IOTA: No transaction fees and infinite scalability — How does it work?
Originally published on coinstaker.com
IOTA — the next generation cryptocurrency
The promise sounds almost too good to be true, send money to anyone in the world instantly, completely free. You could send a million dollars or a fraction of a cent, on demand, and without fees to anyone around the world.
IOTA is a forward-thinking cryptocurrency that responds to the growing technological needs of the Internet of Things (IoT). Analysts predict between 26 billion to over 100 billion connected devices by 2020, constantly making transactions with each other. Instead of relying on a blockchain to handle these transactions, IOTA uses “the Tangle”, a graph with infinite scale, no miners, and no blocks.
IOTA’s strength is its response to the problems of high transaction fees and long wait times. The transaction costs on blockchain-based currencies like Bitcoin and Ethereum make small trades too expensive to make sense. IOTA offers a currency with new possibilities for micro-trading by removing the barriers of fees.
Every day, our world becomes smaller and more connected through the Internet of Things (IoT). When Gilfoyle hacks Jin Yang’s “Smart Refrigerator” in Silicon Valley, his coding not only affects Jin Yang’s refrigerator, but all the other refrigerators communicating with it over the IoT. So when microtrading is possible within the IoT, we can trade and use resources like never before.
9/2/17: Sending a friend $2 worth of Bitcoin today will cost you $5.72 in transaction fees.
What is the “Tangle”?
You’re at the doctor’s office waiting for a prescription to be filled so you get a number and sit down. In this case, this Take-A-Number system determines who goes to the pharmacy counter next. Every trading platform relies on a system to track who’s next in line. For Bitcoin, the 2008-based blockchain determines who gets to send money next. Instead of blockchain technology, limited by mining for new coins and fees, IOTA relies on the Tangle to perform seamless transactions.
The Tangle is based on a Directed Acyclic Graph (DAG). Like a blockchain, the DAG gives an order to transactions awaiting completion. Instead of standing and waiting in a line, or taking a number, the DAG graph works as the ledger of transactions. Each transaction coming in must first verify two other transactions on the ledger. That means you use your own computer’s electricity to trade funds instead of paying a miner to do that for you with blockchain ledger systems like Bitcoin. You use exactly the amount of power needed to complete your transaction and two others, no more and no less, explaining why there’s no fee to exchange IOTA around the world.
The future of IOTA is exciting. It’s already breaking ground, holding the eighth largest market capitalization of all cryptocurrencies today in just three months on the market. Over 1.5 billion dollars of that is from its ICO on June 13th, 2017, which was more than any other cryptocurrency at the time. Blockchains have been fundamental, but this could be the next evolution in cryptocurrency.
If you are interested into learning more about this new Blockchain technology, then you should definetly check out the Tangle whitepaper.