IOTA and Tangle: The Next Evolutionary Stage for Blockchain and the IoT M2M Economy
Many things in the digital world 37 feel connected, and they all should. Devices are connected to many other devices. Our homes, cars, banks, businesses, schools, hospitals, municipalities — all connected, thanks to the Internet of Things (IoT). Even our behaviors are connected to how information is captured and used to refer back to us new information, all based on those behaviors. So, it should not seem alien to start thinking that ideas are all connected too, and as new ideas develop — especially in technology — they evolve from other ideas that barely have taken flight before the other emerges. That’s the case with blockchain and IOTA. In this case, an “iota of a difference” is, in fact, a very meaningful thing.
You’ve probably heard the term “blockchain,” especially of late (even though its inventor, Satoshi Nakamoto, developed it in 2008). Perhaps you even know what it means in relation to the cryptocurrency revolution. Essentially, a blockchain is a digital and decentralized ledger in which transactions made with Bitcoin or other cryptocurrencies are recorded chronologically and publicly, verified by “miners” to avoid duplications through a complex mathematical “proof-of-work” based algorithms. The beauty of Nakamoto’s design of blockchain for Bitcoin is that is solved the double-spending problem without the need for a centralized server.
That’s not just remarkable, it’s revolutionary.
The Blockchain Revolution
The great promise of blockchain was decentralization. It does not run using a standard database on just one computer. Instead, it is managed autonomously using a peer-to-peer network. Distributed processing nodes jointly run it collaboratively, and each node can hold a full copy of this special database. As a result, the database and its contents are more secure since it is near impossible to tamper with it without being found out by others in the network.
Even though it was created for use in tracking cryptocurrencies, think about the possibilities of other uses — any kind of record-tracking and storing of data. It can be used not only in FinTech for borrowing money or buying cryptocurrencies, but also smart contracts, voting, securing property rights in real estate, tracking shipments, managing a database of patient information for health care provider access, more secure shopping, and other potentially groundbreaking applications.
However, blockchain does have its limitations and problems — namely scalability and the transaction fees associated with it. So as it started to feel like it needed expansion, a new idea came about.
IOTA and Tangle
IOTA has gone beyond blockchain — one could argue it’s the next step in blockchain’s evolution. First and foremost, it’s scalable and feeless. Without the necessity for a distinct group of miners (who must be compensated), there aren’t the fees with IOTA that plague blockchain. This is part of what’s at the heart of the IoT-loving IOTA. The feeless system fosters exactly the kind of microtransaction environment friendly to the burgeoning machine-to-machine (M2M) economy — one arguably impossible or quite clunky with Bitcoin.
IOTA is also decentralized like blockchain, but in a more authentic, efficient and secure way. It’s the first open-source distributed ledger, thanks to the blockless Tangle — more a web of transactions than a linear block. Tangle works with a quantum-resistant Directed Acyclic Graph (DAG) and grows through its transactors, not the miners, so it bypasses blockchain’s current major challenge: its lean toward becoming centralized.
Rather than use the sequential chains of blocks in blockchain, the Tangle is a stream of individual transactions entangled together. To participate, one need only perform a bit of computational work which then verifies two previous transactions — a pay-it-forward system of validations. And the “more activity in ‘the Tangle,’ the faster transactions can be confirmed,” giving it another one-up on blockchain, which slows down as transactions increase.
Testbed for the IoT’s M2M economy
IOTA is the perfect fit for the emerging IoT’s M2M economy of scalable, fee-free, decentralization where data integrity and micropayments are highly prized. And that seems to be proving itself today.
The IOTA Foundation just announced it is now partnering with InnoEnergy, an innovation engine for sustainable energy across Europe, on a smart energy community which will showcase the first smart charging stations and will feature IOTA’s micropayment capabilities. This is a promising start for IOTA and a sure test for its efficacy in the IoT.
Nasdaq says of IOTA that it’s “one of the most prominent blockchain alternatives” and that the IoT “could benefit enormously from a network able to complete high volumes of minute transactions,” which opens up new economic possibilities.
With an IOTA node, machines gain the ability to transact with other machines, manage all economic transactions on their own, making them “economically independent.” And that’s exciting. Soon, a smart device could “pay its assembly, its maintenance, its energy and also for its liability insurance by giving data, computing power, storage or physical services to other machines.”
One day quite soon amidst those connections in the IoT, IOTA’s Tangle may well serve to completely reshape how all those things interact, what they can do to transform entire industries desperate for fast, efficient, trustless systems.