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What is IOTA?

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What is IOTA?

IOTA is a cryptocurrency designed for the IOTA ledger of the same name. This ledger was conceived with the aim of operating the ‘Internet of Things’ (IoT) – a seamless network of communication between machines and systems. Important point: the IOTA ledger is not a blockchain, simply because the technology does not use blocks for transaction validation.

IOTA uses a completely different consensus process to process transactions. Well thought out in itself, but as a result the security of the validation is a problem, so a central node from the IOTA Foundation must ensure that every transaction is valid. This is suspiciously reminiscent of a bank or other centralized transaction network. That’s right: we can safely say that IOTA is a centrally controlled system. That’s not a disaster, but it does go against the fundamentals of cryptocurrencies. Incidentally, the transverse approach of the IOTA project can be seen in more ways than one – we will come back to that later.

Although the technology is different, trading IOTA works the same as all other cryptocurrencies. The token has been in the top 50 of largest cryptocurrencies for a number of years, and for a while it even belonged to the top 20. In 2017, it peaked in market capital of almost $15 billion. Also relevant: 100% of the tokens on the network are now in circulation.

The technique

IOTA is an outsider in the world of cryptocurrencies. Although it is a ‘distributed ledger’, and transaction decision-making is therefore decentralized, the network is not a blockchain. Instead of a chain that is extended with blocks full of recent transactions, IOTA transactions are not linearly linked.

The network works with the so-called Tangle protocol – a completely different technology that enables decentralized validation of transactions. We’ll spare you the theoretical details, but Tangle works on the basis of the DAG concept, which stands for ‘directed acyclic graph’. In mathematics, DAG is a model in which nodes relate to each other in a way that is not linearly ordered. To put it more simply: the order of succession in a chain is not (easy) to predict or influence. This is useful if you want to build a cryptocurrency network, but then it has to work in practice. At IOTA, the latter turned out to cause some problems. The problem is as follows:

To run a transaction network 24/7, you need an absolute majority of at least 51% well-meaning, active network participants at all times. With Bitcoin, for example, this is done by rewarding miners with a block reward, and with Ethereum this is done by paying nodes a staking fee for their availability. There is no such mechanism on the IOTA network, so it cannot be assumed that the 51% is always guaranteed. For that reason it is necessary that there is a central node (called ‘the coordinator’) that validates every transaction. That coordinator is, of course, under the supervision of the IOTA Foundation to ensure that everything really goes well. Not particularly useful if you want to become the network for the IoT…

In practice, the validation process on the IOTA chain works as follows: for every transaction you submit on the network, you must validate two previous transactions as a node. This means that every node that participates in the network has the same opportunity to approve or reject a transaction. This entails the aforementioned risks. On the plus side, transaction fees do not exist on the IOTA network, as no one has to be paid for mining efforts, for example.


Who is the creator of IOTA?

IOTA has four founders: Serguei Popov, Sergey Ivancheglo, David Sønstebø and Dominik Schiener. A motley crew of nationalities and backgrounds: Schiener is an Italian who lives partly in Berlin, Sønstebø is a Norwegian, and Popov studied in Russia and now teaches in Brazil. Oh, and Ivancheglo is described in an introduction to its own site with the following words: “The multimillionaire currently lives with his wife in the Belarusian capital Minsk.” Well organized, yo!

Popov was the one who provided the whitepaper for IOTA after he became interested in the technology behind Bitcoin in 2013. He met the other founders online. As a foursome, they built a successful crypto project together, while they were almost never all in one room at the same time. Hats off!

Naturally, the team grew quite a bit after the project got off the ground. In the bull run of 2017, IOTA grew to a total market capital of almost 15 billion dollars. During that period, the team grew to more than a hundred people. Another interesting and unique choice: the IOTA Foundation is completely non-profit. As a company, they are certainly not out to get rich from their attempt to turn the crypto world upside down. However, there is a good chance that the four founders have set aside a nice stock of IOTA tokens for themselves. Rightly so.

The USP of IOTA

As mentioned, IOTA was created to handle the countless transactions on the future IoT. In theory, the network is infinitely scalable due to the architecture, and there are no transaction costs. This would allow microtransactions between all machines that need to exchange information and value. In that sense, the project is way ahead of its time, because the Internet of Things is still fairly in its infancy.

As mentioned, the IOTA network is not yet very reliable in itself, precisely because the architects were looking for such a completely different approach for the ledger. To this end, several changes will be made to the code in 2021. We’ll see how that all works out for network security without a coordinator node.

Another thing where IOTA differs from other cryptocurrencies: the currency’s units are counted the wrong way. That may sound confusing, but it is simply not simpler. An attempt to make it clear:

2,779,530,283,277,761 (this is called 2.8 quadrillion) IOTA tokens were created. Because this bizarre number is so difficult to calculate, IOTA is traded per million units, which is then called a megaIOTA. If you buy 1 MIOTA on an exchange, you are actually buying a million IOTA. With that, the total supply is actually just 2,779,530 tokens. Confusing? Correct. Why the inventors thought this was a useful plan can be guessed. Be that as it may, if you want to understand this inverse concept, consider what it would be like if Bitcoins were denominated in Satoshi units.


Where can you buy IOTA?

Buying is the only way to add IOTA to your portfolio. 100% of the tokens are now in circulation, so unfortunately there is no other option. Your exchange of choice probably also offers IOTA, and if not, you can find one that does. In addition to this token, you can trade more than 50 other cryptocurrencies on Bitvavo. Via the button below you can create an account and your first €1000 in transactions are free!

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