Ethereum Vs IOTA | The Decentralized Internet Versus the Internet of Things

Iota vs Ethereum

Ethereum and IOTA are among the world’s top cryptocurrencies by market capitalization. While the two platforms are quite different from each other in design and purpose, they are equally interesting in their visions and future plans.  

In this Ethereum vs IOTA comparison we’ll take a look at these two projects side-by-side and find out why IOTA is trying to present itself as a viable alternative to Ethereum. We will specifically cover:

Release Date June, 2016 July, 2015
Mining/Hashing Algorithm Curl (previously), SHA-3 (PoW) Ethash (PoW)
Programming Language Java Go, C++, Rust, Solidity
Transactions per Second (average) 500-800 10

Both IOTA and Ethereum were created to be pioneers in their respective fields.

Ethereum is aimed at providing developers with decentralized protocols to develop and deploy decentralized applications (dapps). It achieved this goal by creating a blockchain-based, open-source software platform and operating system featuring smart contracts.

Ethereum’s vision is to create “a more globally accessible, more free and more trustworthy Internet”. Today, Ethereum is the go-to platform for the creation of alternative coins (altcoins) and smart contracts.

IOTA, on the other hand, wants to revolutionize the world of the Internet of Things (IoT) by introducing a public distributed ledger to allow for payments and exchange across the global network of internet-connected devices.

Launched in 2016, IOTA’s vision involves creating a semi-automated marketplace for machine to machine transactions, where devices will exchange data packages, energy (or any other resource) and physical objects along the supply chain of the future.

Both IOTA and Ethereum are backed by European non-profit foundations: the IOTA Foundation operates out of Germany and the Ethereum Foundation is based in Switzerland.

Vitalik Buterin

Ethereum Co-Founder Vitalik Buterin

The Ethereum Foundation was established in 2014 and is currently led by Vitalik Buterin, Patrick Storchenegger, and Jeffrey Wilcke. Buterin is the young programmer who conceptualized Ethereum and wrote about it in Bitcoin Magazine in 2013, where he argued that Bitcoin needed a scripting language for decentralized application development. Lacking the support of the community at that time, Vitalik went ahead on his own and created Ethereum, together with Mihai Alisie, Anthony Di Iorio, and Charles Hoskinson. Ethereum’s team has grown and evolved (Hoskinson left to create Cardano) but Buterin remains the symbol of Ethereum around the world.

David Sønstebø

Iota Founder David Sønstebø

Incorporated on November 3rd 2017 in Berlin, the IOTA Foundation is the first fully regulated not-for-profit foundation in Germany to be capitalized with a crypto-currency (IOTA Tokens). You can read more about the IOTA Foundation from its founder’s – David Sønstebø – own words here.

Major companies have shown interest in joining IOTA’s vision. Among the biggest names are Microsoft, who works peripherally with the IOTA foundation, and Volkswagen, who supports the project as part of the Trusted IoT Alliance, which is an association of companies working in the field.   

As mentioned earlier, both Ethereum and IOTA are pioneers in their own field, aiming at essentially bringing inclusion into their respective spaces: Dapps and IoT.

Ethereum wants to enable anyone to develop and run — given enough time and memory — thousands of different applications all on one platform.

The technologies that facilitate this goal are:

While Ethereum undeniably created a platform that changed the world of decentralised and distributed applications, it still faces challenges such as scalability and cost-efficiency.

IOTA, wanting to become the backbone of the Internet of Things and Web 3.0 by allowing all connected devices to transact with each other, was faced with the same challenge as Ethereum. If predictions talking about 30 billion connected devices by 2020 are correct, then the issue of scalability is definitely a problem that IOTA needed to address — and one that a regular blockchain couldn’t necessarily solve. This is why IOTA introduced the tangle.

The tangle, or Directed Acyclic Graph (DAG) chain, is a data structure that foregoes the traditional mining system used by many cryptocurrencies. Instead, each connected device serves as a node and is active in the consensus and validation of transactions. Each node has to, by protocol, validate the two previous transactions on the network before making its own transaction. In this way, the tangle is a real peer-to-peer network where machines transact with each other and reach consensus about who owns what without relying on a centralized authority.

The main difference between the two projects is that while Ethereum uses the blockchain, IOTA uses the tangle. What consequences does this difference bring with it?

  • Mining: while Ethereum needs miners to validate transactions, IOTA does not. Each transacting device on IOTA is also expected to validate transactions.
  • Speed and transaction fees: IOTA’s transaction speed is about twice Ethereum’s, with the first being 3 minutes vs 6 minutes for the second. Having no miners, IOTA’s transaction fees are zero, whereas Ethereum’s is, at time of writing, $0.176.
  • Efficiency: once again due to the lack of mining, no massive amounts of energy are needed to run IOTA’s network. Further efficiency is given by IOTA’s use of ternary logic instead of binary. Ethereum still relies on mining and therefore require a lot of energy to function.
  • Inflation: all of IOTA’s coins have been issued already, whereas Ethereum’s supply will keep increasing. This means that in IOTA’s case, there’s only a risk of deflation, not inflation.
  • Open-sourceness: IOTA’s heavily-criticized central coordinating entity called the Coordinator, is closed-source. This is in stark contrast to Ethereum’s totally open-source nature.

Ethereum’s upcoming efforts are directed at improving the current platform, specifically targeting scalability and efficiency. IOTA’s roadmap, on the other hand, focuses on reaching a production-ready state by the end of the year, followed by commencing an international standardization process together with the rest of the industry.

Ethereum’s focus for the future is to make the platform lighter, faster, and more secure. The project is now at the Metropolis stage, and specifically entering the second part of it called Constantinople.
Coming up for Ethereum is the introduction of:

  • a new consensus protocol upgrade called Casper, aimed at transitioning Ethereum from a proof-of-work (PoW) algorithm to a more cost-efficient one, combining proof-of-stake (PoS) and Byzantine fault-tolerant consensus theory
  • a process called sharding, that splits the blockchain into smaller chunks (or shards) allowing nodes to only store and compute some of these chunks, rather than the whole blockchain
  • another process called Plasma, allowing for many separate but interconnected blockchains to be created, that prevent nodes from having to confirm and verify every single transaction.

IOTA’s journey to establish a standardized ‘Ledger of Things’ has only just begun. 2017 was spent mainly in research and establishing the Foundation. 2018 will focus on developing and implementing the results of 2017’s research.

Below is the roadmap shared by David Sønstebø about a year back:

  • Core Client Development: Java, C++, Rust, Go
  • IOTA eXtention Interface (IXI)  modules: Identity of Things (IDoT), Permanodes, Flash Network, Mask Authenticated Messaging (MAM), Private Transactions, Oracles
  • Tools and libraries: JavaScript, Python, Java, Go
  • Projects: Stress testing, Public stimulation, Sandbox, Learn

Some of the milestones above have been completed but there’s a lot more in the pipeline for the team.
Earlier this year, IOTA announced the several million dollar Ecosystem Fund aimed at supporting the development of modules, libraries, tools, tutorials and general content which is meant to grow the IOTA ecosystem. IOTA’s Ecosystem is meant to be similar to, but for distributed ledger technology (DLT) apps built on IOTA. Regarding this plan, the Foundation stated that “the IOTA Ecosystem will be where everyone involved in the broader IOTA community can meet, collaborate, learn, inspire, develop and build.”

Since its launch last year, IOTA’s MIOTA saw a staggering 10 fold increase in price, going from around $0.5 to well above $5 in November and December 2017. Today MIOTA is suffering from the same bearish market trends as the other cryptocurrencies, being valued at $0.976299.

There is still no comparison, however, between MIOTA and Ethereum’s Ether, which is, at time of writing, the 2nd largest coin by trade volume and valued at $380.84.

IOTA and Ethereum differ both in purpose and in development status. While Ethereum has already created an innovative Dapp and smart contract platform used by thousands of developers every day, IOTA is still in the early stages of their goal to bring about the IoT. The platforms are also powered by fundamentally different technologies. Ethereum, like most other cryptocurrencies, is built on a blockchain that the Ethereum Foundation is continually tweaking toward greater efficiency and scalability. IOTA’s tangle is something new, that if it works, could become a valid and popular alternative to current blockchain options. 

For all these differences, Ethereum and IOTA are united by ambitious visions for the future of the Internet. Whether these visions are competing or complementary remains to be seen.

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