IOTA, the Tangle and the Future

IOTA, the Tangle and the Future

Back in November, rumors of a “partnership” between IOTA and Microsoft caused the price of MIOTA to shoot above $5. Following the recent crypto-crash, however, MIOTA is currently trading at around the $3, up from recent lows of about $2.

Whether they’re day trading, HODLing or simply interested in the technology, many crypto-enthusiasts want to know how high IOTA can go.

The Internet of Things

IOTA (which stands for “Internet of Things Application”) has been touted as a “cryptocurrency of the future”, which supposedly solves the scalability problem that is plaguing some of its larger peers.

IOTA’s developer team are trying to capitalize on the imminent boom in the number of connected smart devices that are going to hit the market in the next 10 or so years. Some estimates put the figure as high as 50bn, which when you consider the proliferation of smartphones and computers, as well as newer products such as smart watches and various home devices, is not that hard to believe.

This increase in smart devices is due to lead to an exponential increase in the number of micro-transactions that take place at any moment. Already, nearly all new software companies have transitioned to a SaaS (software as a service) model, which means customers make repeated payments for the product. Netflix and Spotify exemplify this trend.

As more and more businesses transition towards offering some kind of service, costs are going to be pushed lower, causing the number of micro-transactions to soar. Micro-transactions are typically defined as anything below $0.75 but, as the Internet of Things plays out, could well be far lower.

IOTA aims to facilitate this huge increase in micro-transactions through its “Tangle”.

The Tangle

Whereas most cryptocurrencies rely on some form of blockchain technology, IOTA’s developers use the Tangle. Rather than have miners solve cryptographic puzzles to verify new blocks, the Tangle is block-less and requires no miners.

The lack of miners means that there is no centralization of the Tangle. Ironically, while many cryptocurrencies claim that they are decentralised, there is, in reality, a political and economic centralisation around miners. In response, some cryptocurrencies are moving away from established Proof-of-Work protocols and towards Proof-of-Stake ones, which will tackle this centralisation problem.

Proof-of-Stake protocols enable blocks to be verified by a population of token- or coin-holders who store their digital assets in special wallets. Therefore, stakeholders will already have skin in the game, and will not be people who purchase hardware for the sole purpose of profiting from mining. However, even in this scenario, there is some degree of centralisation as decisions are made in proportion to a stakeholder’s holding.

In the Tangle, there is no separate mining, whether by Proof-of-Work or Proof-of-Stake. Instead, anyone who executes a transaction on the Tangle will automatically verify two further transactions. This has the additional benefit of speeding up the network the more one uses it.

It All Comes Down to Fees

The Tangle also sets itself apart because it has feeless payments, which in turn facilitate micropayments. After all, who would pay for a coffee in bitcoin when the transaction fee itself might be 10 times the cost of the beverage; the fee for a micro-transaction could easily be 100 times its cost.

Since miners need to be reimbursed and then rewarded for their efforts, transaction fees are charged by most blockchain systems. However, since transactions on the Tangle are verified by users and not miners, there is no direct need for IOTA to charge a transaction fee. Therefore, micro-payments and IOTA are a seemingly natural fit.

What Next?

On paper at least, IOTA not only enables micro-transactions, it increases the scope for companies to engage in B2B activity by monetising more of their resources. In theory, companies could charge seemingly irrelevant fees for API access, which could then be passed onto consumers who might well never realise the cost.

Furthermore, IOTA has the potential to be truly decentralised because of how it does not discriminate between transaction issuers and transaction approvers, thereby reducing the scope for conflicts between parties and wasted time or resources. In the last six months, bitcoin has had two major hard forks, which have seriously ruptured its developer community, if not necessarily its price.

IOTA is already being used in a number of ways, including electric vehicle charging and parking; all in all, over $10bn has been transacted across its network. Aside from Microsoft, IOTA’s potential has been noticed by other big tech players such as Amazon and (if rumours are to be believed) Tesla. Although these reported “partnerships” are yet to be confirmed, industry interest can only be a good sign going forward.

Iota (IOT/USD) Analysis January 30, 2018

IOTA (MIOTA) The next big thing in crypto investing