The price of bitcoin has been skyrocketing over the last few weeks. However, there are still some issues with the currency that have been uncovered since it’s high rise in popularity. One problem is the massive amount of power consumption that comes with Bitcoin’s production methods. Early in November, it was discovered that Bitcoin mining now used more energy than Ireland every year. That is an insane amount of power – a problem that other cryptocurrencies are trying to solve. As well as the high power costs, there’s also a shockingly high transaction fee when sending it between addresses. Every Bitcoin transaction is estimated to cost around the same as 4000 Visa card transactions. This is where IOTA slots in nicely.
IOTA and the IoT
IOTA is hoping to become the cryptocurrency of the Interner of Things (IoT). The Internet of Things is going to be huge – far bigger than some people can even imagine. More and more devices are becoming connected to the internet. It’s estimated that by the end of this year there will be 8.4 billion devices connected to each other all over the world. It’s predicted that by 2020 there could be up to 20 billion devices all connected together. The unique cryptocurrency is set to perhaps be the thing that drives all of the data passing between those devices.
According to the community over at IOTA Support, there are two main differences between The Tange and Blockchain:
1) IOTA is able to achieve high transaction throughput by parallelizing validation. As the Tangle grows with more transactions, IOTA becomes faster and more secure with transaction finality happening more quickly as network critical mass is approached.
2) The way consensus is achieved in a blockchain is through a rigorous mechanism that requires multiple parties to “race” against each other in an attempt to add the next block and earn the block rewards. Since “miners” and “users” are decoupled entities, block rewards paid to miners will eventually mostly consist of users’ transaction fees. In the Tangle, “miners” and “users” are no longer decoupled entities.
The Tangle is the name given to the verification, which doesn’t require a ledger. The type of verification is known as Directed Acyclic Graph (DAG).
Built to Scale
Unlike bigger cryptocurrencies, such as Bitcoin or Ethereum, IOTA has been designed to deal with a large scale transaction infrastructure. It relies on the Tangle and not a central Blockchain system. This means that each transaction requires the sender to verify two other transactions on the Tangle. So the more people that use IOTA and make transactions with it, the faster the network will become.
IS IOTA QUANTUM PROOF?
The Tangle is also seen as ‘Quantum Proof’ as it uses hash-based signatures instead of Elliptic Curve Cryptography (ECC). Not only is hash-based signatures a lot faster than ECC, but it also makes the overall protocol much more simplified. What makes IOTA quantum-secure is the fact that it uses Winternitz signatures. IOTA’s ternary hash function is called Curl.
Since you contribute some of your computing power to The Tangle when you send IOTA, the equivalent cost is only as much as the power it took to verify two other transactions on IOTA. It also allows the network to remain much more dispersed as those that use a Blockchain system. On a Blockchain, the network is distributed among miners. With IOTA, however, it’s distributed among every single device which is using The Tange.
No Need for Mining
Every single IOTA that is in existence was created during the birth of the Tangle, so there is no need what so ever for mining to occur. This eliminates the use of blockchain techniques which use a vast amount of power in order to generate their currencies. The amount of IOTA in existence will never increase or decrease. According to IOTA Support:
The total money supply of 2,779,530,283,277,761 is optimized for ternary computation and notation ease of use utilizing SI units. ((3^33-1)/2) = 2.779 x 10^15
Will IOTA replace Bitcoin?
IOTA’s team alludes to why they use the Tangle instead of normal blockchain technology in their white paper:
“The rise and success of Bitcoin during the last six years proved the value of blockchain technology. However, this technology also has a number of drawbacks, which prevent it to be used as a one and only global platform for cryptocurrencies. Among these drawbacks, an especially notable one is the impossibility of making micro-payments, which have increased importance for the rapidly developing Internet-of-Things industry.”
It seems as though the team behind IOTA are not looking to compete with Bitcoin, and instead want to focus the cryptocurrency’s technology on areas which suit it best. It may be that in the future both Bitcoin and IOTA could work seamlessly together – side by side. IOTA would become the ultimate driver of the Internet of Things and Bitcoin could remain a currency that we use for personal use and commercial purchases. But who knows? It’s still early days for IOTA and I certainly expect that the last price surge won’t be the biggest thing we hear about it by the end of 2017.
Expect to hear more conversation about the currency during the middle of next week, towards the 14th of December. The cryptocurrency’s new collaborations with companies like Microsoft and Volkswagen have prompted a lot of analysis of the technology and its applications. If big businesses find it useful, it could have a massive impact on the future of the IOTA cryptocurrency and the Internet of Things.