Launched in 2016, IOTA is a public ledger with no chains, no blocks, and no fees. Its name stands for Internet of Things Application, and instead of a blockchain, it utilizes a new technology called the Tangle. Its underlying currency is called MIOTA, and without any transaction fees, this network is designed extremely well to handle a large amount of micropayments to power the Internet of Things.
While blockchain tech has real-world value, it doesn’t come without its drawbacks. One such drawback is the transaction fee. According to the IOTA whitepaper:
The importance of micropayments will increase in the rapidly developing IoT industry, and paying a fee that is larger than the amount of value being transferred is not logical.
This is where IOTA comes into play. It was designed from the ground up to have absolutely no transaction fees. This solution was made possible with Tangle technology.
According to ZDNet, there will be over 20 billion devices connected to each other by 2020. IOTA wants to be at the forefront of the IoT revolution by creating a currency for these devices. Any communication or task performed between such devices will need some sort of a currency, and MIOTA aims to be the solution. With the ability to complete transactions instantly and with no fees, it’s the perfect currency for these devices to use.
What is IOTA’s Tangle?
The network is able to achieve consensus with no transaction fees with the use of Tangle technology. The Tangle is the coined term for IOTA’s DAG (Directed Acyclic Graph) on which the network is based. Instead of being packaged into blocks and chained one after another, IOTA’s transactions are connected in a big tangled web.
Rather than having mining farms mine whole blocks, each user verifies the past two transactions with a tiny amount of work before he or she can send their own transaction. In this way, the cost of each transaction is the cost of electricity it took your node to verify the past transactions rather than a fee set by a network of miners.
Furthermore, since Tangle technology doesn’t have blocks, one doesn’t need to wait for verifications. Transactions are mined in parallel, and as a result happen instantly. This is precisely why Tangle-based cryptocurrencies are able to achieve the highest TPS (transactions per second) rates among all blockchain-based currencies.
IOTA’s Network Resilience
Another advantage of using Tangle technology is that the network becomes more resilient to quantum computing and also to the infamous 51% attacks you may have heard about (which is actually a 34% attack).
It was believed that if an attacker had access to 51% of Bitcoin’s network power, he or she could take over the cryptocurrency. However, it was later found out that 34% was enough. Essentially what is required to take over a blockchain-based network is a certain percentage of the total hashing power. Because of IOTA’s network topology, there are three things that are required in order to perform such an attack:
- A percentage of the network hash rate
- Having a full view of the network
- Being paired with a certain percentage of nodes
The first variable is self-explanatory. A full view of the network is required in order to propagate the rogue hashing power effectively throughout the network. Finally, that hashing power must be paired with a sufficiently high percentage of nodes in order to actually propagate the attack successfully. If the attack isn’t performed fast enough, the network will easily see the anomaly and ignore the threat.
While there is a slim chance that an attacker may gain enough hash power and be paired with a large enough amount of nodes, the network topology is kept private because connections between nodes are private. Thus, it would be extremely unlikely that such an attack would successfully take place.
Another advantage to IOTA’s network is its quantum resilience. Because of its use of Winternitz hash-based signatures instead of elliptic curve cryptography, it’s able to resist quantum-based computing which will inevitably come in the future. Current research suggests that hash-based functions are secure against quantum computing, which was one of the reasons IOTA decided to go that route.
Concerns About IOTA’s Cryptography
With all the positives about this network, we can’t forget some of the potential issues with IOTA’s implementation. Researchers at the Massachusetts Institute of Technology released a report underlying some “serious weaknesses” with the platform.
The report included concerns regarding the Curl hash function that is used in IOTA. According to a Forbes article that covered the report:
Specifically, the researchers claim they were able to break the homegrown hash function “Curl” that IOTA was using as part of its digital signature scheme to secure user funds. Further, the researchers were able to demonstrate how an attacker could then forge a user’s digital signature and use it to steal funds.
Fortunately, IOTA has since fixed the bug in question. Furthermore, while the hash function was breakable, IOTA’s co-founder Dominik Schiener stated that forging users’ digital signatures is extremely impractical due to the network topology and the way the wallet is structured.
Real-World Applications for IOTA
IOTA didn’t make it to the #11 spot on coinmarketcap.com without having some real-world use cases. Here are a few companies that currently use IOTA:
SatoshiPay, a blockchain-based nanopayments company, announced a partnership with the IOTA Foundation to replace Bitcoin as the company’s settlement network.
REFUNITE partnered with IOTA to trace families that have been separated during times of crisis:
IOTA and REFUNITE intend to explore access to critical information and the increasing opportunities that arise from a more connected world.
CarPass, a company that guarantees correct mileage on your odometer by creating a “digital twin” of your car on the blockchain, partnered with IOTA to use MIOTA as its underlying cryptocurrency. CarPass initially used Ethereum for the transactions, but after realizing the potential in IOTA, they instantly switched over.
Top IOTA Wallets
There are two main options for storing IOTA. The first is to download the wallet from IOTA’s github and install the node on your computer. Since you need to perform some work in order to send a transaction, you would need to run a node on your computer in order to send transactions on the IOTA network.
The other option is to use an exchange wallet, but do so at your own risk. Remember that if an exchange goes down or gets hacked, you will lose access to your MIOTA. The exchanges that currently support IOTA trading are Binance, Coinone, Bitfinex, and OKEX.
IOTA is definitely at the forefront of cryptocurrency. With its state-of-the-art Tangle technology enabling instant and free transactions, it’s the main candidate for the emerging IoT market. Having partnerships and use cases in the real world serves as a proof of concept for IOTA’s vision. As the amount of smart devices increases every year, the number of use cases for IOTA will only grow, so it is natural to assume the currency’s price will also rise.
However, new technologies always come with new risks. While the Curl vulnerability was fixed in the wake of MIT’s report, there is no knowing what other possible vulnerabilities might be found on the network. However, such risks come with any cryptocurrency that deviates from Bitcoin’s blockchain.
Disclaimer: This is not trading or investment advice. Please do your own research along with reading this article. The Merkle and its employees may or may not have investments in the above cryptocurrency.