Bitcoin is currently on a steep upward climb that has seen its epic bull run culminate to record highs of over $18,000 in December 2017. However, many altcoins (alternative coins) have also enjoyed the same extreme growth witnessed in 2017 for the preeminent cryptocurrency.
One of the more fascinating cryptocurrencies that is shrouded in secrecy is the IOTA currency. IOTA has experienced a meteoric rise in value and has risen from $4 billion to over $10 billion in just two weeks. What secret has IOTA used to achieve such a Herculean feat? The difference between IOTA and other cryptocurrencies is that it does not run on a blockchain and uses a new revolutionary technology that can obliterate the blockchain and change the whole game.
What is IOTA?
IOTA is an acronym for the Internet of Things Application. It was started by a German nonprofit organization called the IOTA foundation which came together with other stakeholders (mostly tech companies) to produce a decentralized data marketplace.
Bitcoin, ethereum and other cryptocurrencies use a blockchain to process transactions. Each block has to be mined to solve a mathematical equation and produce a key for decryption. This process is energy intensive and usually requires many computers to mine one block.
IOTA eliminates the need for a blockchain because it asks anyone submitting a transaction to first verify two random transactions. It is based on connected devices, and no transaction fees are charged. As the network grows, transactions will be completed faster.
How does it work?
Jason Hope, a Scottsdale based tech entrepreneur and the Internet of Things enthusiast already predicted that the adoption of IoT and connected devices will soon be mainstream. In an article on tech.co, Hope explained about the adoption of IoT devices “…I do believe, however, that it will begin to become mainstream in two specific industries: manufacturing and healthcare.”
According to David Sonstebo, a co-founder of IOTA, this digital currency was specifically designed to be used by connected devices. Organizations that use connected devices, be it gadgets for monitoring factory equipment or weather tracking systems collect massive amounts of data that goes to waste. All the data is stored in databases and costs money to store without generating any revenue for the owners.
Why use the Internet of Things connected devices?
Hope further explains how companies can leverage the data exchanged between devices and create value from it. He claims that “I expect to see a greater understanding of the value of this data, how to use it to make better business decisions and how to pinpoint what data from sensors and connected technology is best utilized.”
While Hope initially predicted the invention of such technology in 2016, the concept is still valid; make use of the data from connected devices, other than just to communicate.
IOTA solves the problem of unused data in two ways. First, the data is secured in a decentralized ledger that cannot be tampered with. Second, the transactions are free of charge for the owners of the data and the numerous companies that want to buy this data.
Which system does IOTA use?
The main motivation behind developing a cryptocurrency that does not use the blockchain technology was the extremely high transaction fees. Recently, people had to fork out up to $20 on Bitcoin transaction fees because of high demand for the currency.
IOTA runs on a completely different system called a “tangle”. This system is based on a directed acyclic graph which is a mathematical concept that is easier to solve than the encryption the blockchain uses. A blockchain also has a limited capacity and cannot handle the scale needed to operate with the Internet of Thing devices.
When IOTA was being developed, as David Sonstebo puts it, there was a problem with having to rely on miners on a distributed network to verify transactions. They did away with the miners with an ingenious way of verification. Each individual that issues a transaction is supposed to validate two random transactions that have previously been issued. The two transactions also verify two previous transactions and so on. This creates a “tangle” of unconfirmed transactions as they continue piling up.
Is it safe to use?
IOTA is still in the beta stage, but the stakeholders are big and corporations like Fujitsu, Accenture, and Deutsche Telekom who have taken a keen interest in the cryptocurrency. As for safety, some members of the cryptocurrency research community from MIT and Boston University recently aired their concerns about a serious vulnerability in the system IOTA runs on. This was patched and rectified by the foundation although safety checks had already been put in place to prevent anyone from losing their money.
IOTA went further to hire a third-party company to develop a lightweight cryptography that will be used on low powered devices like sensors. As Jason Hope puts it, “The security found in many IoT devices is not high”. He continued by stating that smaller devices which don’t have the computing power of a smart phone, like sensors, can be more susceptible to attack.