The IOTA Economy
IOT, or the Internet Of Things, is often confined to a specific group of companies and technologies. In this article, I ask that you expand your view of what is possible in the upcoming Machine Economy, and explore how your business or organization might benefit by thinking of products or services that support a new user: the device.
We tend to believe the IOT revolution will allow us to gather better data about the products and services we own. While true, this is a somewhat limited view. In reality, devices will be able to interact with one another as their own economic agents, transacting in their own communication protocol and currency. In this new economy, machines will engage with us as well as one another.
This will create a Cambrian explosion of products and services to enable cooperation between devices (m2m), people (p2p), and devices and people (m2p).
This is the lense through which it helps to understand the vision of IOTA and the IOTA Economy.
IOTA
IOTA is an open source distributed ledger designed to support communication between devices in the Internet Of Things. IOTA carries three characteristics that position it well for the Internet Of Things: It is scalable, fast and feeless.
Why is it important to build something like IOTA?
It would be difficult for a global network of IOT devices to communicate and transact using a blockchain like Ethereum because a) Current blockchain designs are not flexible enough to scale as a network grows and b) It is impractical and expensive for machines to pay the network (via miners or staking) for small transactions. IOTA solves this problem by offering a feeless transaction layer for data and value. The only ‘cost’ associated with the IOTA distributed ledger is that a transaction must verify two other transactions on the network.
This is an important issue to solve because we expect 75 billion smart devices to come online within the next decade. That’s over 10 times the number of devices as humans on the planet. Devices will generate the lion-share of data produced on earth, and will make up the majority of economic activity on future distributed networks. These devices will need a secure, open source, transparent enviornment to exchange and transact with one another.
When most people think of IOT, they think of devices as a function of the business rather than a consumer of services on the network. Consider the IOTA Economy handles both human and devices as ‘primary users’.
IOTA As a Horizontal Currency
In my last article I discussed the concept of Horizontal Currencies. I believe any distributed system with a native currency must carry the characteristics of a horizontal currency if an economy of products and services can flourish within in.
IOTA is a perfect example of a horizontal currency due to the scope, utility and organization of the IOTA project.
SCOPE: The IOTA protocol is not a ‘product’ in the traditional sense. IOTA wants others to build their own products, services and communication protocols on top of the IOTA network. This is an inclusive, open source tool rather than a patented, proprietary product.
UTILITY: The utility of the currency is wide ranging. It is not intended to be used as some rewards system for a product offered by the Foundation. It is a true digital currency that offers a wide range of use cases within and outside of the machine economy.
ORGANIZATION: The IOTA Foundation is not a competitive for-profit organization owned by shareholders. It is a non-profit organization dedicated to the proliferation of a new communication protocol between humans and devices. It’s incentives are collaborative rather than competitive.
These characteristics allow actors with complimentary and differing interests to collaborate in a ‘trustless’ environment. Organization’s do not have to worry that they are using a competitors currency. Governments do not have to worry they are ceding power to other governments. Individuals do not have to worry about an opaque monetary system.
IOTA’s status as a horizontal currency allows the project to permeate many verticals and use cases without bias. It allows for an open, digital economy to grow.
Economic Flexibility
A native horizontal currency for the IOT economy is important because it provides Economic Flexibility for devices. In the context of the machine economy, economic flexibility is concerned with how devices may be inhibited by non-technical limitations on an open network. Solving these non-technical limitations provides developers, entrepreneurs and businesses a plethora of creative products and services to develop for the IOTA Economy.
Take the Volkswagon ride-sharing proof of concept as an example:
The Volkswagon Group recently demoed a ride-sharing application using IOTA as a communication protocol and payment method. In the demo, passengers are picked up, cars move independently, and value is exchanged freely between cars (devices), stations (devices) and passengers (humans).
This is a classic demonstration of an optimal path in product development. In an optimal scenario, the service will perform as expected and the passengers will be dropped off at their destinaton.
But what happens if something goes wrong?
Let’s say our autonomous car is en route to pick up a new customer. On the way, our car realizes it is low on electricity and must recharge. But wait! Our car’s digital wallet is out of IOTAs, and the owner is not available to send more funds to pay for a refill.
What would happen in this scenario? Would our car stop in the middle of the road? Would it abandon our would-be passangers and abort the operation? As you can see, these are not technical limitations but economic limitations.
Using the IOTA token, our autonomous car could take out a micro-loan for the day based on its credit history, ability to pay the loan back, and a wide range of other criteria. In this way, our autonomous car has more flexibility to perform actions within its own economy, similar to the flexibility that a credit card provides a human.
The question becomes: Who will provide the micro-loan? Or device insurance? Or the many thousands of services that a device may need to operate freely in the IOTA economy?
BOSCH
Bosch, one of the largest engineering and electronics companies in the world, made headlines last year by backing IOTA as a communication protocol for the upcoming IOT revolution. An often overlooked detail in their partnership is Robert Bosch Venture Capital’s investment into the IOTA token itself. While it might seem an unusual move for a large partner to purchase the cryptocurrency of the blockchain protocol it supports, the move is one of the first signs of an organization accumulating a digital currency for non-speculative purposes.
The official press release from the acquisition included a statement that read ‘Purchase of IOTA tokens to support creation of new business models for the Internet Of Things’. Bosch, through its purchase of the IOTA Token, intends to develop tools and service that support economic flexibility for devices leveraging the IOTA protocol.
And once devices become the primary users of cryptocurrency (remember, there will be 75 Billion of them by 2021), it might be advantageous to use the currency that one of the largest economies in the world (the IOT Economy) prefers. Similar to how the US dollar became the dominant currency for international trade, it is not outside of the realm of possibility that IOTA becomes a dominant currency for the Machine Economy, and companies like Bosch become dominant players in the space as a result of their understanding of this new economic reality. Their products and services will be embedded within an ecosystem where devices understand a common language. Regardless of industry, these tools have the ability to scale across verticals in a tremendous fashion.
Bosch’s Investment may be the sign of a larger trend as organizations and governments explore unseen opportunities within the the IOTA Economy.
Final Thoughts
The IOTA Economy is a fantastic vision of our future. It’s a world where humans and devices communicate and exchange value with one another, regardless of geography. For it to be fully realized, it requires the participation of many different actors, some human and some not so human.
The rules of this economy will be unlike anything we have witnessed in our lifetime. It will be open, transparent, and semi-autonomous, creating incredible opportunities for those willing to apply innovative and creative thinking to a foreign landscape.
You may have noticed that the IOTA Economy is discussed in this article at a high level. There are some incredible projects taking place in some well defined verticals such as Transportation, Supply Chain, eHealth and Smart Energy. In future articles, I will go into detail on specific use cases within these domains. In the mean time, I invite you to explore how your services might provide value to the IOTA Economy, even if you believe your organization does not fit within the traditional concepts ascribed to IOT. There is a growing Ecosystem available to support you, and an amazing community willing to lend you a hand.
