22 August 2020
Each iteration of blockchain innovation comes with unique value propositions. After the success of Bitcoin, the model of miners and blocks seemed to be the default for all cryptocurrencies. In due course, the rise of Ethereum showed that crypto platforms can operate as utility platforms for varied uses.
What is IOTA?
IOTA takes this applicability to a whole new level. Its creators tailored the platform to be a network for the Internet of Things (IoT).
The Internet of Things is a modern term that refers to the interconnection of everyday computing devices to the internet and each other in a seamless data loop between machines. IoT is taking interconnection and automation to a whole new level. This platform aims to bring blockchain efficiency to an IoT world.
It has an unusual design that eliminates “miners”, at least in the traditional format. Instead of having miners who specialize in validating transactions in exchange for fees, each user who initiates a transaction must approve two previous transactions. The idea behind eliminating miners and blocks is to overcome the cost and scalability limitations of blockchain networks.
IOTA is the brainchild of David Sønstebø, Dominik Schiener, Sergey Ivancheglo, and Serguei Popov. After a public crowd sale, the team was able to fund development and went live in 2016. The network has since grown and at press time had a market capitalization of about $1.16 Billion. At the height of the crypto boom of early 2018, the market cap soared to a record high of about $15 billion.
What is IOTA’s architecture? How has this project positioned itself uniquely to provide a data and micro-transaction utility for IoT?
Like many other blockchain projects, IOTA utilizes open source technology. The platform uses a Directed Acyclic Graph (DAG) to store transactions on the blockchain.
The main component of IOTA functionality is the Tangle network. The Tangle essentially means the DAG layer that records the exchange of data and value. Tangle takes the structure of a string of individual transactions interlinked and stored through a network of nodes. The IOTA Foundation currently runs the coordinator node for the IOTA network of nodes.
By eliminating miner fees, the network can complete micropayments, which bodes well for IoT. Data is stored using encryption on a second layer protocol as zero-value transactions. In general, the IOTA network boasts better scalability, zero-fee transactions, and low resource requirements.
The platform’s proponents point to this utility value as the reason for IOTA being at the center of the IoT revolution. A future where devices around us communicate efficiently and cheaply means a more sustainable and connected world.
Notably, IOTA has been the target of incessant attacks, including phishing and hacking attempts. Perhaps, the fact that the network is not secured by miners provides an incentive for hackers to seek to attack points of vulnerability. The Trinity wallet attack incident in late 2019 and the Seed generator scam in 2018 are the most prominent.
Some have pointed to the fact that IOTA foundation maintains the coordinator node as a possible single point of failure. The use of a coordinator node as a source of consensus remains a controversial subject. During the Trinity attack, the coordinator node shut the network to prevent further theft which raised questions on decentralization.
These concerns as to the practicality of the IOTA model will continue and it is incumbent upon the team to come up with innovative ways to smooth the rough edges.
To Wrap It Up
IOTA is a bold project that fits a special mold. The data and transaction needs in an internet of things environment prevent opportunities that no one could imagine a decade ago. As this era continues to unfold, the possibilities for IOTA keep growing.
Its unique architecture makes the project the right fit, yet provides unique challenges for the team to address. With the competent stewardship in place, IOTA seems destined to carve a niche and grow exponentially long term.