Is IOTA too hot to trot Blockchain?
Let’s start with the basics together, and I promise by the end of this post you can decide for yourself if IOTA has the potential to disrupt the groundbreaking technology of Blockchain or not!
What is IOTA? And why is it marketed as “third generation cryptocurrency”?
IOTA is basically, cryptocurrency for nano-transactions which enables transactions to take place at lightning speed. The cool part about this is that it charges absolutely no transaction fee (or gas), and the coolest part is that it is resistant to the quantum threat! There’s no such thing as a smart contract or dApp here. IOTA made it to Bitfinex in June 2017. The startling part about IOTA is that it does NOT use Blockchain technology. It’s based on a new distributed ledger known as — Tangle. Tangle has unlimited scalability unlike blockchain which is not scalable at all. As the Tangle grows and more participants make transactions, the overall system becomes more secure and faster, with confirmation times / transaction finality going down.
Since IOTA supports nano-transactions, it is specially crafted to cater to the need of transactions within IOT devices. This means that like humans use Ethereum, or Bitcoin; IOT machines are going to use IOTA. Imagine a smart refrigerator ordering and paying for eggs on your behalf! This transaction won’t be limited to machine-to-vendor, but also machine-to-machine. Imagine a robot paying another robot because it offered its services. (Just like we tip the waiter at a restaurant.) It’s ALL going to happen because of IOTA. Machine + Artificial Intelligence was scary enough, and now its going to be Machine + Artificial Intelligence + Money.
IOTA is going to create a whole new Economy of Things!
How is IOTA (Tangle) different from Blockchain?
Tangle overcomes the inefficiencies of current Blockchain designs and introduces a new way of reaching consensus in a decentralised peer-to-peer system. Tangle and Blockchain are two completely different architectures which happen to be built upon same principles.
Talking about IOTA’s data structure: Rather than following the structure of sequential chain of blocks, Tangle is based on Directed Acyclic Graph (DAG).Through this, IOTA is able to achieve high transaction throughput (by parallelising validation) and no transaction fees on transactions.
What makes IOTA quantum proof?
IOTA uses hash-based signatures (https://www.imperialviolet.org/2013/07/18/hashsig.html) instead of elliptic curve cryptography (ECC). Not only is hash-based signatures a lot faster than ECC, but it also greatly simplifies the overall protocol (signing and verification). What actually makes IOTA quantum-secure is the fact that we use Winternitz signatures. IOTA’s ternary hash function is called Curl.
The current blockchain is NOT quantum proof. Probably when quantum computers would be made 20–30 years down the line, they can bruteforce into your ethereum or bitcoin wallet and the entire IT security might face a massive under the belt blow!
Why is there no transaction fee?
This is achieved through IOTA’s unique approach to consensus. In IOTA there are no miners / validators. The adjacent nodes in tangle network are the ones which validate transactions.
The way consensus is achieved in a Blockchain is through a very rigorous mechanism, that requires multiple parties to “race” against each other in an attempt to add the next Block to the Blockchain and get the block reward / transaction fees.
Major IOTA use cases:
The primary focus area is obviously the Internet of Things, especially in areas such as Smart Cities, Infrastructure and Smart Grid, Supply Chain, Transportation and Mobility. Apart from that, IOTA can also function as the backbone for any peer to peer transactional settlement needs, such as web payments or even remittances.
So we’ve seen that IOTA overcomes the disadvantages blockchain currently possesses. Now, it’s safe to say that IOTA has the potential to disrupt blockchain!