Interview with IOTA Co-Founder Dominik Schiener [blockcentric #4]

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Dominik Schiener is one of the co-founders of IOTA – a German non-profit organization that implements a completely new Distributed Ledger Technology competing with blockchain. I talked to Dominik about his early days in the world of Distributed Ledger Technologies, Tangle technology, the IOTA ecosystem, and the future.

Jannik Hüls: Thank you for your time. You are traveling a lot. Where am I catching you right now?

Dominik Schiener: I’m in the headquarters of Deutsche Telekom in Bonn. We are set up internationally, which involves a lot of traveling. We have offices in Berlin, Oslo, Chicago, and are in the process of opening one in Singapore.

Let’s talk about your history: The world of Distributed Ledger Technologies (DLT) is not that old yet. When was your first encounter with that topic – how did you hear about blockchain?

My first point of contact was in 2011, when I came across the Bitcoin whitepaper and tried to understand it. Back then, I was 14 or 15 years old, my English was not that good yet, and I didn’t fully grasp the concept. But I was quickly fascinated – I’ve always been the curious type – so that I have worked on it full time since 2012. I started by mining. Everyone kept telling me this was how you made big money, and of course that’s why I was really ambitious from the outset. I wanted to become an entrepreneur and started my own projects at the age of 14. With AWS credits I mined and thus earned quite a lot of money. I then used this money to implement my first own projects.

So basically mining was your main field of application. Or did you actually implement something back then, did you see other options besides cryptocurrencies?

The main focus back then was on cryptocurrency. It was not until 2013 that I really understood the value added, applications that are interesting not just from a financial point of view, but where blockchain itself creates added value.

Before we talk about IOTA: currently, the topic of DLT covers a wide range of things. To you, what defines a use case that lends itself to applying DLT?

If we look at time-to-implement or time-to-market, a blockchain solution for supply chain management is the one most likely to be integrated within the next two to five years. In supply chains, it creates the greatest added value. Thanks to the underlying transparency, we can identify inefficient processes and improve things like insurance.

“A blockchain solution for supply chain management is the one most likely to be integrated within the next two to five years.”

Tangle is the foundation of IOTA. How did the idea for the Tangle come about?

Since we had a startup developing new hardware for IT, or Fog Computing, to be precise, the basic idea was to have the machines pay each other – machine payments to buy and sell resources. Since we are also blockchain experts, our technical know-how was good enough to realize that none of the existing blockchain architectures were able to cater to the demands of the IoT space. Many had fundamental technical flaws and were too slow or too costly. So we did some research on Directed Acyclic Graphs to solve the existing problems. We did the mathematical proofs, and that’s how we developed IOTA.

Can you briefly outline the differences between IOTA and blockchain?

There are two major differences: The architecture is no longer a chain, but a Directed Acyclic Graph. And the way consensus is reached is different: [with blockchain,] miners use the Competitive Proof of Work or another consensus algorithm that validates transactions in cycles. In IOTA there are no cycles like in blockchain. When transactions are executed in IOTA, two older transactions must be confirmed. There are no more miners, but whenever someone in the network performs a transaction, they also contribute to the consensus of the network, which is one of the main benefits.

Another advantage is scalability. IOTA scales horizontally: the more network participants, the faster transactions are confirmed. Plus, there are no transaction fees because there are no miners left to substitute. This means that no expenses have to be paid because everyone participates in the validation process. Other benefits include partition tolerance and the fact that quantum computers can no longer attack our hashes.

You mentioned the IoT as possible use case – is there a difference between Full Nodes and Small Nodes? Does every IoT device need to store the entire tangle? And how big is it when it’s stored?

Right now there are only Full Nodes, but we are also developing Light Nodes and Small Nodes. Small Nodes are clusters of devices that are combined. In this cluster, they will use a Full Node that meets, for example, the more demanding requirements. However, these very questions depend very much on the architecture of future systems. So, what do they really look like in the future? How do the IoT devices interact?

That’s why the concept of Fog Computing is so relevant to us. The interesting thing about IOTA is that you can really outsource all processes that are involved in running a transaction to different devices. Every IoT device can have its own signature, which means: every IoT device can have a wallet. Even my coffee machine. The second step is Tip Selection. IOTA can find two transactions that need to be confirmed. For that I have to be a Full Node or a Light Node. This Tip Selection algorithm can then really be executed by the node, and thus the coffee machine can also make a transaction by interacting with the Full Node. We imagine this as a SmartHub within our own four walls. The final process is the proof of work, which is a bit more computation-intensive. That’s why we work on special hardware – especially for Fog Computing.

You said that the big advantage of IOTA is that there are no transaction costs. What’s the incentive for the miner then – why should I run a Full Node?

That’s one of the biggest misconceptions: There is no incentive to run a Full Node in Bitcoin and Ethereum. A Full Node is not necessarily a miner. There are about 5,000 to 6,000 Full Nodes in Bitcoin, but only a small fraction of these Full Nodes are miners. The advantage of IOTA is that the effort related to the validation process is much lower compared to Ethereum or Bitcoin. This means it’s better to run an IOTA Full Node than a Bitcoin or Ethereum Full Node. A node runs to be able to participate in the network.

“The advantage of IOTA is that the effort related the validation process is much lower compared to Ethereum or Bitcoin. This means it’s better to run an IOTA Full Node than a Bitcoin or Ethereum Full Node.”

In terms of business organization, IOTA deliberately sets itself apart from other DLT startups. You are a German non-profit organization. What’s the rationale behind this step?

It was of course a strategic move. We realized that the potential of the technology is simply too big to be limited by patents – that’s a conflict of interest. This is why this foundation idea makes so much sense, because the base layer, i.e. IOTA, should be free to use and open source. It should be used as widely as possible. In our opinion, the foundation is the best way to promote adoption. That’s why non-profit makes sense. Our goal is to bring together big companies, startups, and governments to build an ecosystem and invest. Since it is agnostic and independent, other companies are very interested in working with us rather than, for example, IBM.

Initially you also did an ICO [Initial Coin Offering], but you sold all IOTA tokens. How is the foundation funded?

We sold 100 percent of the tokens, then said to the community: if you want a foundation, you’ll need to donate money. As a result, the community got together and donated five percent of the tokens, which currently makes up about 200 million Euros. This is how the foundation is funded.

In other words, the value of the currency IOTA is also fundamental to the financial resources of the foundation.

Exactly. Now we bring companies on board, who then donate to the foundation. And we work with governments.

For example, the Data Marketplace is currently implementing a use case based on IOTA. There, data can be paid with micropayment.

Interesting. How do you explain the volatility of the market? How can I sell this use case better? When I buy something today, it costs, let’s say, 1000 IOTAs, which is perhaps 5 Euros, and tomorrow it might cost 50 Euros.

This is one of the biggest problems in IOTA and one of the biggest problems of cryptocurrencies in general. Volatility is in direct conflict with usability. One could think about an additional layer in which the use of the cryptocurrency is abstracted and that allows for payment in Euros, for example. However, our vision for IOTA is that the tokens are actually used. With other cryptocurrencies, the token is useless. We do not want a network in which each institution maintains its own token. This leads to a way too fragmented ecosystem. Nevertheless, the usability of the token is problematic and remains an unresolved issue.

Currently there are a lot of news about you after you announced Masked Authentication Messaging, Payment Channels, the Data Marketplace, and many other things. Can you roughly tell us what direction you are headed in? I assume you have more things in the pipeline.

We focus on the announcements, especially the partnerships we start with big companies. There, we are able to integrate IOTA into large-scale existing ecosystems. This is how we really get a scaling effect – where we can deploy thousands of nodes. But I can’t say more about this right now.

At codecentric, we are developers. Are there any SDKs [Software Development Kits] for IOTA?

As a matter of fact, we are working on this, especially for the modules that we develop. In terms of IOTA development, we are currently at the point where we have the IRI client to join the network and execute the transactions. Over the past few months, we’ve been working on a completely new system architecture which implements microservices and which is enterprise-oriented. You see, right now we just have one monolithic block, just as Ethereum or Bitcoin.

In addition, the IRI client is becoming much more modular. So as a company you can decide what communication protocol you want to use, and what database, be it SAP Hana or Redis. This really is the future of IOTA and it will be one of the best releases ever. Hopefully it’ll come in February, right now it’s still being developed and thoroughly tested.

There is a sandbox and a test net for developers. Are these the best ways to validate a proof of concept, or what’s the easiest way to go?

We are presently improving the entire sandbox environment. Our goal is that developers only need to send out an API call, and we then take care of the deployments. We are currently cooperating with some companies because they are so interested in IOTA that they also help the network by managing the deployments.

Looking at the Data Marketplace as use case for application developers: what is really stored in the Tangle? Or is it just about paying for the sensor data? Can you roughly outline the architecture?

Of course, the sensor data are represented in the Tangle. In IOTA, a transaction can contain about 1.2 kilobytes of data. In other words, if I have a sensor just for temperature logging or a small dataset, I can use IOTA for data transfer. This is how IOTA also ensures the integrity of the data. If someone wants to buy the data of a sensor, this will be billed directly by micropayment. The data is then not read by the sender, but from the tangle.

So basically the sensor pushes data into the Tangle, and I as a consumer can use the data from the Tangle to read sensor data. Pretty cool.

Finally, to reiterate: you talked about the IRI earlier. I’ve already seen that’s open source. What else is?

Everything. The Data Marketplace will also be open source. We also want to make other use cases, such as SatoshiPay, available to the community. We are not done with that, though, we are still working on it.

Thank you for your time. Cool stuff you’re working on, and fun to follow. Have a great time in Bonn!


Thank you, Jannik!


The interview was conducted in German and then translated into English.

Our article series “blockcentric” discusses Blockchain-related technology, projects, organization and business concerns. It contains knowledge and findings from our 20% time work, but also news from the area.

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Jannik Hüls

Jannik is part of the codecentric Team in Muenster since 2016. He likes the technical implementation of IT-architectures and the integration of software components. Especially serverless architectures meet his interests. Furthermore he supports our customers within identity- and accessmanagement.


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