IOTA is a Berlin-based transactional settlement founded in 2015. Its aim is to offer secure communications and payments in between various machines on the IOT or Internet of Things.
IOTA runs on “tangle” – a new ledger that is able to operate within numerous structures. It is specially created to overcome numerous challenges blockchain can’t, including scalability.
Currently, blockchain, using a distributed ledger form of technology, is powering the globe’s biggest cryptocurrency – bitcoin. IOTA is claiming to be the “next-generation blockchain”. Is it?
The concept of the Internet of Things (IoT) allows smart devices to connect on the internet and communicate with each other as well as with humans. An example would be a `smart refrigerator’ that can text a person to say that there is no more milk in the fridge. IOTA works on a similar idea. It aims to jumpstart a machine-to-machine economy that sees devices transact with each other. For this to be possible, currencies are necessary in order for transactions to take place.
IOTA’s cryptocurrency is MIOTA – the world’s 11th largest cryptocurrency with a $7 billion market capitalization. IOTA is able to transfer money with no fees allowing nano payments to be possible. Essentially, IOTA has the ability to make all devices authentically inter-operable with each other. According to IOTA co-founder Dominik Schiener, IOTA is “not really a blockchain”. He explained, “At its core, it’s a distributed ledger that further improves upon the blockchain architecture by no longer using a blockchain, and instead using the tangle to achieve consensus and secure transactions.”
IOTA runs on tangle – a structure that consists of nodes (space where data is stored) and edges (the connections in between nodes). Tangle requires no blocks that require mining. A transaction is verified via validating at least two previous transactions. “It is still based on the same principles though: it’s a decentralized, peer-to-peer network, with an append-only database that makes data immutable through consensus among the network participants,” said Schiener.
IOTA’s use of tangle has received criticism. For one, its self-designed protocol defies a basic cryptography rule of not `rolling your own’. It also utilizes a trinary system – a sharp contrast to modern hardware’s mainly binary preference.
Ethereum co-founder, Vitalik Buterin, disagrees with most of the technical decisions IOTA has implemented. He believes such decisions are “deeply egregious to the point where it goes beyond mere negligence.” The cryptocurrency community finds IOTA controversial. It doesn’t help that IOTA is currently still an experimental system in beta mode.