Since the beginning of their time, cryptocurrencies have been built using blockchain technology. Each currency’s transactions are batched together into a “block.” As as block is completed, e.g. the transactions in the block are verified using a proof-of-work system, the blocked is linked to the one before it. And so on, forming a chain.
Well, there’s a new cryptocurrency that’s making headlines, not because its new or because of its phenomenal growth, but because it completely ditches blockchain. Agora Financial introduces us to IOTA.
IOTA successfully ICOd in 2015, gathering more than 1,300 Bitcoin in its initial offering. Most recently, the value of IOTA jumped from just over $4 billion to more than $10 billion in a little over two weeks. After launching in June 2017, the IOTA token has already jumped to the 7th position in the cryptocurrency market cap ranking with a market cap of over $9.9 billion. Major media outlets like Techcrunch, Forbes, and International Business Times have already recognized it. While the growth is certainly jaw dropping, perhaps what’s more interesting about IOTA is the technology behind it.
If not a blockchain, then what?
IOTA is the first cryptocurrency that doesn’t use a blockchain. Instead, it runs on a blockless distributed ledger “tangle.” Creators believe the tangle makes transactions faster and more efficient.
IOTA charges no transaction fees, regardless of the transaction size and the transaction amount. One of the ways IOTA manages to dodge transaction fees is by ditching the use of miners to verify transactions. Each user who wants to issue a transaction validates two randomly selected previous transactions in the network (which also prefer to two previous transactions, and so on). New transactions create a tangled web of transaction confirmations. The proof-of-work to verify transactions is low enough that devices can carry them out independently and users essentially become miners themselves.
Creators of IOTA saw how expensive Bitcoin transactions could be – as much as $20 per transaction – and noted how expensive blockchain could be. One of the aspects that makes blockchain so expensive is that they rely on a distributed network of “miners” to verify transactions. And just a handful of mining pools account for over 75% of mined blocks, which is risky if Bitcoin wants to remain decentralized.
With other types of cryptocurrencies, there are two distinct types of participants in the system. There are those who issue transactions and those who approve transactions. With IOTA, all participants are the same. Everyone who issues transactions also approved transactions.
What is IOTA use for?
IOTA tokens can be used like other crypotocurrencies. The currency was designed for use on connected devices. IOTA takes information from gadgets, e.g. the internet of things, and secures the information on a decentralized ledger. IOTA makes fee-less transactions possible and allows interested parties to purchase the information.
If you’re not familiar with it, the internet of things is a global network where everyday devices like cars and appliances are able to communicate and exchange data. The connectivity of these devices allows them to be remotely monitored and controlled. IOTA’s goal is to freely exchange data between these devices and to allow the information to be bought and sold through the IOTA network. As consumers adopt more internet-enabled devices, it will become increasingly useful for these devices to share information with each other. Imagine your car telling your home security system that you’re close to home and the garage door opening for you automatically. Cool stuff right?
The blockchain-less IOTA is certainly a digital currency to watch. It’s already big in terms of growth and market capitalization. Whether it can outperform Bitcoin remains to be seen.
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