Cardano and IOTA

Recently on Twitter I volunteered to write a post about the difference between Cardano and IOTA. Due to the positive responses, here it is!

Nothing should be considered investment or financial advice. Enjoy the ride.

Upon agreeing to this post I realized three things:

  1. There are no good posts or videos comparing these projects on more than just the basic characteristics.
  2. I have already written a good bit about both projects.
  3. The click-bait title was way too easy to write.

If you want the basic “circulating supply”, “daily volume”, etc etc boring stuff for Cardano and IOTA, then please head over to coin market cap, pull up two tabs and look at it. If you want to understand each project, learn the differences, and read about my recent portfolio decisions involving these projects, then continue on please.

Overview of Cardano and IOTA

Before we can compare these two projects, we need to do an overview of each project starting with Cardano!

by the way, if you do not like reading – scroll down to the “QUICK OVERVIEW” to save time and skip most of the reading. Anyways, here is Cardano.

Cardano In General

From my previous post on Cardano here is what we said about the project in general:

The developers of Cardano see it not as just another cryptocurrency but rather the future of how the industry works as a whole.  Academics and engineers are applying philosophies behind mission-critical applications (aerospace and banking, most notably) and producing high-assurance, peer-reviewed software to power the platform.  While some ecosystems seek to provide the utmost in privacy and decentralization, Cardano hopes “that it will balance the needs of users with those of regulators, and in doing so combine privacy with regulation” (“What is Cardano”).  This goal spurs the developers to provide a world of fair financial services to anyone desiring to participate. 

Pretty cool. What about Mining on Cardano like Bitcoin?

Mining On Cardano

Here is what we said about Mining on Cardano in our Cardano post:

What does mining look like in Cardano?  Short answer:  very different than what you’ve seen in other systems.  Rather than utilizing the standard proof-of-work approach, Cardano has chosen to base block validation on a proof-of-stake methodology.  What does proof mean in this situation?  It refers to the evidence that a given block of transactions is actually legitimate (the transactions have been validated by an approved party).  That makes sense – it’s similar to what we have learned about in proof-of-work systems.  But what about stake? 

The Cardano Settlement Layer comprises the entire system of Ada within the Cardano network.  Any one particular node has a small subset of this value; hence, dividing what a particular node has by the total value of the Cardano network gives a relative value or “stake” for any particular node.  So, a proof-of-stake methodology refers to the evidence of legitimacy that a particular node has as compared to its impact on the system as a whole.  While it may sound simple (or maybe it doesn’t), it’s actually quite a complex series of events.

The complex series of events if run by a protocol called Ouroboros.

Ouroboros Overview

And here is our explanation of the Ouroboros Protocol:

By incorporating Ouroboros, the Ada cryptocurrency doesn’t have to rely on a global infrastructure of power-hungry servers.  Instead, stakeholders who will help form the next block on the blockchain are randomly chosen based on their proportional stake size (in accordance with the blockchain ledger).  These chosen stakeholders are referred to as “slot leaders” (more on this in the next paragraph).  A secure, multiparty implementation of a coin-flipping protocol is used to select the next slot leader to form a block.  Note that there isn’t a typical “block reward” for the node who solves the next block (like is common in a proof-of-work based crypto). Rather, the node responsible for transaction validation makes profits based on the transaction fees within the transactions.

Now that you understand some of the frame work around Ada and Cardano, lets dig into the people behind it all.

Cardano Company Structure

What about the company or structure behind Cardano? Well, that is quite interesting.

The project is divided into three entities.

Lets talk about the most popular piece, IOHK.

IOHK

IOHK (which is now based in the US) is the company where the fearless leader Charles Hoskinson resides and does his famous (and random) AMAs. Charles is a legacy member of the crypto space and was even a co-founder of Ethereum.

IOHK is directly responsible for the development of the Cardano protocols and updates. They have a history of working with some other projects around the space as well like Ethereum Classic and Horizen at a point. (This was speculated, but I don’t believe confirmed? Don’t quote me on that.)

Anyways, the second part of the trio is called Emurgo.

Emurgo

Emurgo is a multinational blockchain tech company that aims to provide solutions for developers, startups and governments. (per the website) Basically, Emurgo is the investment arm of the trio. They are responsible for funding and creating partnerships for the project as a whole.

In addition, they are responsible for some development on the project like the light native wallets Yoroi.

Fun fact: I actually got interviewed by Emurgo 2 years ago. Unfortunately, moving to Japan was not in the cards for me. Anyways, the third piece of the trio is called the Cardano Foundation.

Cardano Foundation

These are the guys that try to run the community aspect of the project. They are based in Zug, Switzerland. Their mission is to “standardise, protect and promote” the Cardano Protocol technology.

These guys were not very nice when I made a post about Cardano rebranding on accident. Even after I fixed the post… but it’s cool.

We have pretty much covered Cardano. If you want to learn more about the project then check out this post, or go to their website here.

Cardano QUICK OVERVIEW

Here is the brief overview on Cardano for those like me who forget things right after they read them or for those too lazy to read everything above.

Cardano is aiming to use a function based language (Haskell) to promote a regulatory friendly and privacy centric blockchain that can be easily verified and provably secured through formal verification all done through academic research. It wants to bridge the gap that Ethereum left by being the intermediary of blockchains, aka the internet of blockchains. They also aim to safely bring the traditional financial realm to the space and enable them to use blockchains for real world solutions.

Now lets check out IOTA.

What Is IOTA

Ok, luckily I have a few (9) posts on IOTA. Here is our entire series of IOTA for those who really like to dig deep. Also, these posts and MADE to be easy to digest and for people with little technical background or knowledge of IOTA. I highly suggest reading them in order if you want to learn more. If you read all 9 of these posts, you will know just about everything you need to know about IOTA.

  1. IOTA – What’s a Tangle – Covers: Tangle Graph Theory, Tangle Vertex, Concept of the Tangle, Tangle Versus Blockchain
  2. Tip Selection – Part 1 – Covers: What Does a Tangle Look Like, Tip selection, Random Walks
  3. Scaling The Network – Part 2 – Covers: Unweighted Random Walk, Tangle and Transactions
  4. Combating Lazy Tip – Part 3 – Covers: Lazy Tip, Randomness Generation
  5. Transaction Approval Process – Part 4 – Covers: Transaction approval process, Transaction Confirmation Simulation, use cases
  6. RIP Coordinator – Part 5 – Covers: Voting On IOTA, Coordicide Modifications
  7. Removing the Coordinator – Part 6 – Covers: GoShimmer, attacks, Mana
  8. Spam Protection – Part 7 – Covers: Iota Rate Control, Adaptive pow, Verifiable delay functions, Additive increase multiplicative decrease
  9. Approval and Consensus – Part 8 – Covers: Consensus Post-Coordicide, Efficiency and Orphaned Transactions, Cellular Automation Approach, Shimmer Consensus Mechanism

Anywho, what is IOTA?

IOTA (or the Internet of Things Application) is both an open-source distributed ledger and cryptocurrency that entered the crypto market back in 2016. The IOTA project aims at providing the Internet of things with a better, fee-less, and all encompassing “blockchain” for use in the machine to machine world that is coming. They focus on providing integrity and provability to their data through native oracles while also focusing on efficiently transacting value through the tangle.

What is the Tangle

Here is what we said in our post: What’s a Tangle (links above):

While the blockchain is a synchronous set of blocks stacked one after the other, the Tangle has no concept of this rigid synchronicity.  Instead, the system acts asynchronously and can have many forks and branches that all converge over time.  The main impetus for this decision was scalability of the distributed ledger.  Because each node participates in the validation process during the performance of a transaction, the network of validated transactions continues to strengthen while staying nimble.  This allows computationally bounded devices (such as IoT devices) to participate in the network (no need for racks and racks of custom ASICs to validate transactions by calculating terahashes of computations). 

In addition, transactions on the network are “free” in that they require neither the sender nor the receiver to pay any MIOTA (IOTA’s token).  Instead, each transaction requires the node to perform two validations of other transactions within the network.  The choice of these transactions is outside the scope of this article, but feel free to look at the Whitepaper if you really want to know what’s going on here (especially starting at section 2).

Tangle Vs Blockchain

What about the Tangle vs a traditional Blockchain? Here is what we said in our post:

There are few more important distinctions to make with the Tangle and how it relates to a standard blockchain:

  • The Tangle provides virtually unlimited throughput (as opposed to, say, Bitcoin with about a 10-minute block production schedule or Ethereum which produces about 10-12 blocks per second).  Because of its asynchronous nature, the Tangle can proceed extremely quickly and has no programmed block schedule.
  • There are no mining fees in IOTA as there are no miners.  Each node must verify two transactions every time it produces a new transaction.  This allows the system to send all of the MIOTA specified in the transaction payload without having to worry about miners’ fees or higher fee payment if a quicker verification of the transaction is desired.
  • Because there are no miners in IOTA, there are no incentives (other than perhaps malicious intent) to slow the network down.  Typically, this is done to raise fees, which really goes against the decentralized nature of most cryptocurrencies.  Rather, nodes are incentivized to perform quickly as their transaction can be further validated after being added to the Tangle.

Now that you are a Tangle expert, lets talk about the people behind the IOTA project.

IOTA Foundation

The company behind IOTA is known as the IOTA foundation. It is lead by Dominik Schiener, and you can find the rest of the team here. Dom, from what I can tell, is a pretty solid guy with some decent exposure to the blockchain space before starting IOTA. Per his LinkedIn he tried to start an exchange and a few other small projects before landing on the IOTA idea.

Anyways, the IOTA Foundation is a non-profit organization based in Germany that aims to develop the next generation protocols for the connected world. The Foundation is actually in charge of the three main “pillars” if you will of the IOTA project:

  • Funding
  • Governance
  • Promotion

The foundation is constantly hiring new people since the demand is so high and the project is constantly growing, so if you’re looking for a blockchain job – this might be your chance.

IOTA QUICK OVERVIEW

Here is the brief overview on IOTA for those like me who forget things right after they read them or for those too lazy to read everything above.

IOTA is aiming to use something called the tangle which is a DAG based algorithm to offer the IOT (internet of things) a fee-less payment structure built on top of a data centric layer for connecting machines, securing data, and empowering people in their digital lives. If successful, IOTA could be the go-to project for all machine to machine payments in the future.

Now, lets dive into how these two projects compare.

How Does Cardano and IOTA Compare

Ok now that everyone is on the same page and roughly understands each project, lets start to compare.

I will try to be unbiased as possible, but for full disclosure I own/owned both of these cryptos and have been following both projects basically since they each began. So, my view and opinion of these projects will be like discussing two of my own children. At the end of the day, I love them both equally. (thanks dad)

Cardano and IOTA

How to start this comparison? Well, lets take a look at the main competitors for each of the projects. Because, this will give you a good idea about who these projects need to watch out for.

Cardano’s main competitors are projects like:

  • Ethereum
  • EOS
  • TRON

While IOTA’s main competitors are projects that are DAG related and fee-less, but there are not many in the same category as them. Still projects that compete with them would be:

  • Nano
  • Ripple
  • And recently due to the oracles update – Chainlink

As you can see quickly, these projects are not in direct competitors with one another. But what about their respective Niches?

Market Opportunities

Looking at their respective markets, what are they after? Well Cardano is after:

  • The financial market, and inclusion of unbanked societies like parts of Africa
  • Bridges and interoperability between chains
  • Leans on the idea of academic review and verifiably secure data and smart contracts
  • Wants to work with and support regulatory standards in the blockchain space to encourage the traditional market entry

While IOTA looks to:

  • Be the go to for machine to machine payments
  • Provide a fee-less and autotomized economy
  • Run the IOT market in terms of providing verifiable data for use

Again, we can see these projects are after different things, and are in separate markets. Not only that, but their long-term goals are independent of one another.

Lets help demonstrate this with an example. This is hard for most people in the blockchain space to get, so pay attention.

Example of Differences

Lets say we have two restaurants. The first one will be called Marco’s while the second one will be called Frank’s.

Marco’s is open late for dinner and only takes reservations. They specialize in seafood dishes, pasta, and steaks.

Frank’s on the other hand is open at lunch time. No reservation is required, and they focus on burgers, sandwiches, and even have a bakery in the back for fresh bread and desserts daily.

Is Frank’s and Marco’s in competition with each other?

No. They are not. Actually they would be much better off if they worked together.

Working Together

If someone goes into Frank’s in the afternoon, they need to encourage those customers to try Marco’s for dinner. Likewise, Marco’s needs to create an agreement with Frank’s to get some of that fresh bread daily delivered for their evening meals, and maybe even some fresh desserts made for their customers.

Marco’s can likewise encourage customers to try Frank’s for lunch and promote their bakery.

These restaurants will succeed and get more business working together. Yes, they both have kitchens, they both serve food, and they both want customers. BUT, they do it differently. They do it in different “markets” if you will.

Likewise, Cardano and IOTA are just like these restaurants. They are not in competition. In fact, they will both benefit much more from working together, referring each other, and promoting the other.

Crypto Market Perspective

Moving to the crypto market perspective, this is where I will be most biased, but still objective.

Which project should you “consider” investing in or supporting. Well, that is entirely up to your beliefs. Personally, I like Charles and Dom equally. I believe they are both smart individuals with a positive, market moving drive. I like both of the project’s goals and missions, and I believe both will succeed given time.

Therefore, I invested in both. Although, what about the token economics?

Better Investment ADA or IOTA

Given the recent market run up in early 2021, I have actually sold my ADA at $1.265 and $1.33 in batches and are currently still holding my IOTA. Why did I sell ADA and still hold IOTA you might ask?

Well, ADA (Cardano’s native asset) recently has broken its all time high. Since I bought around $.30 and $.12, I decided to take profits. That was a PERSONAL choice, and please do your own research and make your own financial decisions. If the price dips below $0.85 again, I will probably buy back in as it dips.

For IOTA, I am personally going to hold until the price gets back to a couple of dollars. A $3.50 per IOTA price would be my “start thinking about selling” price. Again this is a personal decision. Please make your own financial decisions.

You could then conclude that IOTA is CURRENTLY the better buy for its market price currently around $1.18. Although between the two projects, IOTA still has a little ways to go before proving to the market it can complete the coordicide mission. (AKA Removing the Coordinator)

IOTA and ADA Pros and Cons

Given both projects fully achieve their roadmaps over the next year or so, then which is better based on economics?

Well, neither is better. It all depends on who can score more of the market share in their individual target markets. Both are great projects, and neither is in direct competition with the other as we showed above.

Although, in the current market Cardano is currently ahead in few ways. First, it has the larger market cap with added liquidity due to its high daily volume. Cardano also currently offers staking, but eventually IOTA will allow you to earn with MANA as well.

The real choice you then have to make is:

Do you want to bet on the Internet Of Things adopting IOTA or on the traditional financial market & governing authorities adopting Cardano? That choice is up to you and how the market moves.

Cardano and IOTA Comparison

I hope this comparison between IOTA and Cardano helps you understand both projects, and the current prices in the market. I strongly believe in both projects and their purposes. Regardless if I own them or not, I will continue to encourage the projects with my blog and by engaging the community with support.

If you view these projects similarly, then please share this post! Knowledge is key. The more people know, the better they can make their own informed decisions.

Cheers

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