IOTA as Digital Infrastructure: Applying PlanB’s ‘Phase Transitions’ to the IOTA Token

With the expanded narrative of Bitcoin as a ‘financial instrument’ gaining popularity in 2021, it makes sense to review how the IOTA Token’s utility is growing due to technical updates and macro economic forces. In this blog post, I apply PlanB’s idea of ‘Phase Transitions’ and lay out a potential evolution of the IOTA Token as a foundational resource for digital infrastructure in the global machine economy.

Many people have been captivated by PlanB’s S2F model, not only for its timely predictions but also its clear assessment of the narratives affixed to Bitcoin over the years. In PlanB’s terminology, these narratives are called ‘Phase Transitions’, using the classic example of the different states that water can take:

During phase transitions, things get totally different properties….The classic example of phase transitions is water. Water exists in four different phases (states): solid, liquid, gas, ionized. It is all water, but water has totally different properties in each phase.

Later in the article, he makes the case that the US dollar has also seen multiple phase transitions:

For example the US Dollar has transitioned from gold coin (One dollar = 371.25 grains of pure silver = 24 grains of gold), to paper backed by gold (“In gold coin payable to the bearer on demand”), to paper backed by “nothing” (“This note is legal tender for all debts, public and private”).

And that Bitcoin is following its own unique trajectory as people question its place in society:

1. “Proof of concept” -> after Bitcoin white paper [5]
2. “Digital Payments” -> after USD parity (1BTC = $1)
3. “E-Gold” -> after 1st halving, almost gold parity (1BTC = 1 ounce of gold)
4. “Financial asset” -> after 2nd halving ($1B transactions per day milestone, legal clarity in Japan and Australia, futures markets at CME and Bakkt)

I bring this up because IOTA, a project that has been close to my heart for some time, is experiencing a similar transition itself, one that is starting to become talked about in our community more and more as we release our Chrysalis and Coordicide upgrades.

I Get Bitcoin’s Phase Transitions, But What About IOTAs?

For those of you that are new to the IOTA Ecosystem, IOTA is a distributed ledger technology developed to be the backbone of the upcoming Machine Economy, Internet of Things, and world of automation. As with most distributed ledger technologies, the IOTA “Tangle” has an instrument for transacting value called ‘The IOTA Token’ that was designed specifically with machine to machine payments in mind.

Phase 1 : Machine Currency

If machines needed to act as independent agents in a distributed economy, they must have means to transfer value with attributes that are:

• Light — It cannot be a burden on the machines using it.
• Decentralized — The currency cannot require machines, especially those at the ‘edge’, to constantly communicate with centralized authorities like e.g. a bank. They must be able to negotiate directly with one another at the protocol level.
• Feeless — If machines are going to send microtransactions between one another, they must have a system where infinitesimally small transactions can be sent without incurring a huge cost on the machine.

Because of these properties, one could argue that IOTA’s first Phase Transition was as a Machine Currency.

A new transition seems to be taking shape as the ecosystem and functionality of the IOTA token evolves, One that expands our original functionality in light of upcoming technical improvements to the IOTA Protocol.

Phase 2: Digital Infrastructure

In order to become fully decentralized, IOTA is incorporating a number of technical innovations at the protocol level, one of which is known as Mana. We will not dive too deeply into the technical underpinnings of Mana or its relationship to other components in IOTA 2.0 in this post, but you can review the mana concept from a previous blog post and keep a look out for more detailed information on specific attributes of Mana to be published shortly.

At a very high level, Mana is a scarce and limited resource generated by the IOTA Token that allows anyone to send feeless transactions on the network. The attribute of scarcity is a necessary one, because scarce resources are often required in distributed systems in order to limit the risk of attacking a system (like e.g. spamming the network). IOTA network participants generate Mana by holding IOTA tokens, allowing the world’s nations and corporations access to ‘bandwidth’ on the IOTA network.

We are using the term ‘bandwidth’ deliberately here because there are many similarities to another type of digital infrastructure that many might be familiar with: Spectrum.

Spectrum is an interesting technology with interesting properties:

• Electromagnetic spectrum is composed of a naturally occurring range of frequencies that exist around us.
• Spectrum is a very scarce resource.
• Frequencies on the spectrum have incredible utility, allowing us e.g. to build communication systems that “send data over the air”.
• They are highly coveted and competitively sought after by organizations around the world.
• Spectrum can be purchased on an open market, and (mostly) anyone can try to acquire it.
• Spectrum is the backbone of the 20th century and early 21st century.

Mana has very similar properties to Spectrum:

• It is composed of a naturally occurring property in the IOTA Network (sending and receiving transactions).
• Mana is a very scarce resource.
• Mana has incredible utility, it allows anyone around the world to send data, for free, over a global decentralized network.
• People will want to generate Mana because they want to become partners in this new global machine economy. Some may acquire Mana for data applications and businesses while others may acquire Mana purely to own and rent out to other network actors.
• Mana will be tradeable and purchasable on an open market, allowing anyone to acquire or rent it.
• Mana has the potential to become the ‘digital oil’ that runs the Machine Economy of the 21st century.

The new properties granted to the IOTA protocol by Mana embed the IOTA token with characteristics consistent with aspects of physical and digital infrastructure, a group of technologies whose capital expenditure is growing by the tens of billions each year globally.

What Comes Next

Elon Musk’s Tesla recently purchased 1.5 Billion dollars worth of Bitcoin to support one of the largest companies in the world. Similarly, I believe that IOTA will begin to be purchased by large organizations that are serious about acting as “IOTA Infrastructure Partners” in the upcoming machine economy. In a way, they are capturing and storing value in a system with real utility: Billions upon billions of machines and humans interacting in a highly optimised, automated world. This is already a serious consideration for businesses looking to ‘capture value’ from the upcoming shift towards a more automated society.

With the upcoming release of the IOTA Nectar testnet (the final testnet implementation of the fully decentralized IOTA or “IOTA 2.0”), we will begin to see this new property emerge. IOTA Token holders will have an opportunity to support a new type of digital infrastructure, one that no single individual or corporation ‘owns’ fully, yet everyone can participate in and be responsible for. It will be interesting to see how parties take advantage of this new opportunity as more and more IOTA Infrastructure Partners make themselves publicly known in preparation for IOTA 2.0’s upcoming architecture.

Finally, like all things IOTA, our goal is and has always been to ‘expand the pie’ and bring the world of distributed ledger technology into the real world for individuals, corporations and businesses. With a phase transition of the IOTA token into the realm of Digital Infrastructure, it is possible that we again will break the boundaries of how people see, use, and take advantage of digital assets.

Note: I realize that there is an entire economic model behind PlanB’s work. My intention with this article was to spark a conversation and hopefully inspire others in the broader community to explore and expand on this natural phenomenon that seems to be happening to the IOTA token. If you have an interest in infrastructure and/or economics and want to explore this thought further, please feel free to reach out to me, the IOTA community or take it upon yourself to expand on the concepts shared above.