What is IOTA? | The Ultimate Beginner’s Guide

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What is IOTA

IOTA is a peer to peer, decentralized payment and exchange platform for the global network of Internet-connected devices, otherwise known as the Internet of Things (IoT).

To understand what IOTA is trying to accomplish, you first have to understand the potential of the IoT, which is about much more than just devices connecting. Rather, it’s about how they interact, share data, value services offered to the network, and make payments between themselves — potentially without the need for manual human intervention. Examples of the IoT at work include automatic exchanges of computer power, bandwidth, and storage; sharing of storm or tsunami threats between remote weather sensors and communities; a machine that can automatically pay for its own maintenance, parts, insurance, energy, or even its own manufacturing; a fleet of self-driving cars that fuel/charge themselves and automatically pay for the service; or even entire smart cities with traffic sensors capable of coordinating traffic in real time. The potential is enormous.

While the IoT is more science fiction than modern reality, that is expected to change in the near future. In just the last year, the number of Internet-capable devices increased 31 percent to a total of around 8.4 billion devices. It’s predicted that this number will skyrocket to 30 billion devices by 2020 and that the total market value of such devices will reach $7.1 trillion.

IOTA has made some big promises about how they intend to be an early mover in this space, but the truth is that the technology is still relatively new and unproven. As such, IOTA has gotten a lot of criticism from technology and security experts as well as the blockchain community in general.

In this article, we’ll take a closer look at why that is, how IOTA works, and some of the challenges IOTA faces going forward by looking at the following topics:

IOTA was launched in June 2016 by a German non-profit organization called the IOTA Foundation, with the goal of being a pioneer in the IoT space. The ultimate vision behind IOTA is to create a semi-automated marketplace for machine to machine transactions.

But IOTA is not alone in this vision. In fact, numerous major companies are also entering the IoT space. Many such companies have formed direct partnerships with IOTA, while others are working with the IOTA Foundation peripherally (e.g. Microsoft) or as co-founders of the Trusted IoT Alliance, an association of companies working in the field.

The IoT vision isn’t necessarily possible with regular blockchain technology. Most blockchains require massive amounts of resources and power just to perform a few dozen transactions per second, while the IoT ecosystem would need to perform potentially millions of transactions per second. What’s IOTA’s proposed solution to this scalability problem? A new piece of tech called the “tangle”.

IOTA’s “tangle” is a network structure which doesn’t rely on dedicated computer nodes (called miners) to validate transactions as blockchains do. Instead, the tangle uses a technology called Directed Acyclic Graph (DAG) to require that each device on the network confirm two transactions for every transaction it performs.

As devices on the network verify each other’s transactions, the network builds a consensus-based ledger that is theoretically immutable and highly secure. In this way, IOTA avoids the high fees and slow transaction speeds of traditional blockchains that would make it impossible for IoT devices to quickly trade resources in real time while logging vast amounts of data.

Although IOTA doesn’t require mining, transactions are still securely stored by computer “nodes” using a cryptographic algorithm called SHA-3 Proof of Work (PoW). This operates similar to Bitcoin’s SHA-256 PoW algorithm to create a chain of transaction records that are stored on full network nodes. How these nodes will be rewarded for their services is not yet clear, since they don’t actually receive any of IOTA’s tokens (called MIOTA) for their work. This has resulted in some debate about how IOTA will solve this lack of incentive to run a node.

Early in IOTA’s development it actually used a hashing algorithm called Curl which was custom-built by the IOTA development team. Curl was replaced, however, after an MIT team found a potential vulnerability in the algorithm. 

This sparked a huge controversy in which the IOTA development team was widely criticized for handling the situation poorly, and for over-reaching when they tried to create their own algorithm. Many argued that a cryptographic algorithm must be widely available and tested for years prior to being released to verify the algorithm’s security. 

Around February 24, 2018, however, leaked emails between the MIT team and IOTA were published on an IOTA enthusiast’s blog called The Tangler that seemed to at least partially exonerate the IOTA developers. The leaked correspondences reveal that the MIT team failed to provide evidence of their claims — which were not confirmed by peers — and ceased communications with the IOTA Foundation developers before useful conclusions were reached. The emails also suggest that the MIT team did not fully understand how IOTA works (as they themselves admitted).

In an official release about the incident from the IOTA Foundation on February 26, the foundation stated:

“To date, the IOTA team has not received any answers to questions posed, code demonstrating the attack, or other documentation elaborating on the vulnerability beyond what was seen in these emails.
We would very much appreciate help finding actual vulnerabilities in the IOTA protocol, and as of November, 2017 we have been working with a team of cryptographers to obtain an accurate and objective assessment of this situation.”

Another point of contention about IOTA in the blockchain community is the technology’s reliance on a central coordinating entity to begin with. Before IOTA’s network is truly decentralized, it must first gain enough users to validate transactions and secure the network, which is theoretically possible to control with only 34% of the computing power of the network as a whole. For now, IOTA has been forced to implement a temporary central entity called the Coordinator to secure the network. There is very little information about the Coordinator in the white paper or elsewhere, but the basic rundown is that the entity (likely one or more powerful computers) validates all transactions by throwing its own transactions into the mix every minute.

These transactions are referred to as milestones and are used as a sort of snapshot that can be verified against all other transactions in the network to validate that a given transaction is untampered with. Even if the Coordinator acts maliciously, every other node in the network would be able to recognize this, because it would start issuing bad milestones.

According to the IOTA Foundation, the Coordinator will be turned off when the network has enough full nodes to ensure a self-validating network.

Since there’s no mining in the network, MIOTA coins — all 2,779,530,283,277,761 of them — were issued all at once at the launch of the DAG chain. IOTA’s currency units are named using metric system prefixes before the word “Iota”. As the official name of the cryptocurrency, MIOTA is also the unit of account used on exchanges. These are the units, in order of size:

Iota= 1 iota= 1i= 1i
KiloIota= 1 kiota= 1Ki= 1,000 i
MegaIota= 1 MIOTA= 1Mi= 1,000,000 i
GigaIota= 1 giota= 1Gi= 1,000,000,000 i
TeraIota= 1 tiota= 1Ti= 1,000,000,000,000 i
PetaIota= 1 Piota= 1Pi= 1,000,000,000,000,000 i

There are a number of advantages that IOTA has over other cryptocurrencies, mostly because of its DAG chain technology.

Fast and Free Transactions: As mentioned, IOTA dispenses with mining, which means no transaction fees. Since the network is entirely user validated in real-time, transactions are also very fast.

Energy and Resource Efficiency: Bitcoin and many other popular cryptocurrencies that use miners consume enormous amounts of energy. Mining computers (called rigs) are also regularly replaced with more powerful computers as mining becomes more difficult, wasting further resources. The tangle eliminates these inefficiencies.

Ternary Computing: IOTA uses ternary logic in its network as opposed to traditional binary logic. Ternary computing is potentially more efficient than binary computing, and is also more effective in artificial neural networks, artificial neurons, artificial intelligence logic, graphical processing, and cryptography. However, some argue that the ternary computing revolution may never come, or if it does, it will be far in the future.

Quantum Proof: Quantum computing is an emerging field of computing that promises unprecedented processing power that could potentially compromise regular cryptography systems, including regular blockchain technologies. IOTA claims to be “quantum proof” by using an “unforgeable” scheme that makes it impossible to hack, even by quantum computers.

Zero Inflation: Since no more IOTA coins will be created, there will be no inflation. This means that the value of the currency will not decrease because of an increase in coins (though it could, of course, decrease for other reasons).

Many Competitors: There are many competitors in the IoT space, including large multinational corporations with virtually unlimited resources. Other cryptocurrency competitors include Waltonchain and IoT Chain. Other DAG based cryptocurrencies like Byteball or Nano could also theoretically be used as a means of scalable, fast transactions for the IoT, while other scalable decentralized application (dapp) platforms like EOS could potentially use dapps to provide use cases for the IoT beyond simple transactions.

Unproven Technology: As mentioned, several cryptography experts have shown concerns over IOTA’s stability and security as a platform. Using so many unproven technologies at once certainly opens up the possibility of unforeseen security vulnerabilities or other problems.

More Centralized at First: Regular blockchain networks become vulnerable if one party has 51% of the computing power on the network. If this happens, it may be possible for the controlling entity to verify false transactions and falsify data in their favor. IOTA, by contrast, is vulnerable if only 34% of the network is controlled by a single entity. This vulnerability would theoretically be very difficult to take advantage of once the network scales into an IoT made up of millions or billions of devices, but until then, the Coordinator is required. Some argue that this is a form of centralization and potentially an unfortunate single point of failure. As mentioned, IOTA plans to eliminate the Coordinator after the network scales enough.

Buying MIOTA directly with fiat currency (e.g. USD) is not widely possible yet, but it’s simple enough to purchase another cryptocurrency such as Bitcoin, Ethereum or Litecoin on an exchange like Coinbase or Bitstamp and then transfer that to an exchange where you can buy MIOTA. Exchanges selling MIOTA include Binance, OKEx, Bitfinex, Exrates, and Gate.io.

You can see a step-by-step guide on How to Buy IOTA here.

Storing MIOTA on exchanges is not recommended, nor is it recommended to store a significant amount of any cryptocurrency on an exchange.. Unfortunately, there currently isn’t support for MIOTA on any hardware wallets (although the community is working on one), so this isn’t an option either. Instead, we recommend storing your MIOTA on either a software wallet or a paper wallet.

There are currently two well-known software wallet options for storing MIOTA, with a third option coming soon: IOTAmobile for iOS, IOTA desktop wallet for Windows, Mac OSx and Linux, and the soon to be released Trinity Wallet, which will be for Windows, Mac OSx, Linux and Android.

Although many people in the cryptocurrency and digital security industries are skeptical of IOTA, it’s possible that the technology will prove itself valuable with time. If the IOTA Foundation is successful in working out any lingering bugs or unforeseen attack vectors, the tangle and its DAG technology could become increasingly popular over more resource-intensive and expensive blockchain alternatives. IOTA’s success may even help kickstart the forthcoming IoT marketplace, which would launch an exciting new chapter in humanity’s relationship with machines. The potential is unprecedented, but for now, we’ll have to wait and see if IOTA can deliver on its ambitious goals. 

Trent lives in Ontario, Canada on an off-grid farm where he spends his time writing, editing and sustainable gardening. With a background in Print Journalism, he has extensive training and 15 years of experience writing, editing and proofreading many types of content, from entire websites, to blogs, journalistic articles, and various types of business documents and reports.

With a passion for decentralization of global power structures, his writing has recently branched out into blockchain and cryptocurrency related topics, but he also enjoys writing about ecology and agriculture, as well as sustainability, gardening, botany, health and wellness, homesteading, survivalism, and online marketing.

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