IOTA is an open-source distributed ledger that aims to usher in the age of the machine economy, by serving as the foundation to the growing technology known as the Internet-of-Things (IoT).
Iota is a cryptocurrency, but unlike just about every other cryptocurrency, it’s not built on a blockchain. Aiming to design a distributed ledger that’s low-cost and scalable enough for the internet of things (IoT), the project’s developers have started from scratch and built a new sort of structure, which they call the “Tangle.”
Tangle is a new concept by IOTA developers. They wanted a solution which has no mining, no transaction fees and are fast. In Tangle, transactions are linked to each other like a big web tangle. Their is no concept of blocks. Each transaction will be verified by a little PoW by the originating device. It will link the transaction further to two more random transactions.In Tangle, you do not need to wait for blocks to be mined. The transactions are verified in parallel. This helps in fast and more number of transactions at a time. Here’s the IOTA White-paper for deeper study.
What is DAG
The tangle is derived from what is known as a Directed Acyclic Graph (DAG): a data structure that moves in one direction without looping back onto itself. Like the blockchain, the tangle is a distributed ledger, in which a network of independent accounts perform transactions among themselves, reaching consensus about who owns what without depending on a centralised authority.
Time passes from left to right in this graph. Each box represents a transaction issued by a device (or “node”) on the network. In proof-of-work blockchains like bitcoin’s and Ethereum’s, Popov writes, there are “two distinct types of participants in the system, those who issue transactions, and those who approve transactions”; in the tangle, every device works to maintain the ledger. Every node is also a kind of miner.
Here’s the process: every time a node wants to transfer some value, it must validate two previous transactions, which the arrows in the image above show. This validation requires a small amount of proof of work in order to secure the network, meaning that transactions are not strictly free. Since there is no distinct group of miners that must be compensated, though, there are no fees. The white paper argues that this no-fee structure enables the kind of micro-transactions that would be impossible with bitcoin.
BLOCKCHAIN vs TANGLE
Blockchain has some disadvantages worth your attention. Do a quick search on scalability problems with blockchains and you will find many articles discussing this. Ethereum had large problems around the end of June when the ICO market exploded. People were investing like crazy in ICOs. This brings us to the second issue of high transaction fees.
As a blockchain grows over time, nodes will need more and more storage capacity and a higher bandwidth (volume increases) to keep up-to-date with the transactions added to the ledger. This has the potential to become very costly, keeping in mind that internet speed will increase and storage cost will decrease over time. Other elements include: no data privacy as many blockchains are public and unwanted centralization because of the miners.
A Tangle is a Directed Acyclic Graph or DAG. In general, it all comes down to some kind of web, consisting of nodes connected to each other with edges. An edge is basically a connection between nodes with a specific direction. It is not possible to traverse it in the opposite direction. Acyclic means that it’s not possible to encounter the same node for the second time when moving from node to node by following the edges. In other words, it is non-circular.
One of the differences lays in the data structure. Instead of adding blocks sequentially to a chain, Tangle uses it’s Direct Acyclic Graph (or web). So, validation is parallelized which results in higher throughput.
A Tangle works in depth. This means that every node consists of multiple layers of transactions. When a transaction is registered in a node, it first has to verify two other transactions before his transaction will be verified. Those two transactions are chosen according to an algorithm. The node has to check if the two transactions are not conflicting. For a node to issue a valid transaction, it must solve a cryptographic puzzle similar to those in the Bitcoin network (Proof of Work). Just two verifications are needed to verify a transaction. This gives the benefit of a drastic decrease in unnecessary verification. Besides that, miners are eliminated as well. You may think this is not a good thing, but it is! The only incentive for miners is the reward they get when they’ve mined a block. This can result in conflicting visions and goals between miners and token holders. Within a DAG, the nodes itself become the ‘miners’. This process is also much more lightweight because you only have to verify transactions for the two closest nodes. As miners are eliminated and we validate transactions ourselves, transaction fees are reduced to zero. Added to that, the power of some blockchains is more centralized than you might have thought. Miners form large mining pools to reduce variation of the mining reward. In case of Bitcoin, it is possible that the ledger becomes so large, that only few servers can host and verify it (e.g. Chinese mining farms). A Tangle tackles this problem of unwanted centralization.
There are many ways in which Tangle technology can be utilised for use in everyday situations.
Much in the same way as blockchain, it is a highly versatile bit of kit and its features can be adapted for a range of uses.
Here are a few of them:
Tangle makes micro-transactions possible. Bitcoin is becoming increasingly expensive to make transactions with and if you are just making a small one, it can outweigh the benefits.
This is not an issue with Tangle as its system is highly adaptable and scalable so even the smallest transactions are cheap and quick.
It allows vendors to charge for alternative services. If I was to pay 10 IOTA for a service, that would be worth pretty much nothing to me as a vendor.
If, however, 1000 people paid 10 IOTA for a service, that would be worth something.
With IOTA allowing microtransactions over the Tangle network, it means that services can be charged a minimal amount, meaning the customers pay almost zero and don’t have to pay excessive transaction fees.
With Tangle, vendors can charge for the actual worth of a product, instead of having to make the cost up elsewhere.
The Tangle network would also very much suit facilitating bank to bank transfers.
Due to the fact, it is instant as well as a low cost means it would avoid the issues of expensive transfers that take several working days.
Store of Value
Currencies running on Tangle are good for storing value.
Take IOTA, for example, it is great for storing value as it is deflationary in nature.
It can automate buying and selling between devices that are connected to the IoT.
An example being; Tesla is building roof tiles that also double as solar tiles. Their energy is then stored inside Tesla home batteries.
A neighbourhood of these could then trade and exchange the stored electricity on an automatic basis, using IOTA as the currency.
Internet Of Things — The Most Important Applications of Tangle
When we talk about Tangle, we have to mention the Internet of Things.
Otherwise known as the IOT, it refers to a digital network of physical devices, cars and vehicles, home appliances, and other items that are embedded with the software and electronics to support connectivity and communication.
This network allows them to communicate with each other, as well as to connect and exchange data.
What does the future hold
The combination of machines with blockchain and the IOTA protocol transforms these machines into economically independent devices . These can transact among each other and form the basis of a Machine Economy in the 4th Industrial Revolution.
This use case combines some decentralised technologies like IPFS, IPLD and BigchainDB for file storage & database layer with the DAG tangle as well. DAG mean — directed acyclic graph .
A digital twin is a digital representation of a physical, biological and/or digital object. The Digital Twin project “Twin of Things” seeks to give a story to every physical object.
The “digital twin” is a key concept for bringing industry — 4.0 — to life supporting a broad variety of Industry Domains like Energy, Consumer Goods, Mobility, Supply Chain, Health Care.
An increase in smart devices would lead to a big increase in the number of micro-transactions that would take place at any moment.
As more business make the leap towards offering more and more services, costs will be pushed lower and the need for micro-transactions will increase and Tangle will come into its own.
What really sets apart Tangle is the fact that it does not cost.
Fee-less payments mean more micro-transactions. After all, who is going to pay for a latte with a Bitcoin if the transfer fee is 100 times more than the cost of the drink?
The answer is no one, and this is why Tangle technology and the IOTA will play a huge part in the development of cryptocurrencies, and particularly their integration into our everyday lives.
IOTA is already being used in several ways which include charging for the parking of and charging of electric cars. This alone has raised over $10 billion.
There are also big players in the corporate world that have realised its value such as Amazon, Tesla, and of course Microsoft, and this level of interest from such key players can only be a good sign.
The future of Tangle and IOTA is difficult to pinpoint but it does seem that its popularity is only going to increase as more and more people and companies realise its full potential.
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