IOTA is an innovative new distributed ledger technology to function as the backbone of the Internet of Things.
Born in 2014, it is the only technology of its kind that is able to function as the lightweight distributed ledger with scalability, quantum resistance and decentralization for a plethora of use-cases in the Internet of Things, the machine economy, or human applications.
IOTA was created as a far related derivation of the blockchain technology but is far more advanced and is already recognized in the innovation-press like Forbes, Techcrunch, International Business Times and Huffington Post.
Several universities already recognized the potential of IOTA and decided to work with it.
The whitepaper can be read here: Whitepaper (Version 1.3 October 2017)
The Blockchain is a great invention but it’s also stigmatized with pre-conceptions because the majority of issues occurred through human failure. Blockchain’s as such were never hacked, just the human-software interface.
The possibility of anonymous transactions is one of the reasons that some malicious actors are using blockchain based currencies in order to cover their tracks.
The functionality of blockchains and IOTA:
Most Blockchains rely on miners and validators, so to say computing-power-farmers that boost transactions through a synchronized peer to peer network and mine small parts of the currencies with processor power.
The security of the network is of utter importance and is ensured via a consensus mechanism where miners are incentivized by rewards (blocks = small parts of the currency + transaction fees), they receive when they find a block.
The combined network hash-rate then ensures the validation of newfound blocks with the help of peers in the network, to guarantee the legitimacy of the new tokens and information that are added to the network.
This complex mechanism of mining, rewarding and validating is the core principle of most blockchains that ensures upright payments and data-integrity, because once approved by the system, the values or information cannot be tampered with.
That is important because the field of application often lies in financial systems to replace currencies ($, €) -like Bitcoin.
In almost all cases: blockchains of the first and second generation are using transactions fees to prevent peers from spamming the network. Bitcoin’s transaction fees are at approx. $1 per transaction (Oct 2017).
IOTA, however, has no mining, no blocks, no transaction fees. The security and consensus of the network is not divided among miners, validators, and users.
Users of the network validate two old transactions (via proof of work) in order to be able to conduct one of their own. No one receives a reward and no one has to pay transaction fees. A miner-centralization like in Bitcoins or in Ethereums network is, therefore, not possible.
Its field of application is set in the IoT, as the technology for data integrity and industrial appliances. Furthermore pay on demand, micro-payments, and machine to machine communication like sensor technology, smart cities, adaptive systems etc.
As a settlement layer, it aims for interoperability between many existing systems.
Common blockchains cannot be adjusted to a no-fee settlement layer because the fees are integrated by design: as a monetary incentive for miners and thus: as protection for the network.
It is quite evident, that Bitcoin and nearly all other cryptocurrencies weren’t made to function as such. Considering hundreds of thousands of nano-payments each day in the near future, these Blockchains would generate an enormous amount of fees, just for conducting transactions, while the costs of these nano-payments oftentimes undermatch the fees.
Therefore, it is indispensable to use a secure, fee-free system for new use-cases that are created within the fourth industrial revolution, which we are facing right now.
IOTA as the first technology that enables true nano payments, is, therefore, a novelty.
The underlying technology, the Tangle, is a third-generation distributed Ledger (DLT), based on a directed acyclic graph, made for the problems of tomorrow.
Beyond that, the Winternitz one-time signature scheme enables quantum resistance, which makes it perfectly equipped for the future.
Have a look at my articles to get an idea of the revolutionary technology of IOTA.
IOTA is a new technology that isn’t easy to understand at the beginning. Even I still struggle with certain things.
We are in the realm of cryptocurrencies, but we also go way beyond that with IOTA.
Blockchains are an invention of 2008 and they have many use-cases.
The most famous and used one is Bitcoin so if you want to understand Blockchains, in general, you could start with understanding Bitcoin and its features, but also its problems.
A good start would be to look for an educational Video on Youtube, to get an overview:
And its problems:
Now, since IOTA is not a Blockchain, we have a lot of differences here.
Here is a small list of differences before I get more into details
- IOTA is based on a directed acyclic graph (DAG) aka the Tangle, not a Blockchain
- IOTA has no mining, no blocks, no difficulty
- IOTA has no transaction fees
- IOTA scales almost infinitely, unlike Blockchains
- IOTA is not solely made as a currency but as an interoperability protocol that solves the problems of the IoT
- IOTA wants to enable the machine economy
- IOTA is lead by the IOTA Foundation, an NGO registered in Germany (approx. Oct. 2017)
A great video concerning the differences between IOTA and Blockchains:
Born in 2014 and created in 2015 IOTA offered an Initial Coin Offering (ICO) where approximately 1337 Bitcoin were invested.
All 2779530283277761 iotas have been created in the Genesis transaction.
The iotas have been distributed among the shareholders. Not only extern investors but also the founders and developers had to invest with their private money.
All iota are distributed and part of the markets (except the unclaimed from a few ICO investors).
2017 the IOTA Foundation was announced and since then, it grew in numbers and expertise.
If you want to have an additional look at the details, I recommend you look at the team section at iota.org
Official announcements are found on Twitter or on my personal account.
A lot of useful and current information is aggregated in the IOTA subreddit
To understand what IOTA really means, you have to look at the use-cases that are in development and the technical limitations we already see right now and expect in the future.
The Internet of Things, the Internet of Everything are, as parts of the 4th industrial revolution, uncharted areas, that promise lots of possibilities, but due to the mentioned limitations also uncertainties.
A global network, with connections into vital infrastructures, is boon and bane. We see emerging markets, exponential growth, and progress, but also insecure terrain.
DDoS attacks are already part of our time, and without proper mechanisms, this get’s only worse.
IOTA as a data and settlement layer is able to create a system that relies on decentralization, data actuality, and temper proof algorithms. Also in the post-quantum era.
If you read the Articles and press-releases, you can get a good overview of how IOTA will be used very soon.
Is a doublespend possible with IOTA?
The Incentive to run a full node in IOTA.
A rough summary of transaction fees with current systems.
The tech behind IOTA explained
The updated Whitepaper summarized