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An interview with David Sønstebø, founder of IOTA

I recently joined the Advisory Board of the IOTA Foundation, which is developing a ledger system that uses a network of blocks to register transactions called Tangle.  It is blockchain like, but more scalable and robust by using a network structure rather than a chain.  Fairly complicated but, for those interested in the area, it could be a better alternative to Ethereum and Bitcoin.  Here is an interview with founder and creator David Sønstebø.

David.  You’ve created a thing called Tangle.  Can you explain what this is in language my grandmother would understand?

The Tangle is a new kind of decentralized Distributed Ledger Technology (DLT) for settlements and data transmission. In today’s world banks and other institutes have a ledger that is controlled by that single entity only, meaning that you have to trust that this entity isn’t altering the ledger in any shape, way or form, which we know from numerous fraud cases unfortunately happens quite often. The centralized ledger is also very inefficient when two different entities has to share the data in their respective ledgers/databases with one another. This is the problems that technologies such as Tangle and Blockchain resolve.

Why is Tangle needed when we have Ethereum and Bitcoin?

2Bitcoin and Ethereum are blockchains. This means that you have a network with two parties; users and validators, in other words you have decoupled verification of the ledger from the users of the ledger. By replacing the trusted third parties mentioned before (banks etc.) you now have to trust the validators, in theory blockchain validation was envisaged to be decentralized among thousands of parties by rewarding those who validate (miners) with tokens, and thus the network would be hard to compromise and easy to trust, however in reality that is not the case. In the Bitcoin and Ethereum Blockchain the validators verify blocks by solving very computationally intensive math, whoever solves these crypographic puzzles first has the highest chance of getting the tokens (mining rewards), which is the incentive that drives these validators to carry out verification of blocks in the first place. Due to the computational requirements Application Speific Integrated Circuits (ASIC) was created. These are special chips that are made only to solve these puzzles. This invariably leads the validation of the Blockchain to centralize around those who have the resources to buy these ASIC processors and who got access to cheap electricity, furthermore these people again centralize further into ‘mining pools’ where they essentially combine their computational power to have the highest probability of getting the token reward. So right now the entire Bitcoin network is essentially controlled by 5 mining pools, which again are very much at the mercy of their Internet Service Providers and Energy Providers… Tangle on the other hand does not decouple validation of the network from the users of the network, instead validation is an intrinsic property of using the network. When you send a transaction in the Tangle you also validate two previous transactions in the network, and since everyone else is doing the same thing what emerges is a 100% decentralized and therefore trustworthy ledger.

What specifically are the issues that Tangle solves?

Given the aforementioned fundamental differences in architecture the Tangle solve most of the notorious problems that has kept blockchain in the theory and laboratory environment.

Let’s start with fees: The simplest way to think of this is to think about the validators in blockchain running their expensive equipment with high electrical bills. There is only a certain amount of transactions that fit into each block before it has to be validated, this means that the validators pick the transactions that include the highest fee possible, as such micro-transactions are impossible in blockchain. In Tangle however, since there is no blocks and thus no block size limit, as well as the validation being intrinsic to the network you don’t have to compensate anyone with fees, meaning you can do micro or even nano transactions. If you send 0.1 cent to someone, they receive the full 0.1 cent.

The second issue is scalability in blockchain: Since there is a finite amount of transactions that can go into a block at once you end up with the block acting as a bottleneck. You can only get as many transactions validated as the block size allow, so if a lot of users use it at once you end up with a congested network that takes hours to clear transactions. In Bitcoin the number is 7 transactions per second, which compared to centralized payment processors is absolutely nothing. In Tangle there are no blocks, instead you can add a transaction whenever you want into the network and the other users of the network will validate it. No bottleneck. Therefore inn principle there is no scaling limit in Tangle; the more users, the more validators.

That makes Tangle sound like a blocknet, rather than a blockchain.  Why is a network structure better?

Even though transactional settlements without fees is a game changer itself, we are equally excited about the prospects of using the Tangle to do data transmission. Because it’s a distributed ledger it is naturally suited to ensure tamper-proof data, since the data is distributed amongst the users of the network, so if someone tries to alter the data they are automatically detected and invalidated. Blockchain could do the same in principle, but due to the fees and scaling issues mentioned before, it can’t, it would cost a fortune and clog the network permanently.

You’ve also created IOTA.  Why?

IOTA is the name of the platform itself, Tangle is the name of the ledger architecture. So IOTA is to Tangle what Bitcoin/Ethereum is to blockchain.

And what do you see in the future for Tangle?

IOTA and Tangle was primarily invented to enable the Internet-of-Things, but can also be used for any kind of ‘On Demand’ services. Due to there being no fees you no longer have to make compromises and do things in intervals to avoid fees eating up the profit margins, instead users can pay for the exact quantity they use on the go.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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