What is IOTA? Anyone who hears a little of the scene at the moment can hardly ignore the new cryptocurrency. It seems that IOTA is running out of Bitcoin. What is behind it? In this article, we offer an introduction to the exciting topic.
There are now numerous cryptograms based on blockchain technology that enable financial transactions without centralized middlemen such as banks or financial institutions. But you can also continue with this idea: what if you have a currency that does not pay people, but machines? Devices that are networked in the Internet of Things (IoT). And that is exactly what we are on the IOTA theme.
What is IOTA? Simply explained
IOTA is an encryption that allows stand-alone machines to pay . It seems very crazy or even scary at the moment. But in the future it could become a reality – the first steps were definitely taken.
Machines, appliances and other end devices are already interconnected by the Internet of Things . The IOTA currency is intended to allow for financial transactions between individual devices in the future. One possible example: the refrigerator will notice when a product is empty, make the order fully automatic and pay for the products without the owner’s involvement. Delivery can be performed with a drone, which was also ordered automatically.
For all of this to work without intermediaries, you need a standard by which machines can perform a variety of transactions quickly and economically . That is exactly what IOTA must deliver. Encryption for machines is different from Bitcoin, not based on the block chain and therefore scalable . That means in German: the number of participants and the size of the system does not matter – which makes it perfect if you want all the machines to communicate with each other.
Differences with Bitcoin
Cryptocurrencies such as Bitcoin, which are based on the block chain, are poorly adapted to the above requirements. Main disadvantages: the block chain grows and grows, more transactions are carried out. In principle, the blockchain is a large database that everyone can access, similar to an Excel file, where you can only add new entries, but do not delete old ones.
For large-scale payments, this is a disadvantage, as transactions become slower and more costly, more people participate. Paradoxically, this is what happens with Bitcoin. A transaction with encryption is simply too expensive; in addition, block-chain cryptography requires more and more energetic resources. For these reasons, the chain block is ill-suited to a system in which potentially millions of devices communicate with each other.
This is how IOTA works: the tangle simply explained
IOTA does not depend on the block chain, so it is also called “cryptocurrency without blockchain”. Instead, IOTA depends on an additional development of the block-block structure, the so-called “Tangle” (English: entangled). This architecture is also referred to as a directed acyclic graph and is no longer based on a network of individual blocks, but on transactions . If a user wants to make a transaction, he must first check at least two other transactions. The blockchain task is thus assumed by a network of mutual transaction certifications .
In practice, this method has several advantages: Tangle is scalable to any size and can be used for systems with any number of transactions. Theoretically, the system should get faster and faster as more users trade in Tangle. This is interesting for the intended scope on the Internet of things. This could be noted for low latency in terminal communication.
Is it worth buying IOTA?
Currently, many people in the market are pushing for encryption as a pure investment object. That is, it is not about understanding or using the underlying technology, but speculating on the currency and making the most of it. The IOTA developers are therefore very reluctant when it comes to investing in IOTA. The goal is apparently to create an industry standard that allows devices to communicate on the Internet of things.
If you are thinking of buying IOTA, you should always keep in mind that the market is extremely unstable even with this cryptocurrency. Reliable forecasts about IOTA’s future prospects are therefore hardly possible. Therefore, you should think twice about what you actually spend your money on and if you really support the underlying technology.