What is IOTA?
According to IOTA’s official website, it is a revolutionary new transactional settlement and data transfer layer for the Internet of Things. It’s based on a new distributed ledger, the Tangle, which overcomes the inefficiencies of current Blockchain designs and introduces a new way of reaching consensus in a decentralised peer-to-peer system. For the first time ever, through IOTA people can transfer money without any fees. This means that even infinitesimally small nano-payments can be made through IOTA.
IOTA is the missing puzzle piece for the Machine Economy to fully emerge and reach its desired potential. We envision IOTA to be the public, permissionless backbone for the Internet of Things that enables true interoperability between all devices.
But what is IOTA exactly?
IOTA solves many of the problems other cryptocurrencies face. This is because it’s not based on a blockchain but rather on a directed acyclic graph (DAG), referred to as the Tangle.
The result? All transactions are free. You don’t have to pay a single cent when using IOTA, whereas sending someone a Bitcoin can cost a few bucks these days. And the transaction fee associated with Bitcoin increases as more people use the cryptocurrency. Not so with IOTA, which will stay free regardless of how popular it may become.
How is IOTA different from Blockchain?
When it comes to comparing IOTA (or more specifically, the Tangle) with Blockchain, there are many differences as they are two completely distinct architectures built on the same principles. For those interested in a comprehensive comparison of Tangle vs. Blockchain, you can expect a detailed blog post from us soon. For this FAQ, I want to emphasise on two of the main differences of Tangle and Blockchain.
1. Data Structure
Instead of being structured as a sequential chain where blocks are added in regular intervals, the Tangle is based on a DAG (Directed Acyclic Graph). Through this, IOTA is able to achieve high transaction throughput (by parallelizing validation) and no transaction fees on transactions. As the Tangle grows and more participants make transactions, the overall system becomes more secure and faster, with confirmation times / transaction finality going down.
The way consensus is achieved in a Blockchain is through a very rigorous mechanism, that requires multiple parties to “race” against each other in an attempt to add the next Block to the Blockchain and get the block reward / transaction fees. Because of this, consensus is decoupled from transaction generation and is largely performed by a smaller subset of the network, oftentimes with a high entry barrier (as is the case in Bitcoin) which leads to further centralisation.
In IOTA, every participant in the network making a transaction also actively participates in the consensus. More concretely, you are referencing two transactions directly (branch and trunk transactions) and other transactions in the sub-tangle indirectly. Through this, validation is parallelized and the network stay completely decentralised, with no miners to delegate trust to or having to pay a transaction fee.
What can you do with IOTA?
IOTA currently does two things really well: transactional settlement (especially micro-payments) and data integrity. Through these two features you can derive most use cases that make sense and are most of the time, only possible with IOTA. More features (such as Oracles, Smart Contracts, etc.) are on our roadmap and will be added in the near future.
The main focus of IOTA is the Internet of Things, with machines paying each other for resources, services or access. This includes smart cities, smart grids, infrastructure, supply chain etc. where IOTA makes certain use cases possible. On this blog you will continue to find more concrete examples of what you can do with IOTA. Look out for a tutorial in your preferred programming language, or even write one yourself.
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