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Blockchain, which came into being in 2008, has expanded its applications from cryptocurrencies to insurance, supply chain management, voting, healthcare, and many other industries. Blockchain brought about a breakthrough with its qualities of security, transparency, and immutability.
But, like any new technical advancement, Blockchain also has its share of problems. As the Blockchain grows, the ledger becomes heavier and slower. Mining requires a substantial amount of computing power, and the fees are inevitable, making cryptocurrencies like Bitcoin an unviable option for small transactions.
With passing time, several approaches came up to solve the inherent problems of Blockchain. One such approach is IOTA.

What is IOTA technology?

IOTA is a public permissionless distribution ledger that handles transactions between devices and machines in the IoT(Internet of Things) ecosystem. Its cryptocurrency is called MIOTA, which is used to account for transactions on its network.
As IOTA aims to become the standard mode of conducting transactions on devices connected to IoT, it has inked agreements with prominent companies and projects.

The practical use-cases of IOTA include:

  • Smart City
    The city of Taipei is striving to become one of Asia’s first real smart cities and has signed an MoU with the IOTA foundation. As per the agreement signed in January 2018, Taipei is testing IOTA and its Tangle. The project involves things like providing digital citizen cards with built-in tamper-proof TangleID, inter-organization & inter-city data exchanges, healthcare, and air pollution monitoring.
  • Smart Charging
    ElaadNL, which researches and tests all aspects of smart charging, has developed the first working prototype in smart charging using IOTA. Smart charging allows independent charging and discharging of vehicles as special IOTA software and hardware connect the car and station.
  • The future of mobility
    Volkswagen, in conjunction with IOTA, presented a new proof of concept at the CEBIT 2018 event. With driverless cars not far away, Volkswagen wants to integrate the IOTA technology into its products to ensure all cars get the data they need to run certain updates and functions.

IOTA technology is quite interesting, and it is not a Blockchain!

IOTA uses a network called Tangle. The IOTA Foundation, the German non-profit organization behind IOTA, claims that Tangle is more efficient and faster than the Blockchains used in cryptocurrencies. It also makes small transactions possible due to its no fees model.

What is Tangle in IOTA?

Tangle is the name used to describe IOTA’s Directed Acyclic Graph (DAG). A DAG is a graph that is directed and does not have cycles connecting the other edges. Meaning that it is impossible to start at one edge in the graph and traverse the entire graph. Also, the edges only go one way.
The directed graph used by computer scientists is a collection of square boxes connected with the help of arrows. Each edge is in a certain order and is directed from the earlier edge to a later edge, called topological sorting of a graph. IOTA works on the Tangle system that is a similar directed graph that holds transactions.
Tangle focuses on IoT and acts as a transaction settlement and integration layer. Tangle is the string of individual transactions that IOTA interconnects and stores in the nodes of participants on a decentralized network.
The Blockchain has scalability issues and cannot process a large number of payments at once. IOTA is built on a Blockchain not having blocks thanks to the data structure of Tangle that uses DAG instead of Blockchain. Tangle can scale transactions to meet the growing transactions, especially micropayments between IoT devices.

Tangle vs. Blockchain

Tangle has unique features that separate it from Blockchain, despite both technologies being similar. These features or key differences make Tangle suitable for IoT.

  • Structure
    Tangle does not store transactions in a block and does not form a connected chain of blocks as Blockchain does. Blockchain-based cryptocurrency Bitcoin requires miners to validate transactions and maintain the system. 
    The miners in Bitcoin must update the entire Blockchain, and have consensus on the single state of the network. They get a fee for their Proof of Work or mining efforts that need a substantial amount of computational power, making mining expensive.
    On the other hand, Tangle distributes the ledger among all the users and not just the miners. There are no separate set of miners here, as all the participants on the IOTA network are miners. Every new user on the network must verify two transactions, without the need of maintaining the whole network.
    Hence, as the transactions increase, the ledger does not get heavier with Tangle as it does with Blockchain. Also, the participants or users on Tangle do not get any fees for mining on the network as it is comparatively easy.
    As the transactions increase, the structure of Tangle makes it scalable and powerful with time, whereas Blockchain gets slower.
  • Decentralization
    Blockchain is far more secure than IOTA, thanks to its complex algorithm for verification. Tangle can withstand 34 percent attack, meaning if one person or entity controls more than the third part of all computing power that facilitates the network, they can hack it. But with Bitcoin, one party needs to control more than 50 percent of all hashing power of the blockchain.
    IOTA has included a coordinator node to improve network security and avoid the hacking problem. IOTA intends to use this solution until the volumes are low and will disable the system when the transaction volume is high enough that the network can stand on its own.
    However, many cryptocurrency experts believe that the introduction of coordinator in IOTA is a sign of centralization.
  • Speed of transactions and fees
    As discussed earlier, Bitcoin incentivizes miners with a fee system. When the fees are high, more miners are interested, but making small payment transfers in such a scenario becomes senseless for the cryptocurrency users. Alternatively, when the fees are low, only a few nodes are interested in mining, thus reducing the speed of transactions.
    With Tangle, the users need to verify two transactions chosen by the algorithm, and they do not get any fee for doing it. But such verification is quick and easy. IOTA is a viable option for making micropayments due to its no-fee structure and quick transaction speed.

The unique features of IOTA’s Tangle:

  • It is like a web.
  • The web extends in a single direction, unlike Blockchain, that can loop back the transactions in a circular way.
  • Each web on the Tangle consists of different nodes.
  • It supports limitless scalability and data growth without getting slow.
  • It is free as it offers no fees for verification of transactions. 
  • It has greater self-regulation and is less prone to forks and attacks.

Summing-up

IOTA’s Tangle technology sure provides greater scalability and cost benefits. However, it has a long way to go in terms of security and decentralization. Only time can test the long term sustainability of this new concept and cryptocurrency. Nevertheless, it has got a good start and is trending among the top technologies in the cryptocurrency world.

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