CRYPTO SPECIAL REPORT: IOTA 2.0: Network Upgrade Holds Promise For Adoption & Growth

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IOTA (MIOTA) is an alternative Distributed Ledger Technology (DLT) platform, which uses the “Tangle”, a Directed Acyclic Graph (DAG), to enable applications primarily for the Internet of Things (IoT). IOTA is scheduled to undergo a two-part protocol upgrade, IOTA 1.5 (Chrysalis) and IOTA 2.0 (Coordicide) (Slide 2), aimed at implementing a series of major DLT technology advancements to improve network functionality and achieve greater decentralization. If successful, the upgrade could move IOTA towards its longterm goal of becoming adopted as a standard for the IoT industry. Should IOTA be adopted as a standard, it could lead to $700B+ in network economic activity from core IoT markets (Primer Report), which could translate to $280B in token network value (Slide 12). Execution and market acceptance remain key risks to success.

• IOTA is moving forward with its technical roadmap and expects critical releases in 2021. Last year, IOTA released the Pollen testnet, which is the first phase of IOTA 2.0 on the network’s path towards full technical decentralization. In the coming weeks, IOTA expects to release the Nectar testnet which the team believes will deliver a scalable, secure, decentralized network architecture without technical tradeoffs. Additionally, IOTA expects to release Phase 2 of Chrysalis (IOTA 1.5) this year which will introduce protocol enhancements that enable smart contract functionality, tokenized assets and stablecoins. These upgrades enhance network functionality and could enable new use cases for consumer and enterprise IoT applications.
• IOTA 2.0’s new architecture aims to achieve critical technical milestones. IOTA believes fully serving new open infrastructure applications requires a network that’s open sourced & permissionless, decentralized & securely governed, scalable & lightweight, modular & future proof with fee-less value & data transaction finality in seconds (Slide 10). Many networks offer such features but only with varying combinations and degrees. IOTA 2.0 is being designed with the plan of being the first network to deliver all these DLT features without tradeoffs (Slide 4).
• Envisioning an open infrastructure layer for fast and fee-less data-based IoT dApps. The Tangle is being built with the goal of connecting the digital and physical world by providing a data and value trust layer for enterprise IoT applications (Slide 7). This means, if successful, IOTA may emerge as a solution across mobility, supply chain, smart cities, energy grids and industrial IoT.
• Focusing efforts on core development modules and enhanced user experience to increase adoption. Last year, IOTA focused development efforts on three core modules they deemed crucial for real-world adoption by their enterprise partners. IOTA Access, Streams, and Identity enable production-ready IoT & supply chain use cases (Slide 8). As a result of these efforts, the IOTA Foundation (IF) has inked numerous enterprise partnership and customer deals ranging from retail e-commerce, smart city infrastructure, healthcare digital identity and other applications. IOTA will soon be releasing the Firefly wallet, which will be the primary gateway for users to access IOTA 2.0 (Slide 9). As designed, Firefly will have a sleek user interface and enable users to access all the network’s new features as they launch.
• IOTA 2.0 testnet has shown early but encouraging stats. IOTA 2.0’s early testnet stats offer encouraging glimpses of potential network improvements across security, scalability, and decentralization, that are nearly on par or comparable against peers based on several proxy measures (Slide 11). The IOTA team expects the network stats will continue to see improvement.
• What could go wrong? Upgrade may fail, not perform as expected, or not be deemed a major DLT advancement by the market. Attack-vectors or bugs may emerge. Alternative market evaluation models. Failure to gain product/market fit. Competing tech.

Bottom line: IOTA’s fee-less architecture offers a differentiated approach for serving data-based IoT dApp use cases. Final technical questions and execution risks remain key, but IOTA 2.0 proposes real tech improvements that may improve IOTA’s adoption and growth. We’ll be watching how IOTA 2.0 module implementations are rolled out over the coming quarters for key signs of product-market fit and technology validation.

Key slides from this report...

IOTA’s Upgrade Roadmap Aims To Accelerate Adoption & Growth (Slide 2)…