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Health, Wealth, and Happiness

November 30, 2022

“Affirmations are our mental vitamins, providing the supplementary positive thoughts we need to balance the barrage of negative events and thoughts we experience daily.”

- Tia Walker

In today's issue: Practically everything is connected to the Internet now. Your thermostat, the lighting, your refrigerator, washer, dryer, and even your dog if she's wearing a smart collar.

The Internet of Things (that vast collection of Internet-connected gadgets and sensors that power our modern lives) is an enormous opportunity for crypto investors.

That's because blockchain technology is ideally suited for IoT as we recently shared in our special report on Helium (HNT).

In today's Sector Report, we look at other blockchain projects building for the Internet of Things and where you can invest in 2023.

Read on to learn a few things about the Internet of Things.

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Must Read

Today's most important story for crypto investors.

Fidelity Crypto Goes Live (Fidelity.com)

Investment giant Fidelity is taking another bold step into crypto, allowing retail investors (that's us) to buy, sell, and trade BTC or ETH using its new platform.

Fidelity announced its new crypto offering about a month ago, inviting users to sign up on an early-access list. Select users have begun receiving emails that the platform is now open for business.

For those of us with accounts on Coinbase or Binance, the Fidelity offerings may seem paltry. Only BTC and ETH are supported, and you can't move crypto in or out of your account yet. However, it's a huge move for such a large institution, and it will invariably help restore confidence in the long-term future of crypto.

Investor takeaway: If you already use Fidelity for your investment or retirement plan and you live in one of the 35 supported U.S. states, sign up for early access (it's free).

Sector Report: Internet of Things Tokens in 2023

by Ben Burn

Billions of dollars are expected to flow into Internet of Things (IoT) solutions over the next decade. There is a clear technical use case for decentralized ledger technology to power these solutions.

Several crypto projects are racing to bring this use case to life at scale to monetize a share of the exponentially growing volume of IoT data. In this article, we give an overview of the IoT market and review the top crypto IoT projects fighting for a piece of it.

Internet of Things Industry Overview

The Internet of Things (IoT) is a term used to describe devices that exchange data with each other and with systems via a network.

Common examples of consumer IoT devices include personal fitness trackers and smart home appliances. There is also an increasingly wide variety of IoT devices used behind the scenes in most modern industries, especially manufacturing and logistics businesses which rely on highly standardized processes.

There will be more than 15 billion IoT devices around the world transmitting over 79 zettabytes (79,000,000,000,000 GB) within a few years per data from Cisco and Statista.

Source: Cisco

Data volume of IoT connected devices worldwide is projected to mushroom over the next several years:

Source: Statista

McKinsey estimates that IoT adoption could create up to almost $13 trillion in potential economic value by 2030:

Source: McKinsey

IoT Investment Thesis

Investments in IoT solutions, regardless of their architecture, are made to capture a chunk of these trillions of dollars' worth of potential economic value.

This value can be realized by using IoT data to streamline technology processes. IoT devices can, for example, exchange data amongst themselves to assess overall system performances and automatically make adjustments to optimize them.

With so much potential value to be gained from IoT solutions, it should not be a surprise that the market for them is expected to grow quickly. IoT Analyticsestimates global spending on enterprise IoT solutions will amount to $194 billion in 2022 and will almost triple over the next five years.

Source: IoT Analytics

Thus, there is a strong case to invest in an IoT solution provider as a way to bring some of this spending your way as institutional investors have noticed. According to Verdict, the ten biggest IoT investment deals made in the first half of 2022 were worth over $1.6 billion in total:

Source: Verdict

* Helium’s latest fundraising was primarily to support its pivot from IoT into 5G networking. Helium previously raised over $50m while focusing on IoT.

Decentralized IoT Investment Thesis

The market for IoT solutions is practically begging to be disrupted by decentralized ledger technologies (DLT) like blockchains.

That’s because today’s most popular IoT solutions require data to be routed through centralized databases. As the IoT ecosystem continues to grow and more data must be handled, this “middleman” approach creates scalability risks, tempting targets for hackers and single points of failure for entire IoT networks.

In comparison, blockchain-based IoT solutions enable devices to interact with each other peer-to-peer (not peer-to-database-to-peer) with an immutable, decentralized record of transactions.

With decentralized architecture, an IoT solution can do what it's supposed to do... Transfer data securely and transparently directly between endpoints more efficiently than with centralized architecture.

In principle a blockchain-based IoT solution provider is playing in a booming market with a clear technical advantage. If the general idea of investing in such a provider doesn’t catch a value investor’s attention, we don’t know what would.

To help you form more specific ideas about which decentralized IoT projects are worth investing in, we’ve listed and reviewed the biggest players below.

Top IoT Crypto Projects

Each of the leading IoT crypto projects takes a different technical and cryptoeconomic approach to carving out a piece of the IoT market. They all, however, use more or less the same marketing jargon to suggest why their particular approaches are best.

While reviewing them, we'll touch on their decentralized ledger technologies and cryptos, but our real focus will be on adoption, the metric that matters most.

VeChain (VET/VTHOR)

Tech: The VeChain blockchain (VeChain Thor) is a modified version of Ethereum. The system uses a consensus algorithm called Proof of Authority, which you might think of as Proof of Stake on steroids. Transactions are validated by exactly 101 so-called authority nodes run by VeChain-approved operators.

Crypto: VeChain uses two cryptocurrencies: VET and VTHO. Most of the system’s value should accrue in VET, while VTHO is used for network transaction fees in line with the concept of gas on the Ethereum blockchain. Both VET and VTHO are tradeable. However, we recommend crypto value investors concern themselves with VET. The general idea of using VTHO as a separate crypto for handling network transactions is that its price can be kept low to encourage network usage.

Adoption: VeChain has traditionally focused on providing large enterprises with supply chain solutions like ones that allow buyers to verify the authenticity or origin of products. It's well known for its partnerships with Walmart, PwC, and other big-name brands.

VeChain has been emphasizing its solutions for carbon tracking, sustainability, and other environmental and social governance (ESG) initiatives.

VeChain burns 70% of transaction costs paid in VTHO, so a VTHO burn is a good proxy for how much VeChain is truly being used. According to SeeVeChain, a third-party website that tracks VeChain blockchain data, average daily burns have been at around $150 over the past 7 months.

Our Take: VeChain has an institutional orientation that may appeal to enterprises and governments, especially as ESG grows in popularity. Today, however, VeChain’s impressive roster of partners doesn't seem to be doing much with the platform. We would expect to see far more VTHO being burned on a daily basis.

IOTA (MIOTA)

Tech: IOTA is unique among the top IoT crypto projects in that it uses a directed acyclic graph (DAG) as opposed to a blockchain. IOTA calls its DAG “The Tangle.” In a DAG, network users validate other users' transactions, but not their own. The transactions are linked to each other instead of going into blocks to be validated as they are in a blockchain. The key advantage of a DAG over a blockchain is there are no transaction fees.

Crypto: MIOTA (one million IOTA) is the tradeable digital asset associated with IOTA.

Because there are no transaction fees in the IOTA system, there is no demand for MIOTA to pay them. Thus, a value investor may wonder what would drive demand for MIOTA apart from speculation.

Based on an IOTA blog article, the team appears to be working on something like a “refundable deposit” mechanism where users lock up certain amounts of IOTA while using the system. For example, if a business wants to create a unique identifier for a customer in the form of an NFT, a certain amount of IOTA would be locked up for as long as the NFT existed in the IOTA Tangle. If the NFT is no longer required, the issuer “archives” the data and the deposit is returned.

The idea appears to be that as demands for system services go up, token supply will go down, leading to higher prices.

Adoption: IOTA is partnering or collaborating with over 100 enterprises including Jaguar and Dell. Network adoption, however, has been slow.

The system is still using coordinators, which are trusted validators put in place temporarily until there are enough overall users to validate each other's transactions properly in the Tangle. Since mid-2021, the team has been working to eliminate coordinators in what they call “coordicide” as part of IOTA 2.0. Many investors have been discouraged by IOTA’s slow progress, which may stem from not having a sufficient user base.

Our Take: Over the long term, thanks to its DAG architecture, IOTA has perhaps the most potential of any crypto IoT project. However, progress towards driving usage has been slow. Also, the “refundable deposit” concept (allegedly the only mechanism that would lead to MIOTA price growth other than speculation) is largely unproven.

For the value of MIOTA to stay up, many big organizations may need to digitally transform themselves around the IOTA platform (the IOTA team appears to be envisioning this scenario).

Large-scale digital transformations, however, typically require significant time for pilot tests, proofs of concept, etc. It may be a while before major businesses and governments launch IOTA-based systems, let alone roll them out. Until then, not enough IOTA can be deposited at any one time to keep the price of MIOTA up.

Helium (HNT)

Tech: Helium is migrating from its own native blockchain to the Solana Layer 1 blockchain (which is currently going through a crisis of confidence following the FTX meltdown).

In addition to accounting for data transfers, Helium’s blockchain is designed to reward people for launching nodes (which Helium calls hotspots) to provide coverage for Helium networks. Helium originally focused on bootstrapping a network for IoT data, but recently began rolling out a separate network for 5G data (see our Investor's Guide to Helium).

Crypto: Helium’s primary cryptocurrency is HNT. As of mid-2022, each Helium network will use its own token (a decentralized Network token or DNT in Helium terminology) to reward node operators. HNT serves as a “reserve currency” that DNTs can be exchanged for, but not vice versa. Network users must exchange HNT for Helium data credits to pay for data transfers.

IOT is the Helium IoT network token. As of this writing, IOT can only be obtained by running a Helium IoT node. It cannot be bought on a crypto exchange.

Adoption: On its website, Helium highlights a number of IoT device manufacturers that use its network. Even so, its IoT network has seen little usage from companies or device manufacturers.

Helium publishes statistics on data credit spending but does not appear to distinguish which Helium network the data credits are being spent to use.

Recent statistics indicate only around $6K in data credits were spent on data credit transfers over the last month. That’s not an impressive figure for a network with almost one million nodes, especially when a significant chunk of that spending is likely going towards the use of Helium’s new 5G network.

Our Take: Poor adoption of Helium’s IoT was likely a key factor behind Helium’s pivot into the 5G networking space in 2022. Helium is not shutting down its IoT network, but we can reasonably expect the team’s focus will be elsewhere moving forward. We recommend you focus elsewhere too, until Helium can prove its success in the 5G space.

IOTEX (IOTX)

Tech: IoTeX runs on its own blockchain. For consensus, it uses Roll-DPoS, a variation of the Delegated Proof of Stake algorithm based on rolling time periods or epochs in which nodes are voted into temporary block producer/validator duties by other nodes.

Crypto: IOTX is the IoTeX blockchain’s native asset. Network users can utilize it to pay for data transactions or stake it. To encourage network growth, some IOTX is burned, while some is airdropped to stakers when new devices are added to the ecosystem. Device manufacturers also burn IOTX when using new IoTeX services through a “burn-to-certify” mechanism. Providers of services on the IoTeX blockchain may be required to deposit IOTX in line with what IoTeX calls “stake-to-service.”

Adoption: IoTeX has launched two consumer IoT devices. One is Pebble, a $215 pager-sized device that tracks locations, lighting, and other features of a user’s environment. The other is Ucam, a $59.99 home security camera. There are a total of 16,169 devices registered on the IoTeX network as of this writing.

In August 2022, IoTeX launched its MachineFi (machine finance) portal for decentralized app (dApp) developers and users. Individuals can earn IoTeX for connecting their devices and using these dApps. In March 2022, the IoTeX Foundation raised a $100 million fund to back developers of dApps (including MachineFi apps) that can take advantage of IoTeX.

According to Messari research from August 2022, there has been healthy usage of IoTeX-friendly dApps as measured by the number of IOTX smart contract transactions vs. other IOTX transaction types. The IoTeX network wasn't just built; it seems to be in use.

Our Take: We like IoTeX’s emphasis on driving user demand. Of all the leading IoT crypto projects, IoTeX seems to be giving users the most straightforward and understandable path to plugging into an IoT network and quickly benefiting from it. Judging from network activity, users appear to be taking this path.

In principle, IoTeX’s “stake-to-service” mechanism should boost the price of IOTX as tokens are locked up by service providers and supply is reduced accordingly. In the meantime, the requirement to pay for network transaction fees with IOTX may provide a more familiar reason to invest in the cryptocurrency.

Investor Takeaway

Crypto value investors should be paying close attention to the decentralized IoT space. IoT is one of the most attractive growth industries of the future, and blockchain has exciting potential to power it.

Whether a particular crypto IoT project will actually deliver on this potential, however, depends primarily on its adoption. Elegant technology will not matter if no one sees the point of using it.

Helium hasn't executed on this principle very well, and we don't expect it to in the future (at least with respect to its IoT network). Neither has VeChain, but its “enterprisey” feel may click with some organizations jumping on the increasingly large ESG bandwagon.

We recommend you focus your IoT crypto research efforts on IOTA and IoTeX.

IOTA appears to be approaching the market from the top-down by building solutions for large, relatively slow-moving organizations with long-term plans to leverage data from people who won’t necessarily want or need to know anything about crypto.

IoTeX, however, seems to be taking more of a bottom-up approach with solutions designed to give users easily understandable crypto benefits here and now.

ICYMI