IOTA project purpose and description
What is IOTA?
In full, IOTA stands for the Internet Of Things Application. It was launched in June 11, 2016, as a platform that enables smart transactions between machines on the Internet of Things. IOTA uses a unique emerging technology that is similar yet different from blockchain technology called the Tangle. The tangle is a technology that eliminated the sequentially linked blocks that make up the blockchain and instead uses a verification method called the Directed Acyclic graph (DAG).
With the DAG, verification of transactions occurs across the network with each transaction being verified by two previous transactions. As the network grows, the computing power of the whole system increases commensurately and this makes IOTA a low-cost system that grows in efficiency as the tangle grows, unlike the blockchain whose computations get increasingly difficult with time.
The world is first evolving technologically and the Internet of Things is taking center stage with companies adopting self-executing devices to run processes and machines. IOTA hopes to be the go-to platform for the machine- to – machine transactions.
As much as blockchain technology creates an opportunity for decentralized and peer to peer transactions, it does not provide adequate efficiency in the system and not at the speed at which is required to fully execute IoT.
With how DAG works, IOTA has immense scaling capabilities which we shall look at in depth later. The Tangle is able to overcome the inherent inefficiencies in the blockchain by utilizing a different consensus mechanism in a decentralized fashion.
With IOTA, people can make feeless transfers in a trustless, efficient ecosystem.
This is how the tangle works; instead of transactions being grouped together in a chain sequentially, they are entangled together in something similar to a web.
Each transaction is verified by the two previous transactions and every node/ person has the same incentive and rewards to verify a transaction.
As opposed to how the blockchain works, as the tangle grows the computational works gets easier and easier. In order for your transaction to be validated the two previous transactions have to be verified so this gives you an incentive to verify the two previous transactions.
This creates a “pay- it forward” system where nodes are already motivated to verify transactions and they will do so willingly without being incentivized. As a result, the Tangle is a feeless system and will continue to be so. This model also allows for high scalability, as the network grows the more efficient the system gets.
What is the problem that IOTA Solves?
Blockchain technology (also referred to as ledger technology) came into the picture and is so far transforming how we make financial transactions. From highly centralized banking systems to a decentralized transparent system where we can openly verify data collectively.
Ledger technologies have allowed us to move money in a fast, secure and efficient way. By removing the need for third parties we have managed to significantly lower the cost of making financial transactions.
However, the blockchain has some inherent technical flaws that have made it impossible to maximize on its full potential. As more and more people have joined the blockchain bandwagon, the system has become encumbered with sluggishness and escalating transaction fees.
The increasing mining costs have centralized the control of the blockchain to a few financially endowed individuals who can afford to pay for the expensive mining rigs. Therefore what was once envisioned to be a completely centralized trustless and efficient system has slowly deteriorated to a weak imitation of what it should be.
This is what has led to the race for better systems that will tap into the strengths and unique opportunities presented by blockchain technology and at the same time tackle the weaknesses in the system.
How does IOTA Solve the problem?
IOTA is able to operate as a feeless system that is potentially highly scalable.
Since consensus is reached through the double verification system achieved by the two previous transactions, there is no need to further incentivize the nodes to do the work of verification.
Every node on the block contributes equal mining power to the tangle for their transactions to be verified creating a completely decentralized system with no central block.
This also eliminates the need for mining. Note that all IOTA coins were generated on the genesis block. As presented earlier, the Tangle does not require more energy to process consecutive transactions. On the contrary, less energy is required as the Tangle grows.
The Tangle can multiply by a factor as opposed to a linear fashion. Being a feeless system also makes it possible for IOTA to process minute transactions and be applicable to minute IoT devices such as sensors. If these minute devices were to rely entirely on a blockchain with its inefficiencies it would be very expensive to process even the tiniest of transactions.
Scalability would not be feasible as the tiny devices process numerous transactions in the shortest time possible, even under the fraction of a second. IOTA makes it possible to have micropayments and this one factor underpins the successful implementation of a machine to machine economy.
With the developments made to the blockchain, the Tangle presents a unique transition point to the Web 3.0 where machines and humans are powered to interact seamlessly in a trustless decentralized yet feeless ecosystem.
More than what the blockchain has offered to the economy, IOTA promises to take it further with a feeless and highly scalable decentralized system.
What makes IOTA better than its competitors?
As mentioned earlier, IOTA is based on the Tangle system which is a directed acyclic graph (DAG) different in nature from the blockchain.
The Tangle somewhat resembles an interconnected web where transactions are each linked to two other transactions that verify it. It is this model that gives IOTA a competitive edge over purely blockchain systems such as bitcoin and ethereum.
As the tangle grows, it takes lesser effort to verify transactions as there are numerous nodes each waiting to verify consecutive transactions. This highly reduces the time it takes to confirm transactions. Also as the tangle grows the efficiency gets even better.
Due to the self-incentivizing system, there is no further need to pay miners the cost of utilizing their expensive computing power. This makes it possible to achieve a completely efficient system that is the envy of traditional financial systems. You send $10 and the recipient receives $10! It also makes it possible to make micro payments as there are no exorbitant fees charged on payments, which is unlike the blockchain network. On the blockchain, it is not possible to run small devices such as sensors as the transaction times would eventually not suffice and the cost of doing so would make it unfeasible.
3. Enhanced security
All data on the Tangle is cryptographically encoded making it a secure system.
The tangle allows for offline transactions, unlike the blockchain system. Devices on the Tangle can interact without perfect connectivity.
The Tangle network has greatly borrowed from the strengths of the blockchain; a decentralized, transparent, peer to peer platform allowing permissionless execution of smart contracts. But due to overlooked practical technicalities, this vision could not be executed in full.
As more and more people have adopted the technology, challenges such as prolonged transaction times and escalating transaction costs have become a constant pain to battle.
Also, as the financial costs of mining/ validating transactions have increased with time, the process had become inaccessible for many would be miners leaving it to the hands of a few financially endowed actors.
This eats away at the core feature of the blockchain itself- a highly decentralized system.
It is this inherent weakness of the blockchain that has created the need for IOTA based on the Tangle directed acyclic graph structure. The Tangle is basically a distributed ledger technology with increased efficiency; highly scalable and feeless.
With IOTA, the Web 3.0 is a possibility to transition to the machine economy.
How can IOTA be categorized?
IOTA is a distributed ledger technology that powers the Internet of Things. It is a micropayments system, feeless cash transfer system and a digital currency.
IOTA’s vision on security
IOTA is a quantum immune system meaning that it is resilient to the next generation of quantum computing. IOTA uses a quantum resistant algorithm called the Winternitz one time signature scheme.
Theoretically speaking, if one actor has more than a third control over the Tangle they would be able to create and verify false transaction on the network.
This is because it takes two nodes to verify each transaction. This would mean controlling at least 34% of the Tangle. But even then, the Tangle is not as straightforward as is a blockchain meaning that you would still have to get around the web in order to leverage on your 34% advantage.
Practically speaking, this would only be possible when the Tangle is still very small and the nodes are minimal and easy to get through. To combat this possible threat, the tangle uses a coordinator to ensure that the early Tangle is not compromised on.
Once the early stage is over, IOTA plans to do away with the coordinator so that the system again does not appear to be centralized to the coordinator. This is just a stop-gap measure that enhances security in the Tangle model of IOTA ensuring that no actor has undue control over the system.
The Tangle also prevents double spending by allowing double verification of transactions. The network requires each new transaction to be approved of by the two previous transactions. In case a node submits an erroneous transaction, the other nodes will reject it. Each node contributes towards the flexibility and security of the network.
Examples of IOTA use cases / applications.
IOTA has numerous potential applications centered around a decentralized feeless ecosystem that paves way for a machine economy. With IOTA, an interlinked smart economy is possible and executable. Some of the practical applications of IOTA include:
1. Feeless microtransactions
IOTA can allow nano transactions. This paves way for the emergence of a global micro-economy and creates opportunities for businesses to transact across the globe.
2. Online voting
If IOTA is adopted on a large scale, it will pave way for eGovernance and executable eVoting systems. With IOTA, data can be transferred securely and efficiently making it possible to conduct public elections securely online.
3. Masked messaging
With Masked messaging (MAM) smart devices can be linked and data shared in a similar way to how radio waves are transmitted. This means that interlinked devices can “tune in” and get broadcast data with quantum proof security.
4. Shared economy
With IOTA everything into a service platform, businesses can lease unused assets for a fee. This includes computer storage, Wi-Fi bandwidth and computer power.
The lessor and lessee agree on an agreeable fee to be charged which is a cost-effective model for both parties.
IOTA presents many possibilities for the new economy by making the Internet of Things a possibility. The number of global micropayments could increase significantly over the next couple of years. For this to be possible, solutions for efficiency and scalability need to be devised. With bitcoin, making fractional transactions is not tenable as the cost of this exceeds the value of the transaction.
Therefore what IOTA is offering is a much needed technological solution to bridge this gap.
The Tangle is a rare concept that has the cryptocurrency space disrupted, was the blockchain not good enough? We are yet to see other cryptocurrency projects move away from the traditional blockchain model to the Tangle. This is understandable as the blockchain itself is still a relatively foreign technology to many.
That said, it will be exciting to see how IOTA revolutionizes the machine to machine micropayment system and how this will impact on global trade eventually. Perhaps the Tangle is the sequel to the blockchain and IOTA is a step ahead of its time.