What Is IOTA?
IOTA is a cryptocurrency designed for the “Internet of Things” (IoT), but IOTA applications have a lot more potential than just enabling microtransactions for the IoT.
To get a proper grasp of what IOTA is bringing to the cryptocurrency table, one has to understand “Tangle” and how it differs from the blockchain. The working of Tangle provides a great insight on how to use IOTA. So let’s take a look at what Tangle is all about.
What Is Tangle?
Tangle is a new data structure around which the IOTA platform is built. As the name implies, the structure of this publicly distributed ledger is more like a web.
To make a transaction on Tangle, the user has to actively participate in the consensus of the network by approving two past transactions. So the more transactions made, twice that many transactions get approved, forming a unique web-like architecture (hence the name).
Features of IOTA: How Is It Different?
Unlike most altcoins in the cryptocurrency market, there are no blocks, no chains, and no miners in IOTA. Thanks to the unique architecture, the Tangle ledger is able to settle zero-fee transactions that enable devices to exchange exact amounts of resources on demand.
Dataloggers and sensors within Tangle also help securely store data that has been verified on the ledger.
The two main differences between Tangle and blockchain are the way the data is structured and the way consensus is achieved.
Data Structure: While the blockchain is structured as a sequential linear chain where blocks are added at regular intervals, the Tangle data structure is based on a directed acyclic graph (DAG), which means it all moves smoothly in one direction, without going around in circles.
This structure makes Tangle more future-friendly as IOTA users are able to maintain high transaction throughput without any transaction fees. As users are compelled to do validation (proof of work) to make a transaction, there are no miners involved (hence no transaction fee).
The other advantage of this architecture is that, unlike in blockchains, where more transactions tend to slow down the speed, as Tangle grows and more transactions are made, the system becomes faster (confirmation times decrease) and more secure.
Consensus: In a blockchain, consensus is achieved through a competitive mechanism where multiple parties vie with one another to add the next block to the blockchain and get the block reward/transaction fees.
So in effect, consensus is delinked from transaction generation and is largely performed by a small group of people (miners) within the network. This results in the one thing cryptocurrencies were supposed to avoid: centralization.
On the other hand, in IOTA, every user in the network has to participate in the consensus. There is no other option.
Every transaction can only be completed if the user references two transactions directly, and thereby any other transactions in the sub-Tangle indirectly. Because of this unique setup, there is parallelized validation with each and every transaction.
So the network stays completely decentralized as there is no question of delegating trust to miners, and no transaction fee either. (Source: “How is IOTA different from Blockchain?,” IOTA, March 16, 2017.)
In addition to these main differences, the other features of IOTA are:
Centralization of control: As there is no separate “mining” in IOTA, each user can be viewed as an independent “miner.”
Futuristic Cryptography: Although large-scale quantum computers do not exist yet, IOTA is ready for them. It uses “exclusively quantum resistant cryptographic algorithms,” which are immune to this brute force attack (unlike current blockchain projects).
IOTA Applications: Where IOTA Can Be Used
While IOTA and the IoT are often spoken of together, IOTA’s applications have gone far beyond just microtransactions. But as these tiny transactions are the reason-to-be for this cryptocurrency, they come first in our list of IOTA applications.
Microtransactions: The use of IOTA in the Internet of Things is soon going to be as real as the credit card in your wallet. Already, your house cameras are linked to your mobile phones and your car is linked to your garage door. And all the services provided by these devices need to be compensated in a smooth frictionless manner. Enter IOTA. Enter Tangle.
For the very first time, real-time microtransactions are enabled, giving IoT developers and web developers a brand new set of tools to reassess business-to-business opportunities. Thanks to Tangle, companies can now think of venturing into new realms that were previously impossible because the fees did not make the ventures commercially and economically viable.
Data Transfer: One of the core features of IOTA is the feasibility of transferring data through Tangle in a completely authenticated and tamper-proof way. IOTA gives users several options of transferring data without the risk of any hacker attack. This seamless data transfer is a great benefit to establish reliable communication channels between devices.
Voting: The Tangle architecture is ideal for a variety of projects that require secure data transmission, especially in the realm of e-governance. A very important aspect of e-governance is e-voting, and many companies and academics have already started exploring the possibility of using Tangle in this field of use.
Masked Messaging: Masked authentication messaging (MAM) is the first extensible module of the IOTA core. This feature enables nodes (computers/smart devices) to transfer/exchange fully authenticated and encrypted data through Tangle. In other words, a device can transmit important and sensitive data enhanced with quantum-proof security through Tangle. The data can be analyzed at any time by anybody with the right security clearances. It’s almost like a radio; multiple parties can simply tune-in on your frequency and get the data that you (or your device) broadcast.
Share-A-Service: What with shared accommodation, shared rides, and even shared office spaces, the sharing economy is here to stay. And IOTA will be driving this sharing economy into the future, where anything with a chip in it can be leased in real time.
Just think about it: most of our belongings that stay idle for the vast majority of the time when we are not using them can be used by somebody else for a fee. Things like appliances, drones, camera’s cars, e-bikes, WiFi bandwidth, etc., all being shared.
Just like carpooling brings costs down, sharing appliances and services will as well.
IOTA and Solar Energy
The use of IOTA in the solar industry is just one example of how IOTA can be used to power its way into the future. Imagine a small group of houses that were not on the state grid, where one of the houses generates solar power. The surplus energy produced by that house could be shared and accounted for seamlessly through Tangle.
No, this not a pipe dream. Already, in Kazakhstan, there is a small clutch of solar-powered systems for heating water that are connected to the Internet but are completely autonomous. This group is now scaling up to provide the local grid with the surplus energy they generate. They believe IOTA is ideal for them because of its scalability, speed, robustness, and no fees.
IOTA and the IoT: The Future
What we are seeing right now is just the tip of the iceberg for IOTA and the IoT. According to conservative predictions, there will be 75 billion devices connected to one another via the Internet of Things by 2025. All of these devices will be relying heavily on microtransactions, nano-transaction, data transfer, MAM, and all the other features of IOTA.
As more and more devices get added to the network and interoperability increases, there will be so many uses of IOTA and Tangle that have not yet been conceived. But as scalability is not a problem on Tangle, every new need cropping up will only enhance IOTA’s potential as the cryptocurrency of the future.