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IOTA ($MIOTA) Analysis - Multicoin Capital

An executive summary is presented below. Download our complete 12-page analysis:   Note: Multicoin Capital will be hosting its first live conversation to discuss the findings of this report on We

Article IOTA Multicoin Capital posted 2 years ago

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Myles Snider
Hi all, I'm a researcher at Multicoin Capital, a crypto hedge fund. We publish a lot of research, all of which is available on our blog. IOTA is one of the most controversial projects in the crypto space-- its price skyrocketed in Q4 2017 at the same time as some experts were pointing out serious flaws. We wanted to separate the signal from the noise, so we did a deep dive. These are our findings.
Ben Tossell
@myles_snider would love for you to give us a brief intro around this analysis!
Myles Snider
@bentossell will do!
Ben Tossell
Interesting to see the Major Concerns surfaced from this analysis

We have several major concerns with the implementation of IOTA that make us highly skeptical of its lofty claims.

The IOTA Coordinator is Centralized
The IOTA network currently relies on a centralized, closed-source “Coordinator” to protect it from attacks.
The IOTA team has not given clear guidance on when and how this Coordinator will be removed.
IOTA Requires Hardware Changes to IoT Devices
In order for IOTA to reach its true potential, hardware changes will have to be implemented in IoT devices to allow them to transact on the IOTA network.
This could easily become a chicken and egg problem; IOTA can’t grow to its full potential unless these hardware changes are made, and hardware companies won’t be incentivized to add this new hardware unless IOTA becomes the standard for IoT payments and data sharing.
IOTA’s go-to-market strategy is dependent on its own success and there is no backup plan.
The Network Has Experienced Downtime
The IOTA network has been unusable many times, and has also experienced periods of downtime.
The team has had to shut off the Coordinator due to bugs or attacks, rendering the network unusable.
Github issues and Reddit comments show that this is a consistent problem for IOTA.
This reinforces the issue of IOTA’s reliance on the Coordinator. It is also highly concerning because decentralized networks are designed to never go down and to not have single points of failure.
Cryptography and Software Vulnerabilities
Perhaps most concerning are the software vulnerabilities discovered by Neha Narula and her team at the Digital Currency Initiative at the MIT Media Lab.
They discovered critical vulnerabilities in IOTA’s hash function; the team built this function from scratch, violating the “golden rule of crypto” — don’t roll your own cryptography.
The team offered conflicting accounts of what happened before finally issuing their definitive response nearly six months later.
They claimed that the vulnerability was known and intentional. They called it a “copy-protection” mechanism to discourage scam copies of IOTA. They claimed the Coordinator protected against the exploit, but this is impossible to verify, as the Coordinator is closed-source.
In doing so, they knowingly allowed vulnerabilities to exist and violated the ethos of open-source software. The team has refused to disclose whether other known vulnerabilities exist.