It is only a matter of time until the Internet of Things connects most devices and objects around us thus facilitating everyday processes for common people. However, in order to achieve this, there are a few things that need to be done first. One of such things is to introduce a technology that will allow for safe and secure communication between the devices connected with each other through the IoT. This is exactly what IOTA does. IOTA is basically an open source distributed ledger that is designed to provide secure interaction between machines on the Internet of Things. When doing so, IOTA is able to offer certain advantages over other similar platforms that will be discussed below. However, first, let’s learn more about the history and founding of the platform.
History of IOTA
Before we look into detail at how IOTA works we should find out more about its history and creators. As most technologies of the same kind, IOTA is a relatively new project. It was founded in 2015 by David Sonstebo, Sergey Ivancheglo, Dominik Schiener, and Dr. Sergei Popov. At the time of creation, 2,779,530,283,277,761 IOTA coins were issued, which represents the fixed supply of the cryptocurrency as there is no possibility of mining. Also in 2015, IOTA began beta testing of its platform, which continued in 2016 as well. In 2016, users were also able to trade the coins on OTC platforms.
2017 was an exceptional year for cryptocurrencies and IOTA wasn’t an exception. The first big news for the company came with the introduction of a $10 million fund dedicated to the promotion of the platform among potential corporate partners and in the community in general. In 2017, IOTA became supported by one of the biggest cryptocurrency exchanges, Bitfinex. This marked a great moment for the platform, the popularization of which was clearly accelerating. Bitfinex Outlier Ventures also made a direct investment in the platform, which was the first act of this kind for the organization. As Bitcoin fees skyrocketed, IOTA became more competitive. SatoshiPay, a company that processes micropayments, even switched to IOTA from bitcoin for its services. At this point, more and more people started to find out about what IOTA is and in the soaring cryptocurrency market IOTA started to enjoy popularity as well.
Later in 2017, IOTA partnered up with REFUNITE, to put its potential to use. REFUNITE is the world’s largest database of missing persons. With the use of IOTA technology, the organization’s ability to reunite families with lost family members after conflicts became greater. This way, the unique capabilities provided by IOTA technology were put to great use as another step towards the widespread adoption of the technology was taken. IOTA’s superior payment network called IOTA’s Flash Network clearly outshined its competitors with its speed and low costs, which is why Monster Cleaning Services, a UK company, started accepting payments from their clients in IOTA. Being accepted by merchants is a great achievement for any cryptocurrency as it demonstrates trust in the network. Merchants usually avoid taking a risk with payments and prefer guaranteed value, which is why Monster Cleaning Service’s acceptance of IOTA fortified the faith of the community in the cryptocurrency. At the same time, Sopra Steria also started using the services of IOTA in order to increase the security of communication among the devices connected by the Internet of Things.
Through these partnerships, large corporations and government officials began to realize what IOTA is and how it works and began taking advantage of its potential, which further prompted the popularization and adoption of the cryptocurrency platform. It was also in 2017 when German law recognized IOTA Foundation as a not-for-profit organization which allowed the foundation to open an innovation lab to work on the IoT technology.
The functionality of IOTA and the issues solved by it
The main thing that differentiates cryptocurrency platforms from each other is their functionality and the problems they try to solve. While these digital assets began as an alternative to fiat currency payments, the blockchain technology quickly began to expand a wider range of its capabilities and offer different solutions as well. What IOTA stands for can be explained by the issues tackled by it.
“With the advent of distributed ledger technologies, we are now able to distribute and synchronize ledgers of data and money in secure, distributed, decentralized and permissionless environments. By removing the need for trusted third-parties as the gatekeepers and arbiters of truth, enormous efficiency gains, innovation opportunities and new value propositions emerge,” – states the website of the platform. The main function served by the cryptocurrency is to allow peer-to-peer transactions without large fees or intermediaries that gain access to personal data on the transacting parties.
This is not, however, where IOTA stops. The organization aims to improve on the deficiencies of the current blockchain technology to build a better version of a distributed ledger that will be able to support the operation of the Internet of Things. This way, what IOTA does is to support the development of permissionless economies.
The technology behind IOTA
These goals are of course laudable, but what is the technology that allows IOTA to be so ambitious? Most modern platforms and cryptocurrencies you have likely heard of use blockchain technology in its standard form. IOTA, however, takes things a little further with Tangle. If blockchain is a chain of blocks each of which contains a bunch of transactions than Tangle is individual transactions that are all entangled together. This technology is at the center of what IOTA means. In more technical terms, Tangle is a data structure which is based on the Direct Acyclic Graph. In blockchain, there are miners that are incentivized through rewards to process transactions and thus support the operation of the network. In IOTA, there is no such division between the network members. Each individual also performs the task of validating transactions. For a user’s transaction to be processed, they need to validate two of the previous transactions. In turn, they will have their transaction validated as well. This approach drastically differs from that offered by other platforms. It also allows IOTA to offer completely fee-free payments.
This technology has some obvious advantages. Scalability is one of the biggest issues in the world of cryptocurrencies. It represents the ability of a network to handle an increasingly large number of transactions per given period of time. Some of the biggest cryptocurrencies have issues with scalability. In fact, it is the reason for many forks of the largest cryptocurrency in the world. With Tangle, this doesn’t represent a problem at all. On the contrary, an increasing number of transactions translates to faster verification of these transactions. Furthermore, because there are no monetary rewards involved in the transactions, people can trade all kinds of assets, including information. This is another great advantage of the network and something that will greatly contribute to the goal of the platform to support the IoT future.
Yet another big advantage of the IOTA platform is its low resource requirements. Because of the large mining pools and increasing mining difficulty for many large networks, small players and common users have been left out from many processes when it comes to some of the cryptocurrencies. This goes against what the technology represents. With IOTA, there are no huge resource requirements and users with small devices can also participate in the network. This is at the core of what IOTA stands for. IOTA takes a forward-looking approach and has adapted its network to withstand the next generations computers, which is something not every cryptocurrency platform can boast of. Some of the bigger networks are not immune to quantum computers and will crumble as soon as the technology reaches that level. IOTA, however, has considered these possibilities and is completely resilient to such technologies because of its use of special signatures.
The use of Flash Channels
Much like traditional blockchains can offer Lighting Network to circumvent the processing of blocks and conduct instantaneous transactions without large waiting times, IOTA has Flash Channels that occur off-Tangle and are bi-directional. In order to use these services, parties have to deposit funds in multi-signature addresses that are controlled by all parties. This opens a channel allowing the parties to transact with each other without the need for processing the payments on Tangle. Once the channel is closed, the final result will be reflected on Tangle. This functionality allows for instant transactions for a given period of time. Merchants can use these services with customers in order to receive confirmation faster and be able to accept such payments with security.
Projects associated with IOTA
IOTA Foundation is an organization that oversees the development of IOTA ecosystem and ensures its widespread adoption. In 2017, the Foundation reported having $100 million devoted to promoting the use of IOTA and building productive ecosystems around the technology. As we mentioned, the organization is registered as a non-profit in Germany. In fact, it is the first regulated non-profit in Germany that is funded completely in cryptocurrencies. The organization itself has several bodies including the Advisory Board, the Supervisory Board and the Board of Directors. They ensure that the organization follows its path. Furthermore, there are several working groups that work on specific tasks and the adoption of IOTA technology in specific sectors. These include social causes, supply chain management, identity, fintech, infrastructure, energy and many more.
Another organization using IOTA technology is the public data marketplace, which offers data generated by third parties. There is a massive amount of data generated daily on the internet, and IOTA wants to offer an organized marketplace for this data. It has already attracted several large corporations to this cause, including Microsoft, Bosch, Samsung, Airbus, PWC, Fujitsu and more. The marketplace will also allow common users to sell their data as well. While this might not be directly tied to the meaning of IOTA, it certainly fits in with the forward-looking approach of the platform.
CognIOTA is yet another interesting project tied to the platform. It is a machine learning service which uses IOTA cryptocurrency as a payment method. The project lets its users rent out their idle CPU for others in real time. This is something that has long been mentioned as one of the capabilities of blockchain technology and IOTA is one of the first platforms to offer a feasible solution.
Price and market capitalization of IOTA defined
Much like it is with other cryptocurrencies, the price of IOTA is highly volatile as well. This was evident from the beginning when the price was fluctuating below $1. However, the second half of 2017 was extremely generous to the cryptocurrency market as the price of most assets began to skyrocket. IOTA wasn’t an exception. Beginning in October 2017, its price soared and reached a peak of just over $5.2 in December. If in July 2017 the market capitalization of the coin was a little higher than $700 million, the peak saw the capitalization reach over $14.5 billion. This was an exceptional indicator even in the booming market among the cryptocurrencies. However, unfortunately for the IOTA fans, the correction didn’t spare this crypto either as the price along with the market cap began to decline rapidly.
There was a slight bounceback in April and May as the crypto reached a short-term peak of $2.5, but this didn’t last long either and the price returned to the levels below $0.5 were it stands to this day. The market capitalization of the coin is, at the time of writing, just above $800 million, which although much less than the peak number, still makes IOTA one of the largest cryptocurrencies on the market. In fact, it ranks 14th in the list of largest cryptocurrencies by market capitalization.
Regardless of the unfortunate decline in the price, IOTA remains one of the most forward-looking platforms with great ambition and potential. Furthermore, it uses technology that is unique on the market and does not simply repeat the capabilities of more established platforms. At the core of what IOTA does stands its ambition to contribute to the IoT future.