Date Launched: November 24, 2015
Amount Raised from ICO: $550K
Founders: David Sønstebø, Sergey Ivancheglo, Dominik Schiener, Dr. Serguei Popov
IOTA is a new type of cryptocurrency that focuses on operating in the IoT (Internet of Things) and the machine to machine economy. The IOTA team sees a future where machines communicate directly with each other. IOTA is one of the few cryptocurrencies that does not use blockchain technology. Instead, IOTA uses a technology called the Tangle.
Tangle is a open source distributed ledger with a software protocol that is fundamentally different from the blockchain protocol. The Tangle technology is based on a mathematical concept called the Directed Acyclic Graph (DAG). Tangle transactions are processed in parallel, meaning there is no limit to the number of transactions that can be confirmed per second
In IOTA, there are no miners. The Tangle dictates that “miners” and “users” are the same entity. Every time a user submits a transaction, that user must then help confirm two other transactions in the network. As the Tangle network grows and approaches critical mass, IOTA becomes faster and more secure.
The Tangle is programmed in ternary, which is a deviation from the traditional binary code. Ternary is more efficient than binary, and provides for some significant improvements in functionality. The Tangle can be run on binary or ternary systems.
Internet of Things
The supporters of IOTA really believe in the future of the cryptocurrency. IoT is becoming a major industry with companies creating many sorts of smart devices from smart fridges to speakers. While blockchain has a limit on transactions per second, IOTA’s transaction speed increases with more users.
The Internet of Things is a glamorous buzzword but it might be a while before a sensor-filled future of machines becomes a reality. Also, IOTA is a technology under development and is still improving flaws in its protocol. For example, the MIT Media Lab recently uncovered a security problem with Tangle. According to the MIT team, the IOTA protocol’s hash function, Curl, produced collisions or a situation where different inputs hash pointed to the same output.
Meet ‘the Tangle’
IOTA’s distributed ledger, by contrast, does not consist of transactions grouped into blocks and stored in sequential chains, but as a stream of individual transactions entangled together.
In order to participate in this network, a participant simply needs to perform a small amount of computational work that verifies two previous transactions. Rather than creating a hierarchy of roles and responsibilities in the network, every actor has the same incentives and rewards. In order to make a transaction in the Tangle, two previous transactions must be validated with the reward for doing so being the validation of your own transaction by some subsequent transaction. With this ‘pay-it-forward’ system of validations, there is no need to offer financial rewards. Transacting with IOTA is and will always be completely fee-free.
Moreover, without the need for monetary rewards, IOTA is not limited to transactional value settlements. It is possible to securely store information within Tangle transactions, or even spread larger amounts of information across multiple bundled or linked transactions.
This structure also enables high scalability of transactions. The more activity in ‘the Tangle’, the faster transactions can be confirmed.