IOTA, also known as mIOTA, is a distributed ledger created to record transactions between machines and devices in the Internet of Things (IoT) ecosystem. It uses a native cryptocurrency to account for transactions.
In this guide we will cover the ins and outs of IOTA and how you can get involved in 2021.
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What is Iota?
IOTA (mIOTA) is a distributed ledger created to record transactions between individual machines and devices in the IoT ecosystem. Using its native cryptocurrency, mIOTA, to account for transactions, it hopes to improve the speed and efficiency of blockchains. The key innovation used by IOTA is Tangle, a system of nodes that help confirm transactions. Tangle is said to be faster than normal cryptocurrency blockchains.
IOTA was founded by the IOTA Foundation, a nonprofit foundation. They have several agreements with multinational companies, including Bosch and Volkswagen, which have been created to expand the platform’s utility among connected devices. The company aims to become the standard mode of conducting transactions. The founding team believe the ledger is a “public permission-less backbone for the Internet of Things that enables transactions between multiple devices.”. They’ve stated it solves several issues including the centralization of mining, low network speeds and scalability issues. Many of these problems are caused by a backlog of transactions in the blockchain. This backlog is caused by small block sizes to the complexity of mining. IOTA solves these issues with an innovative new blockchain architecture, which reorganizes data to confirm transactions.
As of August 2021, IOTA has a market cap of $2,806,099,734 with 2.78 billion tokens in circulation. It has already reached its maximum supply and one token currently costs $1.01. It reached highs of $5.69 in December 2017 though has not reached this level since.
Pros
One of the biggest advantages of IOTA is the increase in network speed and scalability. Many cryptocurrencies struggle with their network speed, which would give IOTA a huge advantage in the market. It would allow for smaller transactions to take place and cryptocurrencies to be adopted on a larger scale.
Another advantage of IOTA is that it makes mining accessible to the average person. Currently, mining certain cryptocurrencies is an intensive process that can only be completed using specialist equipment. IOTA on the other hand would allow the average computer user to mine cryptocurrency without huge upfront costs.
Cons
There have been some questions about the level of security in the IOTA system. The network experienced a phishing attack which resulted in the loss of mIOTA worth $3.94 million. In response to the attack, the development team wrote an article outlining the steps needed to strengthen its cryptocurrency.
To increase security IOTA have diluted their claims of being a decentralized system, as a Coordinator is now used. This means a single point of failure is now part of the currency. It has also slowed the network’s speed as processing is slower in a Coordinator-based system.
How does Iota Work?
IOTA was created to remove the constraints of a typical blockchain. mIOTA, IOTA’s native cryptocurrency, is pre-mined and consensus of transactions occur differently compared to a traditional blockchain. IOTA developers created a new data structure known as Tangle. Tangle is a Decentralized Acyclic Graph (DAG), a system of nodes that do not follow a logical order. Instead, each node can be connected to multiple nodes in a Tangle but cannot refer back to itself. In comparison, a standard blockchain is a sequential linked set, whereas Tangle is a parallel system in which transactions can be processed simultaneously instead of sequentially.
Full node miners are not needed in Tangle. New transactions are confirmed by referencing two previous transactions. This reduces the amount of time and memory needed to verify transactions. To complete transactions, a simple Proof of Work (PoW) puzzle is added and a tip system. Tips are the two transactions that are chosen prior. The system uses a tip selection with “confidence” as a measure to approve transactions. “Confidence” refers to a transaction weight. As it moves through Tangle, a transaction will gain weight with each approval. Once confirmed, it is broadcast to the whole network. A new unconfirmed transaction can then use it as one of the tips to confirm itself.
This results in no fees and low power consumption, which means it can be used across a wide range of devices.
How to Buy Iota online
The most popular exchange for buying IOTA is Coinbase, where it can be purchased with fiat and cryptocurrency. Here’s how.
- Start by signing up to Coinbase and verifying your profile. If you already have an account, log in.
- Make sure your account is funded with crypto or fiat and search for IOTA.
- Select the number of tokens you wish to purchase and click “Buy”. Your new tokens will now appear in your wallet.
How to Trade Iota
IOTA has been criticised amongst investors for its centralized approach and as a result trading activity is limited with IOTA. Instead, investors use popular decentralized cryptocurrencies for trading, such as Ethereum (ETH) and Bitcoin (BTC).