There is a lot of FUD concentrated around blockchain projects, especially when capitalization can jump by over a 100% per night. In this article we examine the IOTA project’s “big bang” which occured in November-December 2017.
IOTA is an innovative new distributed ledger technology, which functions as the backbone to the Internet of Things. IOTA is so-called the Blockchain without Blocks and Chains, it addresses the transaction fees and scalability issues of blockchain technologies by replacing it with Tangle.
In cryptography, this type of verification is known as Directed Acyclic Graph (DAG). This method of verification means there’s no central ledger, and there’s no need for miners to power the network. As devices on the network randomly verify each other’s transactions, they build consensus through the web of connections between transactions.
In order to submit a transaction to the IOTA ledger, you must verify two other previous transactions. The Tangle grows as the network grows, and it allows free and fast transactions. IOTA is designed to process micropayments between machines to facilitate a whole machine-to-machine economy. IOTA is making some big promises even though the Tangle technology is still new and has many drawbacks. The project recently attracted a lot of criticism and FUD statements, so we decided to dive deep into these issues.
We are going dig into the specific media scandals around IOTA to unearth the truth and eliminate the gossip. We will comment on how this affected the token price and market capitalization. The article will conclude with an estimation of future IOTA token price drivers.
Here is a list of the most significant events that had the biggest effect on IOTA project reputation and or price spikes. All price ranges are calculated based on IOTA/BTC pair to exclude influence of BTC fluctuations.
September 7, 2017 – Vulnerability found in IOTA’s Curl hash function
+-20% fluctuations during the week with no significant price spikes
November 28, 2017 – Data marketplace launched & “fake” partnerships announced
+ 225% in 3 days with -40% correction in the next day
December 19, 2017 – Robert Bosch Venture Capital purchased IOTA’s tokens
+ 40% in one day with -15-20% correction on December 22, after three stable days.
The recent (end of December 2017) price fluctuations are mainly related to the huge Bitcoin correction and for now cannot be analyzed from a solely IOTA perspective.
We will examine these events further in this article, especially focusing on the relationship with partners, which has had the biggest impact on price.
There is a big issue surrounding IOTA’s own crypto function, which may be vulnerable to funds theft. On sept 7th 2017, a team of MIT researchers reported a cryptographic issue on the hash function Curl and shortly after co-founder David Sønstebø responded with explanations. Come-from-beyond, IOTA’s core developer added his own vision in a more direct manner. Jeremy Epstein, IOTA’s adviser also contributed to this discussion.
MIT concluded that this specific scenario was not an actual technology use case. All the reports were written in an exposing manner, without having consulted IOTA. In reality, funds were not as vulnerable as the scenarios which the Neha blog-post depicted. The arguments on the blogpost were fundamentally flawed as there was no practical possibility. It was only discovered later that the entire MIT team was involved in other cryptocurrency projects.
Currently IOTA is using the hardware intensive NIST standard SHA-3/Keccak for crucial operations to provide maximum security. Curl is constantly undergoing audits by security experts and cryptographers, and recently the IOTA Foundation hired Cybercrypt to review and audit Curl function.
In mid December the dispute continued when the MIT-Technology-review posted a highly positive review of the IOTA project causing another MIT unit, the MIT-Media-Lab, to respond with furious criticism combining FUD in one post. These debates could be seen as one-sided considering that IOTA’s co-founder Come-from-Beyond — who vigorously defends IOTA solutions — was not present.
To remain objective in this circumstance, we must emphasize that IOTA responses are far from professional. The founders David Sønstebø, Sergey Ivancheglo, and Dominik Schiener are extremely passionate about their project, and have been at the center of “twitter wars” over the criticism of their project.
The greatest concern is violating the fundamentals of open source development. The developers of most cryptocurrencies offer the source code of their product, which allows third parties to create tools that can interact with the product, as well as boost the industry forward by sharing any advances made towards the technology.
IOTA on the other hand is doing the opposite. IOTA had released their source code but left a few fatal bugs in the code. The founders stated the reason for doing so is to stop other developers from stealing their code. “The Copy-protection mechanism” as they called it. This is the equivalent of releasing a recipe with a missing ingredient, and because of this missing ingredient it poisons everyone who uses it. This goes against t everything the open source paradigm stands for, in actuality it is disruptive and creates a lack of trust within the community.
The token price was not significantly affected by this event, however it seriously damaged the reputation of the IOTA project, at least for some early adopters.
Another scandal surrounding IOTA flared up on the grounds of unconfirmed partnerships. On 28th November 2017, IOTA announced Data Marketplace launch with 30+ companies participating. A quote from Omkar Naik (Microsoft representative), mentioned in this post, portrayed the idea that IOTA attained a formal partnership with Microsoft . He actually used the term “partner” when referring to the IOTA foundation and it gained traction in widely read media outlets.
One news website fronted their story with the heading “Microsoft and IOTA launches…” while later claiming that they lied about the partnership. The accusations of false partnerships were based on no evidence and very shallow research. IOTA’s co-founder Dominik Schiener provided an explanation and formal clarifications about the partnerships scandal.
In reality Microsoft is just one of the many participants of IOTA’s Data Marketplace. IOTA’s marketplace blog post and data marketplace website clearly state Microsoft was only a “participant” in the Data Marketplace innovation exercise. The entire scandal was based on the misinterpretation of the teams partner, Omkar Naik.
Even though there is no formal partnership, IOTA and Microsoft are in close communication, as seen in IOTA Microsoft and Bosch meetup December 12th and Microsoft Azure mentioned IOTA in Service Updates. There are many others big companies in close touch with IOTA like Volkswagen, Bosch and others.
The incident had a drastic effect on the IOTA token price (+225%), but we didn’t see a strong correction. There are some other product improvements in the pipeline, such as the integration of wallets and Data Marketplace’s open API to drive the project forward. Due to this, principle token holders retain a positive attitude towards the future of the project. We estimate that the token price will remain stable and will experience growth relating to the new product launches.
There is no reason to believe that the situation was artificially created by IOTA or community members to pump up the token price. The IOTA community is vast and such sensitive information would spread rapidly, especially for a price increase of that scale. The whole situation appears to be another FUD cycle produced by the media and crypto influencers.
FUD cycles greatly affect the public relations of any blockchain project. It is difficult to foresee the extent to which positive or negative announcements will affect the company. Such volatile crypto markets require swift responses to prevent further damage.
Robert Bosch Venture Capital investment
The most recent price boost of 40% happened right after Robert Bosch Venture Capital (RBVC) made a strategic move to buy a significant number of IOTA tokens. RBVC hopes that the investment will allow it to capitalise on the growing Internet of Things trend.
In addition, Hongquan Jiang, partner at RBVC, has joined the IOTA Foundation advisory board. This investment follows the successful launch of IOTA’s Data Marketplace. RBVC’s parent company, Bosch is one of more than 30 large companies participating in the project, which aim to provide a secure way for businesses to sell and buy data.
This event could provoke a series of investments from other major participants that are actively cooperating with the Data Marketplace.
The crypto market is highly volatile, it reacts to any noticeable media fuss. Media announcements have great influence on token prices which don’t always keep up with real product improvements. Tokens have seen spikes which rise at rates that are extremely rare in the traditional stock market.
Each month there are several huge surges in value which capture the attention of the online crypto community. During these surges, information is spread rapidly across the web, creating a wave of people rushing in to buy out of the “fear of missing out” (FOMO).
Shortly thereafter in the presence of negative rumors on the market, tokens are sold at the maximum price, thereby crushing the market. If the moment is lost we see late investors turning into evangelists for their chosen coin since their financial success becomes dependent on that coin’s continued growth. Some token holders however truly believe in the value, and invest in the idea. We can see similar attitude throughout IOTA community.
IOTA has a vast and loyal community, formed many years ago (even before the actual ICO hype), and still remains tolerant to media scandals. There are many large stakeholders who are contributors within the community making this coin more resistant to intense media pressure.
Corrections that follow significant price spikes are relatively low, and are predominantly caused by the volatility of the entire crypto market, not internal issues. It can be concluded that not only product improvements and media announcements are dominant factors affecting the token price, but they are also greatly influenced by the community around it.
On the other hand the same community could be a great threat to the project. The aggressive leadership culture is observed in almost every public statement. The community is beginning to polarize opinion, either you’re with IOTA or you’re against. The community has a “conquer the world” attitude, which may just limit mass adoption. Nevertheless, in its own way IOTA is revolutionary, and is a project which should definitely be on your radar.