What is IOTA? | The cryptocurrency for machines


IOTA is one of the most exciting altcoins on the crypto market. From a technological point of view, the developers of IOTA have chosen a completely different approach to (almost) all other cryptocurrencies. IOTA is not based on a blockchain but uses the “Tangle” protocol. According to co-founder Dominik Schiener, it is like a blockchain but without blocks and without a chain.

It should serve as the backbone of the Internet of Things. We explain how this can work, what the team of IOTA is planning and what are the next steps.

The basic idea of ​​IOTA

In order to understand the meaning and purpose, we have to make a difference: the Internet of Things is a huge field of innovation with a promising future. Everything is digitized. In the best case, the goal of the Internet of Things is machines communicating with other machines, without any human interaction and thus facilitating the everyday life of humans.

The refrigerator should automatically order items when it is empty. A car should not only be able to drive autonomously, but also book the parking garage ticket right away.

The company intends to add machine-to-machine (M2M) payment behind IOTA to this environment. That means the fridge also pays for the weekly shopping, or the car automatically pays for the parking garage. The IOTA token is the basis for fully automatic transactions.

This solves the problem that at present it is necessary to have a person who handles the payment between machines or an intermediary who translates between the different machine languages ​​and centrally checks the transaction and finally performs. On the one hand, this central instance needs to be trusted, on the other hand there is a central and potentially vulnerable vulnerability. This should be eliminated.

Why is IOTA better suited for this than Bitcoin, Ethereum & Co.?

At first, other digital/cryptocurrencies are just as suitable for this as IOTA. Payment between machines could also take place via Bitcoin, for example. According to the reasoning of the founders for IOTA, the decisive advantage is the scalability and transaction costs of the in-house cryptocurrency. The tangle protocol provides infinite scalability and does not require transaction costs.

Scalability is particularly important because estimates suggest that in the future, 50 billion machines could be mapped in the same network. Millions of transactions would have to be processed in real time. The scalability in the growing crypto-world is a general and central problem. For example, Bitcoin currently only manages 8 transactions per second. Ethereum plans to realize 1 million transactions per second through an update. With 50 billion machines, even that is not enough. IOTA seems to be using the better protocol here with Tangle.

In addition, micro-payments (eg a parking ticket) must be carried out without considerable effort, meaning additional costs for a transaction. Again, this represents a unique selling proposition of IOTA (at least currently compared to the other major Altcoins). At IOTA, no transaction costs are required.

Free Transactions – How Does It Work?

The IOTA consensus process relies neither on mining nor staking. There is no “effort”, such as mining, where expensive technology and high power are consumed, or staking where the effort is to buy or to own (to validate). Each network member making a transaction must automatically confirm two more transactions. Due to the omission of miners and stakers, there is no need for rewards and therefore no transaction costs.

The aim of the company is to become the central protocol of the “machine economy”. For this purpose, not only money can be sent via the Tangle protocol, but also data. Among other things, the protocol should also be compatible with Ethereum and Bitcoin (in planning).

The Tangle Protocol

Every user is forced to validate two other transactions each time they make a new transaction. To make this confirmation, the node of each user must perform a simple proof of work. Although this sounds very similar to the proof of work of Bitcoin, technically there is a big difference. IOTA’s Proof of Work is realized through the IT technical “hashash” method and has the meaning of Sybill attacks, to prevent attacks by false identities, which are intended to influence majority voting, slow down the network, or intercept peer communication. In addition, each participant in the IOTA network participates in the consensus process.

A random algorithm determines which transactions one must validate. Now you might come up with the question: Can it happen that you have to validate your own other transaction? The answer: Theoretically yes, but this requires a lot of randomness or very high computing power.

The special thing about Tangle is that transactions are processed in parallel. A blockchain is sequential, blocks can only be added one after the other. In contrast, Tangle is based on a Directed Acyclic Graph (DAG), which allows for concurrency and validation of multiple transactions simultaneously. As the network grows, the overall system becomes more secure and faster.

The token IOTA

All IOTA tokens that will ever exist were generated in the Genesis block. This number will never change. The total number is about 2.7 quadrillion. Unlike other coins, an IOTA coin is not divisible, and cannot have decimal numbers. You can see the IOTA price here. We also have a guide on how to buy IOTA.

The company

IOTA was founded by David Sønstebø, Sergey Ivancheglo, Dominik Schiener, and Dr. med. Serguei Popov in 2015. The original idea for the project goes back to Norwegian David Sønstebø, who developed microprocessors with his startup and discovered that it takes a Machine2Machine payment system to implement his ideas. While Sergey Ivancheglo and Dominik Schiener were programming, Dr. (mathematics) Serguei Popov, responsible for the mathematical foundations of Tangle.

The ICO held in December 2015 sold all tokens. A total of 1337 Bitcoins were collected, most of which flowed into the IOTA Foundation and serve the further development of IOTA. The Foundation is based in Berlin.


In our opinion, IOTA is definitely one of the most interesting cryptocurrencies in the future when it comes to innovative projects with applications in the “real” world.

The Internet of Things will increasingly become public in the future and become part of public life. If IOTA succeeds in becoming the backbone of Internet of Things transactions, then IOTA could face a great future. Areas such as smart cities, supply chain and mobility could be an important area of ​​application. Whether and to what extent IOTA can prevail remains to be seen.

IOTA is still at the beginning. The roadmap is long. Somoe features to be added are:

  • Smart Contracts
  • other programming languages ​​such as Python and Java
  • “Permanodes” for storing all snapshots
  • Masked Authenticated Messaging (MAM) to encrypt sensitive data on the Tangle

What do you think about IOTA or the Internet of Things? We would appreciate your opinion in the comments.


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