IOTA, which is the most popular Directed Acyclic Graph (DAG) cryptocurrency, has claimed that it has entered the first phase of becoming fully decentralized. However, considering IOTA’s long history of claiming that it is about to become decentralized, and ultimately failing to remove its centralized Coordinator, this is an “I’ll believe it when I see it” sort of situation.
IOTA’s centralization problem is the Coordinator, which is a mechanism that gives the IOTA Foundation centralized control of the entire network with the purpose of preventing double spends and malicious forks.
Basically, the IOTA Foundation claims that it would be fairly easy for an attacker to gain a majority of the hash rate and then destroy the network, which is why the centralized Coordinator failsafe is needed. However, this raises questions about the viability of IOTA in general, and hints that IOTA may need to be drastically redesigned.
The IOTA Foundation has been saying that they are going to imminently remove the Coordinator since late 2018, since the centralization of IOTA is a constant source of criticism and controversy, yet something always holds them back from flipping the switch and relinquishing their centralized control.
This led to a disaster in February when the IOTA Foundation used the Coordinator to shutdown the network because $1.6 million was stolen from the Trinity wallet due to a security flaw.
Ultimately the IOTA Foundation kept the network shutdown for an entire month while trying to retrieve the stolen $1.6 million.
This made zero sense, since the IOTA market cap dropped from $950 million to $350 million during the month that the network was shutdown.
Literally, in order for the IOTA Foundation to save $1.6 million of funds that were stolen, they caused $610 million of damage to the IOTA ecosystem. This is a perfect example of why the IOTA Foundation should not have centralized control of the network.
Further, this entire incident was even more fishy since the Co-Founders of the IOTA Foundation were fighting over $65 million exactly when the hack happened. Even worse, the $65 million was taken from early investors who didn’t redeem their initial coin offering (ICO) share, so neither Co-Founder truly had rights to the funds.
In any case, the IOTA Foundation has a three step plan to finally get rid of the coordinator. The network has just entered the ‘Pollen’ phase, where heavy research will be done on getting rid of the Coordinator. Notably, this actually indicates that as of now the IOTA Foundation has no plan/code for getting rid of the Coordinator.
In late 2020 the ‘Nectar’ phase will deploy, where the Coordinator is killed on a testnet, but remains live on the mainnet.
After that the ‘Honey’ phase will launch, where the Coordinator is actually eliminated. Intriguingly, the IOTA Foundation does not give a date for when ‘Honey’ is expected, leaving the door open for years of delays.
Thus, although the IOTA Foundation is making a big deal about their new decentralization plan, at this point it appears they have no actual plan to get rid of the Coordinator, and are not willing to commit to a date.
Therefore, it remains to be seen if IOTA will ever become a decentralized cryptocurrency, and until it actually becomes decentralized it should be avoided like the plague.