IOTA is a distributed ledger developed to facilitate transactions between devices in the Internet of Things virtual community. However, this cryptocurrency differs from the others in one significant way — it is not a blockchain. Instead, it uses a system called Tangle to confirm transactions.
Tangle allows for much faster, feeless, and less power-intensive transactions than conventional blockchains, which is a plus for the growing IoT virtual space. Tangle’s node system uses two previous transactions to authenticate each new one. This system easily solves the scalability and performance issues that blockchains usually experience.
What is IOTA?
IOTA is an open-source cryptocurrency and distributed ledger whose primary design is for the Internet of Things. This crypto utilizes a directed acyclic graph to keep track of the ledger transactions and uses higher scalability as motivation over distributed ledgers based on blockchain. The name of the cryptocurrency on the IOTA ledger is called MIOTA.
With IOTA, miners do not need to validate transactions on this network. Instead, nodes that issue new transactions must approve two preceding transactions.
As a result, users do not need to settle fees to conduct and facilitate transactions. Alternatively, a coordinator node under the operation of the IOTA foundation helps the network achieve consensus, which means the IOTA network is a centralized one.
The crucial innovation behind IOTA is Tangle, which is the system of nodes the IOTA network uses to confirm its transactions. Tangle is believed to be a much quicker and more efficient solution than the blockchains typical cryptocurrencies use.
For the IOTA Foundation (the nonprofit that invented the ledger), the goal is to become the model means of carrying out transactions across devices on the Internet of Things network. Therefore, the IOTA ledger will be a “public permission-less backbone for the Internet of Things that enables interoperability between multiple devices.”
History of IOTA: Founders and Growth
IOTA has its roots in the Jinn Project, which came to light about six years ago in September 2014. The object of this project was to create a newer and more powerful yet energy-efficient IoT microprocessor that operated on a trinary calculations model instead of binary. However, the project needed substantial financial backing.
To solve their financial problems and fund the development phase, the Jinn project team organized a crowd sale during which they sold 100,000 JINN tokens for around $250,000 at that time. These JINN tokens then went on the NXT platform as shares in the Jinn project and its proceeding company.
A few months later, on a BitcoinTalk forum, the Jinn Project team announced another project called IOTA because JINN tokens would go into the market as profit-sharing tokens (or financial securities). In 2015, the IOTA founders were Sergey Ivancheglo, Serguei Popov, David Sønstebø, and Dominik Schiener, who was the final addition to the founding team.
According to founder David Sønstebø, the birth of IOTA happened because of the Jinn Project, so “…it only makes sense first to introduce IOTA and then Jinn afterward.”
Understanding IOTA: Why was it invented, and how does it work?
Right off the bat, the thought process behind the invention of IOTA centers around the theory of the Internet of Things.
The primary motive for IOTA was for it to operate as a facilitator in the IoT ecosystem. Since IoT devices are becoming increasingly relevant in the world, the MIOTA crypto would act as a backbone. The data that the Internet of Things generates every day could be helpful to several companies.
Unfortunately, these companies have no way to access or purchase these data. But, with the cryptocurrency that IOTA offers, even the least complex of devices can process MIOTA like a champ.
With this ingenious solution, experts believe the fast, free, and secure IOTA data processing solution could be the future key to power everything from smart cities to interconnected factories while ensuring its users get financial rewards for their early investment.
But, how exactly does IOTA work?
Today, cryptocurrencies generally run on blockchain networks, which are secure and manage data transparently. However, the computing process is so complex and power-intensive that miners who are in charge of running the software need financial rewards to make it worth their while.
However, IOTA is different.
IOTA uses a directed acyclic graph on a publicly distributed ledger, unlike most cryptos. In other words, it is its record keeper for transactions and other related activities. As a result, the network requires significantly less energy to manage, and its computational workload is drastically reduced, which, in theory, means that the IOTA can authenticate considerably more transactions in less time without incurring the expensive transaction fees standard with other cryptocurrencies.
IOTA: Its Pros and Cons
While IOTA has several advantages as a cryptocurrency network, it cannot claim to be perfect. However, the benefits of IOTA far outweigh its perceived drawbacks:
Pros
- No transaction Fees
The IOTA network provides very feasible transaction fees to users. Instead, two previous transactions cover the cost of writing to the Tangle system. In other words, the network eliminates gas costs or tips for miners to achieve faster transactions.
- Smaller transactions are possible
With most blockchains, high transaction fees are commonplace. As a result, most people also carry out large transactions to ensure the payments they have to make are ‘worth’ it. However, since there are no transaction charges, sending as little as one IOTA is possible without fear of excessive charges.
- Scalability
One of the most significant drawbacks to regular blockchains such as ETH and BTC is the duration of authentication by creating new blocks. The peak transaction speed on the Bitcoin Blockchain is only four transactions per second. Ethereum still fairs better, peaking at 20 transactions per second, which is still relatively slow.
The Tangle system on the IOTA network allows several hundred transactions per second. In theory, the scalability is infinite as more and more devices are writing data.
- Lightweight
The vision of Tangle is to ensure that all IoT devices (even those with lower computing power) can write data and communicate with the Tangle system. This way, every device can perform proof-of-work authentication in minimal time spaces. The lightweight characteristic of Tangle is yet another one of its several advantages.
- Quantum Security
One of the criticisms of blockchains is that it is easy prey for quantum computers attempting to attack the network, which is because quantum computers are more than a billion times more efficient in performing hash algorithms than their classical contemporaries.
However, according to the founders of IOTA, the system is ‘quantum secure’ because it utilizes trinary computations, unlike classical computers that operate on binary.
Cons
In addition to its advantages, IOTA also has various disadvantages compared to a blockchain:
- Smart Contracts
Building a Decentralized Application (or DApp) with IOTA is impossible without smart contracts.
- Vulnerability
While no official proof of a successful attack on the Tangle system is available, many experts are worried. According to mathematical calculations, it may be easy for malicious nodes to infiltrate the system. Furthermore, these calculations show that attacking the Tangle only requires 34% of hashing power, unlike the 51% in the case of blockchains.
Is IOTA Different from Bitcoin?
IOTA and Bitcoin may both be cryptocurrencies. But, that may be as far as their similarities go. In addition to their similarities, the differences between IOTA and BTC are also quite numerous:
- IOTA requires no transaction fees.
- Unlike Bitcoin, there is no mining or blocks associated with IOTA. Instead, transactions occur on the Tangle.
- IOTA has a transaction speed of approximately 1000 transactions per second, unlike Bitcoin, whose best-case scenario is around 7 transactions per second.
- With IOTA, the more transactions that occur, the faster the system becomes. On the other hand, more transactions on BTC blockchains mean increased queues.
- IOTA is a ‘greener’ cryptocurrency as it requires lower computing power, unlike Bitcoin, which is significantly more power and energy-intensive.
- IOTA is the better choice for micro-payments and nano-payments as it requires no transaction fees.
IOTA Wallets: What is the Best Option?
Various options between a physical wallet, a service, or a software program are available to save IOTA. Whichever the case may be, the wallet will serve as storage for the private and public cryptocurrency keys and will help interact with the Tangle system.
Online Wallets
An online IOTA wallet hosted on online servers, which is relatively easy to set up and requires no additional cost. The accessibility of these wallets is quite high by logging in from an internet device.
However, this easy accessibility also has its downsides such as hackers and online scammers. Besides, online IOTA wallets are also less flexible regarding private key access and other settings.
Software Wallets
A software IOTA wallet can be installed on a computer.
A software wallet is excellent for beginners because it is free, features simple interfaces, and even offers private security keys. This increases their security rating compared to online wallets. However, hackers and asset thieves can still get to them. Trinity Wallet is an excellent example of this class of wallets.
Full-Node Wallet
A full-node IOTA wallet is a free wallet that is connected to the network and is very secure. However, this type of wallet requires some technical know-how to set up, and the PC hard disks need to have ample free space.
Hardware Wallet
As the name implies, a hardware wallet is a physical crypto storage device that’s offline and safe. However, carrying out transactions on this type of wallet is more challenging. Also, it may be a bit expensive to buy. That said, the IOTA Wallet Ledger is a popular example of a hardware wallet.
How to Integrate IOTA Payments to Businesses?
Considering the fees, transaction speed, and the ability to transfer even very small amounts, IOTA stands out as one of the preferred payment methods that businesses can take advantage of and integrate. One of the preferred methods in the integration process is the use of an advantageous payment gateway such as Bitpace which is a cryptocurrency payment gateway providing fast, reliable, secure cryptocurrency payment services.
The various advantages of Bitpace can be listed as follows:
- No Coding Knowledge Needed
The whole process is a simple one-click (or drag and drop, depending on the e-commerce CMS version) installation.
- No Fixed Payments
No long-term commitments or having to pay any monthly subscription fees. The only commitment is to pay a fee per transaction.
- Crypto or FIAT Choice
Get paid in cryptocurrency and have it exchanged to FIAT with real-time rates instantly.