IOTA is a product of the German-based nonprofit, the IOTA Foundation, formed in 2015 by David Sønstebø (business and technology expert), Sergey Ivancheglo, Dominik Schiener, and Dr. Serguei Popov (Ph.D in mathematics). These four remain the most notable of IOTA’s team; each of them has been involved in the crypto community for years.
IOTA “enables companies to explore new business-2-business models by making every technological resource a potential service to be traded on an open market in real time, with no fees.” (iota.org) IOTA was created as a platform that machines and existing systems can use to transact and communicate with one another.
Using IOTA, machines can trade precise amounts of resources and data in real time and with no fees. IOTA’s “distributed ledger” can also be used to securely store and verify data recorded by automated sensors and dataloggers.
IOTA Value, Market Cap and Volume
Since IOTA was introduced in mid-2017, it has risen to become one of the largest cryptocurrencies in the industry. It is currently sitting in the top 10 cryptos based on market cap, which at the time of this article was just under $2.5 billion USD.
On a daily basis, between $1,000,000 USD to $200,000,000 USD total IOTA is traded across all major crypto exchanges. With all that said, its price is still under $1.00 USD at the moment, making it one of the most affordable cryptocurrencies. Its price and market cap are most comparable to currencies like Ripple, EOS and BitShares.
A Cryptocurrency with No Blockchain
IOTA is the only cryptocurrency that does not use a blockchain. Instead, it uses another kind of network, called a Tangle. According to IOTA’s website, the benefits of using Tangle include “zero fees, infinite scalability, fast transactions, secure data transfer and many others.” “Many others”, such as pay-on-demand and micropayment functions; IOTA was created to be “the backbone of the internet of things”, and supports secure machine-to-machine (m2m) communication.
First- and second-generation blockchains like Bitcoin and Litecoin use transaction fees as a way to keep users from “spamming” the network. A single transaction on the Bitcoin network costs approximately $0.50. This traditional model presents a potential issue for widespread, mainstream use of Bitcoin as a replacement of fiat. The high volume of transactions that would be caused by many smaller payments would, in turn, cause a high volume of fees.
IOTA solves this problem by being a zero-fee currency. The transaction fees on the Bitcoin network may discourage users from using Bitcoin for smaller, everyday purchases. IOTA has no transaction fees, and is therefore much better-suited to practical and m2m use.
Tangle Network with No Miners
Since IOTA does not rely on miners, it is resistant to centralization. Currencies like Bitcoin, which have large blockchains, can only be practically mined by entities that have access to rooms full of high-powered and expensive equipment.
IOTA’s Tangle network is split into small blocks that are connected in a nonlinear faction. Mining is not necessary–the Tangle network is split apart into tiny pieces (a “distributed ledger”) that allow the network to be supported by a variety of mobile and desktop devices. Users and miners on the Tangle network are one and the same; blocks are mined automatically with each transaction.
How IOTA Works: The Tangle Network
Iota is the first (and so far, only) cryptocurrency that does not have a blockchain. Instead, it uses something called Tangle–a Directed Acyclic Graph-based “quantum-resistant protocol”. Tangle does not rely on miners to uphold and verify the network.
How do transactions get verified on the Tangle network? Let’s make a few comparisons.
First, let’s talk about credit cards. When Jen uses her credit card to buy a cup of coffee from Suzie for $5, the card’s company (VISA, MasterCard, etc.) acts as the third party that completes (verifies) the transaction. The company takes the $5 out of Jen’s account and debits it to Suzie’s account. The credit card company records the transaction on its private ledger. When we use one of these credit cards, we trust the company to be responsible with our money and distribute it correctly.
In blockchain technology, there is no third party that anyone has to trust. Instead, when Jen buys that $5 cup of coffee from Suzie, she sends a message to the blockchain that the amount of money in her account should go down by $5, and the amount of money in Suzie’s account should go up by $5. The transaction gets recorded inside a “block”. The number of transactions that a single block can hold depends on the kind of cryptocurrency.
These blocks are all put together in a public ledger, called the blockchain. Since the transaction is on this public ledger, everyone can see that Jen paid Suzie $5. Although the blockchain exists as one massive entity (a “centralized” ledger), the blockchain is not stored in any central place. Rather, it is supported by a network of “nodes”.
“Nodes” are computers that take part in a process called “mining”. Nodes solve complex equations that maintain the network. Users can turn their computers into nodes in exchange for receiving rewards in the form of the cryptocurrency they are mining (ie Bitcoin). Because the network is decentralized, it is very difficult to tamper with the blockchain, so this transaction is very secure.
Problems with Blockchain
There are several potential problems with blockchain. One is that when a lot of transactions take place on a blockchain-based network, they can take a long time to complete. When a transaction is broadcast to the blockchain, it will be added to the block in the order it was received.
The block is added to the blockchain in the order that it was “mined”. The smaller the blocks, the longer the process. This is an issue of scalability. In order to function efficiently, a network must be able to increase its scale to meet the demand of transactional volume.
Another issue that some users have with blockchain is privacy. Although the actual identities of users on blockchain are protected with hashing, it is theoretically possible to discover who a user is based on their transactional information in the blockchain. (That being said, other blockchain-based currencies, such as Zcash and Monero, have addressed this issue with other methods.)
Tangle Network Explained
Now, let’s talk about Tangle. In a Tangle network transaction, Jen buys a $5 cup of coffee from Suzie. Instead of broadcasting that information to a public network for verification, the transaction is verified inside a block that contains that transaction and two other transactions. The blocks created by the transactions are stored in little pieces that are connected to each other in what is called a “distributed ledger”.
The blocks do not have to be added to the Tangle in a linear fashion, and therefore can be completed quicker and more efficiently. Verifying transactions in a massive, centralized ledger is not necessary with Tangle, and thus, the process of verification takes little energy.
Blockchain vs. Tangle
Youtuber Boxmining explained the difference between blockchain and tangle with a metaphor: a transaction is like homework. In order to get a grade on your homework and make sure that it is correct, it needs to be checked.
With blockchain, you bring your homework (the transaction) to the teacher (the blockchain), and the teacher marks it and gives it back to you. This is a lot of work for the teacher, and it can take a long time to get your work back.
With Tangle, you bring your homework (your transaction) in, and your teacher asks the students to check their homework in groups of three. You all check each other’s work (transactions), and you get your homework back a lot faster. Instead of taking the teacher (the blockchain) a lot of time and energy to check all the work, peers can check each other’s work with little time and effort. Thus, each IOTA user is a small-scale miner every time a transaction takes place.
The result of using the Tangle network is that transactions happen quickly. The amount of energy required to complete a transaction is so small that no fees are necessary. With Tangle, there is no separation between users and miners–anyone who makes a transaction on the Tangle network automatically mines their own block. The blocks are stored in a nonlinear, non-centralized network of nodes. This is how Tangle gets its name.
IOTA nodes can connect to the main network, but they do not need to in order to create and verify transactions.
The way that the network is designed allows it to be infinitely scalable. Instead of a fixed amount of blocks that have a fixed size, the Tangle network creates more blocks as more users create more transactions. In blockchain, a larger amount of users means that the network is slower because it is more “full”. With Tangle, a larger number of users and transactions actually means that transactions will happen faster.
IOTA for Secure Data Transfer
IOTA as an application layer gives users several options to securely transfer data. The data is authenticated through IOTA’s Tangle, which makes attacks “impossible”. In addition to more traditional uses of data transfer service, the security of data transfer through IOTA makes it a highly functional and attractive platform for eGovernance and eVoting.
IOTA’s messaging platform, MAM (Masked Authenticated Messaging) allows nodes (devices connected to its Tangle network) to securely exchange fully authenticated and encrypted data with one another. MAM also allows information to be shared with multiple parties at once, operating similarly to a radio–when a device is broadcasting data into the Tangle network, other devices can tune in and “listen”.
IOTA: Decentralizing the Possession of Physical Objects
IOTA’s platform for machine-to-machine communication and transaction makes it possible for the creation of a world where most possessions are leased or rented rather than owned. Take a bicycle, for example. Instead of owning the bicycle, you would go to a public bank of bicycles with your smartphone and pick one to use for the day.
Instead of using an app or a credit card to sign in and out of using the bike, an IOTA chip inside the bicycle would communicate with your smartphone as you use the bicycle, and when you are done, you are billed in IOTA automatically for the time that you used the bicycle.
IOTA allows anything with a chip in it to be rented automatically and in real time. From the IOTA website: “Most of our belongings stay idle for the vast majority of time that we possess ownership of it, but through IOTA a lot of these things like Appliances, Tools, Drones, eBikes etc. and resources such as computer storage, computational power, WiFi bandwidth etc. can be turned into leasing-services effortlessly.”
IOTA’s ICO and Value History
IOTA’s ICO happened with relatively little fanfare in December of 2015. At the time, the entire supply of tokens was distributed among the crowdsale participants. IOTA had a record-breaking introduction to Bitfinex in June of 2017, with its market cap quickly reaching $1.5 billion shortly after its launch on the exchange. The transactional volume on the day that it was launched was so large that Bitfinex servers briefly shut down.
As these words are being written, IOTA’s market cap is $2,695,997,059 and a single IOTA token is worth about $0.96 The circulating supply and the maximum supply are the same at 2,779,530,283,277,761. There will never be any more or less tokens in the supply; the amount has been optimized for ternary computation (ternary computers use three digits: -1, 0, and +1, rather than binary computers, which use two: 0 and 1)
Buying and Storing IOTA
So far, Bitfinex is the only exchange that is trading IOTA. This has kept that value of IOTA low. Undoubtedly, the value of IOTA will increase as more exchanges adopt it.
IOTA has its own wallet, available from Github. The wallet can act either as a LiteWallet or as a Full Node Wallet using a toggle function in the wallet’s “Tools” menu.
Future of Iota
Technologically speaking, the future of the Tangle protocol is bright and most of its practical applications have not yet been conceived. “The distributed ledger revolution has only barely begun, the vast majority of use-cases has not even been thought of yet, and with the next generation ledger that IOTA created developers will be able to invent even more solutions,” says IOTA’s website.
The IOTA Foundation also created “The Big Deal” community funding project, which has the goal of attracting and involving developers and corporations with IOTA. Participant entities in The Big Deal will receive a share of IOTA tokens in exchange for their knowledge, developers, media coverage, and resources. Most of the parties involved in The Big Deal are not yet publicly known for legal reasons, but connections formed through The Big Deal could potentially increase both the value and practical application of IOTA.
As the internet of things continues to grow around us, and more of our household appliances and possessions continue to grow in AI capability, there will undoubtedly be a need for widespread practical use of IOTA or something like it. The IOTA organisation has already been around for a couple of years (since 2015), and it may be a while yet before the IOTA token really starts to grow in value.
IOTA does fulfill an important need in the IoT and the world of AI, so it does seem to be a good option as a long term investment. As these words are being written, the value of IOTA is still relatively low. It is a good time to buy in, but do not expect quick returns. At least, not yet.