibillion (in USD) industry is completely unacceptable.

Bitcoin
It is argued that Bitcoin has somewhat centralized control.
A quick look at the data shows that 8 Mining Pools account for over 75% of the mined blocks over the past 7 days (as of 12/06/2017).

AntPool (16.6%)

BTC.top (13.1%)
Bixin (9.3%)
BTC.com (8.9%)
F2Pool (8.5%)
BitFury (7.4%)
BTCC (6.2%)
Slush Pool (5.6%)
Combined total: 75.6%

Of these 8 all are based in China excluding BitFury and SlushPool.

This is potentially an issue as a change in regulation in China or tighter control over the Great Firewall could result in a large proportion of Bitcoin’s mining hardware being isolated from the rest of the world. It should be pointed out that many of these pools are used by independent miners (as opposed to the pool operators being the sole miners in the pool). However, despite this, having 8 pools controlling 75% of the network makes political centralisation a real danger. If any 7 of these 8 pools can be controlled by a ‘bad actor’ through extortion or bribes over 50% of the Hashpower in the Bitcoin network could signal for a specific bitcoin protocol (Core/Unlimited/etc).

IOTA
In comparison there is no separate ‘mining’ in IOTA. If you make a transaction you validate two transactions. Thus, by taking part in the network you speed it up. As a result each user can be viewed as an independent ‘miner’. It will be interesting to see how IOTA will enable decentralised protocol development.

Comparison 2 – “Obsolete” cryptography
IOTA Dev Comment (bitcointalk)
Although large scale quantum computers do not exist yet, future oriented companies have already begun initiating the steps towards quantum-resistant cryptography. From a security point of view it makes perfect sense to assume that hardware capable of cracking classical cryptoalgorithms may appear in the very near future, so preparation is the only defense.

Bitcoin
As this very good article explains bitcoin could be crippled by the sudden deployment of large scale Quantum computers. As of 2013, the NSA had not succeeded in building a quantum computer (see Snowden Files), but its been 4 years since then, and they aren’t the only people trying! Not by a landslide.

IOTA
IOTA uses ‘exclusively quantum resistant cryptographic algorithms’ which are immune to this brute force attack (unlike current blockchain projects). Furthermore the Tangle decreases impact of a Quantum consensus attack by 1 million times. The details of this can be seen in the Whitepaper – as shown below.

Tangle Whitepaper
Comparison 3 – Inability to conduct micropayments
IOTA Dev Comment (bitcointalk)
Transaction fees are used to cover miner expenses and mitigate spam-attacks. They also set a threshold on the minimum amount of a payment below which money transfers become inexpedient.

Bitcoin
When I first got involved in bitcoin (2013) it was possible to make bitcoin transactions for an incredibly low fee. This was one of the major selling points of bitcoin at the time. Bitcoin was being lauded as a cheaper alternative to the existing infrastructure which also had lots of added benefits (decentralised, irreversible, non-inflationary etc). As time has gone on transaction fees have grown to the point that many/most bitcoin services have become impractical and the billions of unbanked people across the world have seen their (potential) access to the world’s financial marketplace (via bitcoin) severed due to cripplingly high transaction fee. Through scaling solutions such as lightning proport to be able to solve this problem, these systems are not live on the network today.

IOTA
In IOTA there are no transaction fees. You can send as little as 1 IOTA. As of today (13-06-2017) 1 IOTA is worth $0.0000006 and will always be able to be sent with no fee.

Comparison 4 – Partition intolerance
IOTA Dev Comment (bitcointalk)
Blockchain-based currencies are unable to survive long-sustained partitioning of the network because this may lead to reversal of a large number of transactions. It is also impossible to initiate an intentional partitioning in cases when it is required.

Bitcoin
Transactions must be relayed by nodes connected to the network. Transactions cannot take place off chain without other layers of abstraction (lightning) as the ledger must be updated constantly to ensure double spends are not possible.

IOTA
IOTA nodes can operate without being connected to the main tangle quite happily. If they later wish to connect to the network (when, for example, an internet connection is available) they can do so with ease.

(Note The Bitcoin Protocol may fork (Due to split camps of bitcoin supporters whose beliefs about scaling) and Ethereum has already forked (ETH and ETC). Though it is true that these forks cannot recombine, these are not the network partitions which IOTA refers to.)

Comparison 5+ To Be Completed Soon
Discrimination of participants
Existing cryptocurrencies are heterogeneous systems with clear separation of roles (transaction issuers, transaction approvers). Such systems create unavoidable discrimination of some of their elements which in turn creates conflicts and makes all elements spend resources on conflict resolution.

Scalability limits
Some cryptocurrencies have hard limits on the maximum transaction rate and this limits cannot be removed in a decentralized manner. A magic number of a limit set before the launch cannot satisfy requirements of a system unless it is set by a person with extraordinary prediction skill. A too low value may hinder growth of the userbase, a too high value may open system to different kinds of attacks.

High requirements for hardware
Bitcoin-derived cryptocurrencies use its original script-based approach which allows implementation of a wide range of use-cases. Other currencies use an approach similar to one used by banks but add extra features. They both substantially raise requirements for hardware because of complex transaction processing logic.

Unlimited data growth
Storing of all state transitions leads to fast growth of data while does not increase stored balance information significantly. This inefficiency cannot be removed even with data pruning technique and high popularity of the currency may lead to its collapse.