IOTA is a cryptocurrency designed to add economics to the internet of machines. IOTA is quite different from thousands of other cryptocurrencies. Some key highlights of IOTA are as follows:

• IOTA is specifically designed for the Internet of Things.
• IOTA does not use blockchain technology; instead, it is based on Tangle technology.
• IOTA has theoretically unlimited scalability.
• IOTA has low resource requirements and is perfect for low-energy devices.
• IOTA enables feeless microtransactions.
• Tangle technology eradicates the need for mining. Its own users confirm the IOTA transactions, and transactions are confirmed within minutes without any blockchain-like backlogs.
• IOTA is robust and immutable to any security threat.
• IOTA transactions are finally-verified by a coordinator; this may somewhat centralize this cryptocurrency and ensure trust and security.

If you are not aware of what cryptocurrencies are and how the technology behind them works, check out this article. Now, let us learn about IOTA and the technology behind it.

What is IOTA?

IOTA is an open-source distributed ledger and cryptocurrency designed for the Internet of Things (IoT). It uses a cryptocurrency called mIOTA for executing financial transactions within the IoT network. The ledger is maintained by the IOTA Foundation, which is a non-profit organization. IOTA aims to render machine economies by enabling frictionless, feeless, and instant financial transactions between internet-connected machines and humans. It is designed to exchange data and values between machines and humans over low-resource, low-energy devices. The ledger is non-sequential and near-infinite scalable that avoids any chance of tampering. All transactions are made peer-to-peer and permission-less. By enabling the Internet of Things with a trusted and scalable digital currency, the IoT network is deemed to become the ‘Internet of Everything’. IOTA can be envisioned as the future of the cashless world.

How IOTA works

IOTA’s distributed ledger is called the ‘Tangle’. It is based on a data structure called Decentralized Acyclic Graph (DAG). Unlike DAG structure of many other crypto assets, IOTA’s DAG data structure is non-sequential and parallel.

All the IOTA ‘tokens’ are already pre-mined. All the IOTA tokens were created at the time of its launch. There are fixed number of 2,779,530,283,277,761 IOTA ‘tokens’.

The IOTA’s network consists of nodes and sites. The nodes are the users that initiate transactions. Sites are groups of one or more transactions linked together for processing. All nodes require earning propagation incentives. If they do not process enough transactions, they are dropped by their neighboring nodes.

The transactions in IOTA’s network are not stored in a queue. Instead, each node is connected to several other nodes like a tangle. For any transaction on the IOTA network, the user needs to approve two previous transactions from other nodes. The awaiting verifications, called ‘tips’, for the other two transactions are made by performing a small amount of ‘Proof of Work’ for them. The ‘Proof of Work’ is usually a simple and straight-forward puzzle or mathematical problem. Once the transaction is made, it is finally verified by a ‘coordinator’. The coordinator verifies the transaction and shares the confirmation over the network. This is called a milestone transaction. This adds the transaction to IOTA’s distributed ledger, the Tangle.

All the transactions are executed parallel and simultaneous. As more nodes are added to the network, the faster the verifications are conducted. This makes the Tangle near-infinite scalable. The simultaneous execution of transactions is all possible due to the non-sequential nature of Tangle’s data structure. Remember, Tangle is ultimately a public distributed ledger. Each new transaction confirms two previous transactions and adds them to the ledger.

Any new unapproved transaction is called ‘Tip’ in the IOTA network. As each new tip’s execution requires verification of two previous tips, the verification is almost asynchronous. The selection of two previous tips for verification is made using Random Walk Monte Carlo240 algorithm. The algorithm checks for many nodes against the last known “legitimate” node, and only if a sufficient number of checked nodes are good, the transaction is validated.

While the network size remains small, the validation of transactions is conducted with the help of ‘coordinator’ nodes. The coordinator nodes make a normal transaction every minute with their signature on it. This transaction is called ‘Milestone’. The milestone verifies two previous transactions from user nodes. As the signature of a milestone cannot be faked, it is impossible to hack the ‘Tangle’ and make malicious transactions. The coordinator nodes also help in ensuring a single point of failure. As the network grows, it depends less on the coordinator nodes, and uses Random Walk Monte Carlo240 algorithm to create sites and validate tips.

As the validation of transactions is performed by the ‘nodes’ itself and all IOTA tokens are pre-mined, there is no need for cryptocurrency mining in IOTA network blockchain technology. This eradicates the need for a large infrastructure to support IOTA and makes this cryptocurrency self-sustainable. The use of ‘Coordinator’ nodes is also temporary. As the IOTA network will grow, it may depend upon the Walk Monte Carlo240 algorithm only.

Is IOTA valid?

IOTA is a revolutionary step towards monetizing the Internet of Things. This cryptocurrency is mainly focused on applications in IoT and Web 3.0. The IOTA foundation is already collaborating with many large companies and is steadily working towards developing IOTA as a standard de facto digital currency for IoT networks. Despite a visionary concept, IOTA is facing several concerns. It may take some time to build trust and have a ubiquitous acceptance for IOTA as the ultimate crypto asset for the Internet of Things. IOTA is already one of the top cryptocurrencies and is available for trading at several brokers and exchanges. Currently, IOTA has some regional acceptance. The future of IOTA largely depends on IoT’s growth and how IOTA solves some of the lingering security concerns.

 Is IOTA Safe?

The ‘Tangle’ is a non-sequential asynchronous distributed ledger. Once a  transaction is recorded in the ledger, it cannot be reversed by any means. Temporarily, the network is dependent on ‘coordinator’ nodes for data validation. As the network will grow, it will completely rely on the Random Walk Monte Carlo240 algorithm. At present, the coordinator nodes guarantee safety and security, providing a single point of failure. As the network grows, it will be even more secure and immutable. All the transactions and steps involved in them are conducted using cryptographic encryptions that are almost impossible to hack. The new encryption is written from scratch compared to the SHA-256 hash function used by Bitcoin. Additionally, IOTA is using a feature called ‘Quantum Proof’. It uses hash-based signatures rather than elliptic curve cryptography (ECC). The use of hash signatures simplifies the Tangle protocol and makes it easier to implement low-energy devices.

As the IOTA transactions are currently finally-verified by ‘coordinator’ nodes. This makes the IOTA network a bit centralized, although the transactions are made anonymous, permission-less, and peer-to-peer. The transactions are still traceable. This will, in fact, help gaining trust and compliance with anti-money laundering (AML) regulations and avoid any chances of fraud.

IOTA is steadily moving forward as standard crypto for IoT networks. It may definitely become the future currency for all cashless transactions, provided IoT flourishes as a ubiquitous and standard-compliant network of industrial and consumer devices, and all security concerns regarding IOTA are diligently solved out.

 Concerns regarding IOTA

Most of the concerns regarding IOTA have been about technical flaws. There were serious vulnerabilities with IOTA’s encryption algorithm. However, IOTA has corrected them; future vulnerabilities are never known.

Many experts have doubts regarding the scalability of the IOTA. IOTA depends on hash graphs for non-sequential and asynchronous execution of transactions. This makes the validation of transactions dependant on the speed and prowess of individual nodes. In such a situation, the expected scalability and time to complete transactions within the IOTA network may be uncertain.

There are also doubts regarding the role of ‘coordinator’ nodes. The use of coordinator nodes is presently seen as against decentralization and ultimately slowing down the overall IOTA network. However, the IOTA Foundation has clarified that coordinators are a temporary solution till the IOTA’s network grows to a self-sustainable size.

IOTA vs. Bitcoin

Bitcoin is the first and most popular cryptocurrency. IOTA is a lot different from Bitcoin and most other crypto assets. The technology behind both cryptocurrencies is entirely different. The Bitcoin is constantly mining while the IOTA tokens are already created within the network to the maximum cap. Bitcoin uses blockchain technology and involves rewards in terms of tokens for blockchain mining. IOTA involves no mining, and the reward for validating transactions is the execution of your own transactions. As IOTA is not dependant on ‘mining’, it seems to be self-sustainable, scalable, and self-rewarding. There is no transaction fee in IOTA, while Bitcoin involves high transaction fees.

Tangle is a non-sequential, asynchronous, and parallel distributed ledger. The blockchain technology behind Bitcoin is largely sequential, retaining backlogs. Even the rewards for blockchain mining are getting more competitive than ever, causing the mining largely unprofitable and a centralized affair among already existing ‘mining pools’. There is no such competition in IOTA technology, and it is easily scalable. Bitcoin mining actually requires expensive infrastructure, while IOTA is implementable on low-cost low-energy devices.

IOTA brokers and exchanges

Some brokers and exchanges where IOTA tokens can be purchased and traded include eToro, Gemini, Kraken, Bitfinex, Huobi, Localbitcoins, Okex, Stormgain, Libertex, Binance, etc. Storing and securing IOTA tokens require hardware or software wallets. Some of the IOTA tokens’ wallets include Trinity, IOTA Wallet Ledger, Nostalgia Light Wallet, GUI Light, Nelium Wallet, Ledger Nano S, Coinbase, etc.

Remember, all cryptocurrencies are volatile, and their trading is highly risky. The majority of retail traders face loss, as they either don’t understand the technology behind them or the way of their trading. So, be well informed. Invest only through CFDs and invest only the amount that can be foregone forever.

Conclusion

IOTA has a specific design that makes it feeless and near-infinite scalable. It is designed for IoT and may eventually grow as a standard crypto asset for the internet of things and Web 3.0. Hopes are that IOTA will eliminate existing technical flaws and vulnerabilities, emerging as a digital standard, not just one another cryptocurrency.