IOTA

IOTA wants to enable communication between machines without human involvement.

The goal is to become part of the infrastructure of the emerging Internet of Things.

The Internet of Things is one of the big trends in the IT world. More and more devices in our environment are becoming smart and are connected to the Internet. In addition, there is increasing automation in many areas.

Smart devices are increasingly communicating with each other. They thus form the so-called Internet of Things (IoT). The aim is to collect data from the real world and automatically process the information obtained and link it with other functions.

Possible examples are:

  • Sensors in the house that regulate the heating at a certain temperature
  • A refrigerator which, when the minimum stock level of a certain product is reached, automatically reorders the product.
  • Intelligent parking through communication with already parked cars
  • Trading of electricity between private households in a so-called Microgrid.

The idea

This is exactly where IOTA comes in. Currently, there are “middlemen” everywhere behind these applications as control instances and enable communication between the devices. Centralized checks are carried out to ensure that the applications are running correctly and that there is no misuse. All parties involved must trust a single middleman. There is a so-called Single Point Of Failure.

As soon as the control authority has a problem or defect, the entire system is paralyzed and inoperative. This is where IOTA comes into play. Because IOTA helps to organize these machines decentrally, with the help of a modified form of the blockchain. As with other blockchain projects, the approach is to replace the centralized system with a decentralized consensus check.

Why a normal blockchain would quickly reach its limits

At the IoT there are many small interactions between the individual devices. As a result, a large number of transactions have to be processed in a short time. The previously developed and established consensus systems of blockchain technology are ailing precisely at this requirement. The two major problem areas are scaling and transaction fees.

Scaling describes the possibility to grow and to meet the growing number of participants. This is important in order to make certain use cases suitable for the mass market. Bitcoin as a pioneer of the blockchain already reaches its limits at this point. With ‘only’ 4 transactions per second, this often caused a bottleneck in the network (backlog) of several hundred thousand transactions.

As a comparison, Visa and Mastercard work perfectly with their central systems in the range of 4000 transactions per second. The IoT even beats this number by lengths and continues to grow with the development of many smart terminals.

In addition to a high transaction capacity, the transaction fee also plays an important role. A transaction fee, as known from previous blockchain models, has a greater effect here. If one assumes that very small transactions of up to 1 token are carried out in the IoT, a transaction fee amounting to a single token, which is the smallest possible unit, has the effect of a surcharge of 100%.

IOTA focuses on a further development of the blockchain technology, the so-called Tangle. This is a new architecture of the blockchain, known as “Direct Acycle Graph” or DAG for short. This does not require a miner or blockchain in the conventional sense. The new components are only the transactions. There are no more single blocks. Each transaction must first validate two other transactions to cover its network costs. This means you don’t have to pay any fees.

The separation of Miner and User in is thus abolished. Anyone who wants to carry out a transaction via the tangle must at the same time help to ensure that other transactions in the network are checked. In the course of time, a transaction is indirectly checked by many subsequent transactions and linked to them. This means that, in contrast to the known blockchains, the faster and more transactions are made over the network, the better and more secure the tangle works.

In addition, a so-called “snapshot” is taken regularly, in which the tangle is saved. The most recent part of this snapshot is used as the starting point. This should keep the size of the tangle small in order to not overload the memory of the connected devices.

Another feature of the IOTA tangle is that connected devices can disconnect from each other and carry out transactions offline and then connect to the network again later. This is interesting, for example, for supply chains between companies, some of which have to be handled internally.

flash channel

The concept of the ‘Lightning network’ was developed for Bitcoin to handle many transactions between two participants outside the blockchain and only record the final result on the blockchain. This should relieve the Bitcoin network to consolidate so many transactions into one. This concept is called ‘Flash Channel’ at IOTA. Even though IOTA has designed a blockchain with the tangle that does not have a scaling problem with an increasing number of transactions, this is an important step especially in the current phase.

For each transaction on the tangle a proof-of-work must always be performed and this requires a small amount of time. In a ‘Flash Channel’, on the other hand, any number of transactions can be executed directly and only the final result is recorded on the tangle. The concept is especially designed for applications where the IOTA tokens should only be exchanged between two parties.

Problems with ‘Curl

One of IOTA’s major concerns is to protect the Tangle against the enormous computing power of quantum computers. So far, these computers exist only in theory. But they would massively endanger the security of the blockchain. For this reason, the IOTA project has worked on its own quantum safe hash function called ‘Curl’ to better protect the tangle. This function was based on the well-known and modern ‘SHA-3’ hash function (‘Keccak’). However, a team of scientists from MIT and Boston University discovered and successfully exploited some vulnerabilities in ‘Curl’. Therefore IOTA decided to temporarily change the Tangle to the safe SHA-3 function.

The token

IOTA also has its own “coin”, the IOTA token. Unlike the known coins, this token is not divisible and has no decimal places. All 2.7 trillion tokens were sold to investors against Bitcoins.

With the help of the IOTA tokens, very small payments, so-called “micropayments”, can also be made via the network. However, transactions do not necessarily have to include a token. There are also empty transactions. A good example of this is when a smart meter for electricity sends the current consumption values via the tangle network every second.

Foundation & Community

IOTA can only function successfully if it is integrated and accepted as a central component in the architecture of the Internet of Things. Successful cooperation and coordination with the various industry sectors is therefore essential. For this purpose, IOTA has established a foundation that has been endowed with 5% of all IOTA tokens – exclusively from donations from the community. In addition, various Community Reward programs are carried out, such as the “Bug Bounty” program.

Roadmap

At IOTA there is still a lot on the To-Do list. For example, several programming languages like Python and Java are to be integrated to make it accessible to a larger circle of developers. In addition, the snapshots should be automated and the entire tangle, i.e. all snapshots together, should be permanently stored on so-called “permanentodes”. A real special feature is the development of Masked Authenticated Messaging (MAM), in which data streams are stored encrypted on the tangle. Only authorized users have access to it and can read it. This also allows sensitive data such as addresses, account numbers or health data to be managed via the Tangle network.

The Team

IOTA 2015 was founded by David Sønstebø, Sergey Ivancheglo, Dominik Schiener, and Dr. Serguei Popov. They have all been active in the crypto scene for some time and have been working with blockchain technology since 2010. The team is very active on Slack and Reddit.

Summary

IOTA is currently one of the most interesting projects in the crypto world. The idea of building the Internet of Things on a decentralized infrastructure is a promising vision. With the Tangle the scaling problems of the blockchain technology are solved and designed for the requirements of the IoT.

The more transactions are made, the better and more efficient the Tangle works and is therefore very well suited for communication between different devices. The elimination of miners also allows transactions to be carried out without charges. In addition to the tangle as the core, IOTA is developing further promising features that make the project interesting for a wide variety of industries and use cases.

What is IOTA?

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