IOTA is a new open-source distributed ledger that ignores the existing blockchain architecture to create a more decentralized and efficient means of communication.
The IOTA token powers a system designed to improve the Internet of Things by providing feeless microtransactions and a faster method of device-to-device communication.
What Is IOTA?
IOTA is a system designed to expedite communications between IoT devices by permitting microtransactions without any fees attached to them. The problem with traditional blockchain systems is that transactions require verification, which carries with it fees that quickly built up when spread out over massive networks such as those required to operate IoT devices.
Because even the smallest transactions—actions such as turning a device on, scanning a tag, or activating a sensor—can be processed almost instantly and without a cost, IOTA is an optimal tool for systems like smart homes, offices, and even smart cities.
More importantly, the token can be used to facilitate machine to machine transactions such as purchasing more electricity, bandwidth, or data capacity in a dynamic way. This means devices can manage resources more efficiently, and even sell unused capacity quickly and without requiring manual adjustments.
What Makes IOTA Unique?
The most interesting aspect of IOTA is that it does not use blockchain like most other cryptocurrencies do. While it can be exchanged on most cryptocurrency exchanges, the token is used and operates on a distributed network the company has named Tangle. Unlike blockchain, the Tangle network significantly changes how mining and consensus work by removing the need for block-by-block verification.
IOTA is also free to use, as the cost of connecting to the Tangle network is only as high as verifying two transactions and does not require housing the entire network on a single device. The network’s fee-free structure also differentiates it from many other blockchain-based projects and tokens.
What Differentiates IOTA’s Distributed Ledger?
As mentioned above, IOTA’s distributed ledger is not blockchain, although it shares some of the same principles. Instead, the Tangle network operates on a more decentralized nature, and simplifies the process of verifying transactions by reducing the amount of information each node must verify to connect to the network.
Instead of requiring transactions to be processed in blocks—which slows down verification, increases resource needs, and raises fees—each new node must verify two previous transactions to connect to the tangle.
This means that instead of potentially waiting for hours to complete a transaction—something which could cripple an IoT network—IOTA’s distributed ledger can theoretically handle millions of transactions in microseconds.
What About IOTA Mining?
Another major difference between IOTA and many other cryptocurrencies is that it cannot be mined by users. There is no financial incentive to do so, as the network produces no commissions and charges no fees.
More importantly, all the tokens that exist have already been generated and released during the company’s ICO. This raises an interesting question about how IOTA handles verification—the process by which most projects generate new tokens.
Tangle uses a smaller version of Proof of Work, though they reduce the need to process entire blocks at a time. Instead, when a node wishes to submit a new transaction to be added to the ledger, it must first verify two previous transactions.
This results in a much faster verification process, as well to distribute the costs of mining throughout the network. The net effect is that it is significantly easier to scale the network as the cost of processing new transactions will never increase, and there is virtually no chance that mining will result in the centralization that affects bitcoin and other major blockchains.
What Are IOTA’s Advantages?
- No commissions – This is a major difference between IOTA and other blockchain-based projects. The foundation behind the project was created to improve existing IoT infrastructure and has developed Tangle as a low-cost way to improve communications between devices. Moreover, it reduces the costs of managing resources across IoT networks significantly by improving M2M transactions without raising the costs of maintaining them.
- Scalability is not a limitation – unlike blockchain, Tangle uses a method of verification that makes adding more users a bonus to scalability instead of a hindrance. As more nodes are added to the network, more transactions can be processed as there is no exponential growth to the number of transactions each node must verify.
- It is designed exclusively for IoT – while there are other projects tackling the Internet of Things sector, IOTA was designed exclusively to alleviate many of the problems blockchain has in dealing with the industry. Namely, the high fees associated with verification and the speed at which information is communicated and processed make IOTA a more feasible and preferable solution.
The Team Behind IOTA
IOTA is being developed by the IOTA foundation, a group that was founded by David Sonstebo and Dominik Schiener, two entrepreneurs who have since become co-chairs of the board of directors.
The development team is made up of programmers with experience in cryptography, security, and electrical engineering along with decentralized networks.
The foundation’s supervisory board includes Volkswagen CDO Johann Jungwirth, OMG CEO Richard Soley, and Rolf Werner, Head of Central Europe for Fujistu.
Where To Buy IOTA
IOTA is listed on several cryptocurrency exchanges, including major ones such as Bitfinex, Binance, OKEx, and Huobi.