ITSA Updates IOTA’s Tokenbase Entry After Introduction of Governance Functionality
As of June 3, 2021, IOTA’s token is ranked at position 31 on coinmarketcap. ITSA has reclassified the MIOTA token according to the International Token Classification (ITC) framework and assigned a unique identifier. IOTA was founded in 2016 and uses a directed acyclic graph (DAG) called Tangle to achieve consensus on its distributed ledger (DLT). DAGs promise to solve the blockchain trilemma, a term that originated from Vitalik Buterin referring to the general trade-off between scalability, security, and decentralization of traditional Proof-of-Work and Proof-of-Stake blockchains. With its recent Chrysalis update and a community vote, IOTA now qualifies as a Settlement and Governance Token.
Authors: Christian Viehof, Maximilan Bruckner
The blockchain trilemma
The term “blockchain trilemma” refers to the three pillars of distributed ledgers: decentralization, scalability, and security. The trilemma arises from the trade-off between the pillars since most distributed ledgers are only able to achieve two of them. Security is a must, so a project can either emphasize that it is secure and decentralized but not scalable, or secure and scalable but not decentralized. No project has been able to achieve optimization in each of these areas. Most projects emphasize decentralization; they are secure and decentralized but have limited scalability. Bitcoin and Ethereum are perfect examples, with the latter making a name for its notoriously high transaction or gas fees.
Decentralization of IOTA
As for now, the Chrysalis network is still governed by the coordinator, a centralized node operated by the IOTA Foundation. The coordinator decides which transactions and data are included in the ledger, i.e. the token balances of all users. To be fully decentralized, the coordinator will be removed in version 2.0 of the IOTA protocol. Without the coordinator deciding which transactions to include, a valid message must have a consistent history without any conflicts. When conflicts arrive, the Tangle would fork into different branches. The IOTA 2.0 protocol must then do two things automatically:
- Decide which branches will survive.
- Record this decision for new nodes joining the network later.
With the release of the IOTA 2.0 testnet, the first fully decentralized implementation of IOTA’s feeless distributed ledger protocol has emerged. It uses a leaderless consensus protocol called Fast Probabilistic Consensus (FPC). The testnet already includes IOTA’s digital assets framework which allows users to create customized tokens and NFTs on top of the IOTA testnet with no fees. In the future, it is planned for IOTA’s distributed ledger to also allow microtransactions, a necessity for a broad range of IoT-related use cases.
Chrysalis update and community vote
All major cryptocurrency networks are continuously being upgraded to move towards production readiness. The IOTA network has had several of these upgrades with resulting token claim processes. While the vast majority of token holders successfully claimed their tokens, a small percentage never did. With the Chrysalis network launch, the IOTA Community was presented with the opportunity to vote on what should happen to unclaimed tokens from previous claim processes. Only those holding a vested interest in the utility and growth of the IOTA protocol — the IOTA token holders — are in a position to make a collective decision on what should happen with the tokens in question, and how they should be utilized to benefit the ecosystem. This decision was the first community governance vote on the IOTA network. Due to this new governance function of MIOTA tokens, we have given it a new classification as a Settlement and Governance Token.
The reclassification of IOTA according to the ITC:
Economic Purpose (EEP): IOTA is now listed as a Settlement and Governance Token (EEP22TU03) due to its design as a means of transaction combined with governance functionality.
Industry Type (EIN): The issuer of IOTA is active in the field of Internet of Things (IoT), Smart Infrastructures, and Connectivity (EIN05DA02).
Technological Setup (TTS): IOTA is the native token of the IOTA network which utilizes a directed acyclic graph (DAG) to achieve consensus on the distributed ledger. Consequently, IOTA has been classified as a DAG-Native Token (TTS41BC).
Legal Clam (LLC): IOTA does not entitle its holder to any legal claim or rights against the issuing organization, therefore it is listed as a No-Claim Token (LLC31).
Issuer Type (LIT): The dimension “Issuer Type” provides information on the nature of the issuer of the token. IOTA’s distributed ledger is built by the IOTA Foundation which currently employs over 100 engineers and researchers in the field of computer science and blockchain. Its Issuer Type is a Private Sector Legal Entity (LIT61PV).
Regulatory Framework (EU) (REU): The dimension “Regulatory Status EU” provides information on the potential classification of a token according to the European Commission’s proposal for a Regulation on Markets in Crypto Assets (MiCA, Regulation Proposal COM/2020/593 final). MIOTA qualifies as a Utility Token according to the definition provided in Article 3 (5) of Regulation Proposal COM/2020/593 final.
The International Token Standardization Association (ITSA) e.V.
The International Token Standardization Association (ITSA) e.V. is a not-for-profit association of German law that aims at promoting the development and implementation of comprehensive market standards for the identification, classification, and analysis of DLT- and blockchain-based cryptographic tokens. As an independent industry membership body, ITSA unites over 100 international associated founding members from various interest groups. To increase transparency and safety on global token markets, ITSA currently develops and implements the International Token Identification Number (ITIN) as a market standard for the identification of cryptographic tokens, the International Token Classification (ITC) as a standard framework for the classification of cryptographic tokens according to their inherent characteristics. ITSA then adds the identified and classified token to the world’s largest register for tokens in our Tokenbase.
- The International Token Identification Number (ITIN) is a 9-digit alphanumeric technical identifier for both fungible and non-fungible DLT-based tokens. Thanks to its underlying Uniform Token Locator (UTL), ITIN presents a unique and fork-resilient identification of tokens. The ITIN also allows for the connecting and matching of other media and data to the token, such as legal contracts or price data, and increases safety and operational transparency when handling these tokens.
- The International Token Classification (ITC) is a multi-dimensional, expandable framework for the classification of tokens. Current dimensions include technological, economic, legal, and regulatory dimensions with multiple sub-dimensions. By mid-2021, there will be at least two new dimensions added, including a tax dimension. So far, our classification framework has been applied to 99% of the token market according to market capitalization of classified tokens.
- ITSA’s Tokenbase currently holds data on over 4000 tokens. Tokenbase is a holistic database for the analysis of tokens and combines our identification and classification data with market and blockchain data from external providers. Third-party data of several partners is already integrated, and API access is also in development.
Remarks
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Christian Viehof is an Executive Director at the International Token Standardization Association (ITSA) e.V., working to create the world’s largest token database including a classification framework and unique token identifiers and locators. He completed his Bachelor in Economics at the University of Bonn, the Hong Kong University and the London School of Economics and Political Science with a focus on Behavioral Economics and Finance. Currently pursuing his Master of Finance at the Frankfurt School of Finance and Management, you can contact him via christian.viehof@itsa.global and connect with him on Linkedin, if you would like to further discuss ITSA e.V. or have any open questions.
Maximilian Bruckner is Executive Director at the International Token Standardization Association (ITSA) e.V., working to create the world’s largest token database including a classification framework and unique token identifiers and locators. He has a strong international background with significant time spent in Spain, South Africa, and Canada. Currently pursuing studies at the Frankfurt School of Finance and Management, you can contact him via maximilian.bruckner@itsa.global and connect on LinkedIn if you would like to further discuss ITSA e.V. or have any other open questions.
