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Question 1:

this is the paragraph

It is important to observe that we do not impose any rules for choosing which transactions a node will approve. Instead, we argue that if a large number of nodes follow some “reference” rule, then for any fixed node it is better to stick to a rule of the same kind. This seems to be a reasonable assumption, especially in the context of IoT, where nodes are specialized chips with pre-installed firmware.

what is this reference rule? how would a node choose which site to approve then?

Question 2:

to my understanding; you must be a node to issue a transaction of coins to an address, does this mean that when i buy iota off a site like binance, they will have to run a node to issue my request?

Question 3:

also if there is only the incentive to issue a transaction for becoming a node, doesnt this mean there will be a low amount of nodes, slowing the process down?

P.S. I have not read the entire whitepaper so please excuse any questions that i will have an answer to

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welcome to this site.

First, the whitepaper of IOTA (the original one by Sergui Popov) is quite high level description of the tangle concept, unlike other white papers which more act like a technical specification. If you are looking for the technical specifications, you may want to look at the protocol RFCs (for the currently used IOTA 1.5) or the IOTA Research Specifications (for the future IOTA 2.0) instead.

In General, StackExchange works best if you put only one question into each "question". But I'll try to answer your questions anyway:

Question 1:

The whitepaper does not specify which rule is best to follow; it only tries to justify that if a majority follows one rule, it is best for other nodes to follow this rule too. The current IOTA 1.5 specification selects the tips by performing a random walk from one of the previous snapshots.

Question 2:

Yes, Binance is running a node (or more) so that they are able to query the current transactions to compute the balance for their users, and to issue transactions. They, however, will NOT have to run a different node for each user. And as long as you leave your balance on the exchange, it will only be internally stored for Binance and no transactions in the Tangle will be created. Only when you withdraw your IOTA and store it in your own wallet.

It is possible to issue transactions without running a node (by using public nodes run by the IOTA Foundation and others), but they are provided at a best effort basis, so in case you are running a business based on IOTA (e.g. a crypto exchange), you generally don't want to rely on them to be online when you need them.

Question 3:

Mostly a duplicate of this question although Qubic did not work out, so replace Qubic by IOTA Smart Contracts :)

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