What is IOTA?

On July 11, 2016 - IOTAs main-network went live. The Current Price is right around $1 per Unit trading in Millions of units. It's been in use since 2015 and more than 1 billion dollars have been transferred using it. 

IOTA is a new distributed ledger technology designed to improve on the current blockchains used by coins like Bitcoin or Ether. The bread and butter of IOTA is the Tangle, which is IOTA's answer to the blockchain. On the Tangle, tokens can be transferred without any fees! This enables micropayments which opens us up to a world where fractions of a penny can be transferred freely, quickly, and securely.

Tangle’s distributed ledger technology functions similar to a blockchain in that it uses a P2P network and validation mechanism (so it doesn’t rely on a fixed central authority to maintain the ledger) but it has some very cool advantages over the typical blockchain. One of the main differences is that there is no longer a concept of “miners”, or a group of dedicated validators. Instead of achieving consensus through an expensive and rigorous mechanism, which ultimately leads to a degree of centralization (case and point Bitcoin), in IOTA each network participant is active in the consensus and the validation of transactions. When a device makes a transaction and broadcasts the transaction to the network, by protocol or “by default” it has to validate two previous transactions. Since you are validating transactions when you make a transaction, you don’t have to pay any transaction fees. In essence, you ARE the miner who helps validate the ledger. IOTA merges both the user and the validator into the same entity. Which is pretty awesome. 

Let’s talk about Scalability. Tangle provides an architecture in which transactions can be validated in parallel instead of being limited to sequential blocks being added to a chain.  This makes IOTA insanely scalable. And the cool thing is, the more the network grows, the more secure it becomes.
IOTA’s founders have a pretty cool vision for real world application, mostly involving the Internet of Things. 

The Internet of Things (IoT) is the inter-networking of machines and software that use network connectivity to enable these devices to collect and exchange data.

Let’s look at a case from the real world, taken from one of the founders of IOTA's blog. Let’s say you are a farmer in a poor developing country like Kenya. A drought can break your family and community. Because of this, Index-based rainfall insurance has emerged. Basically, Insurance providers and farmers have begun adopting an insurance model where the farmers get paid if there is not sufficient rain in a season to have a successful crop. This model relies on data from local IoT weather stations which decide whether or not a payout is due. This is very efficient because it gets rid of the expensive and error-prone human component. However because data is now the sole decider of whether money moves from Party A (insurance provider) to Party B (the insured) there is a direct incentive for both parties to alter the data in their favor. 

There are essentially 2 methods that can be used to falsify data. The first is to ‘censor the sensor’, or tamper with the device that is being used to collect the data. In our example, placing an umbrella over the sensor would falsify the data. The solution here, however, is pretty straightforward and effective, and that is to keep the location of the sensors secret and/or monitored. 

The other method of falsifying data is to tamper with it after it has been put into a central database. With the push of a few buttons an attacker can cause serious damage. 

Tangle  solves this issue through guaranteeing data integrity by storing the data in a distributed and trustless fashion among the nodes in the network. It is now publicly auditable because everyone in the connected cluster has a copy of it. This gets rid of the single point of failure. It is now impossible for someone to alter the original data without the rest of the network seeing that it is now incompatible with their copy. 

Like the blockchain, Data Integrity is ensured. And the main advantages over the blockchain are decentralization, scalability and no transaction fees.

There are tons of potential uses for IOTA: Imagine a car having its own wallet that automatically pays for the parking station, toll station or charging station, and automatically earns income by renting itself out. Or a computer sitting on your desk could be automatically selling hard drive space or processing power to other computers on the network. 

In the near future, we can expect that a machine will be able to automatically pay for its assembly, its maintenance, its energy and also for its liability insurance by giving data, computing power, storage or physical services to other machines. For the first time in history a device will be able to earn and spend money on its own, turning the machine into an entity that tracks revenue and expenditure from its own activities.