What is IOTA?

The way the project IOTA describes itself is as follows:

IOTA 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 decentralized peer-to-peer system.

To understand what IOTA is, it is vital to understand the Internet of Things (IoT). Research firm Gartner expects that 20.4 billion devices will be connected to the internet in 2020. Each machine will be connected and will be sharing data and information with each other. This is called the Internet of Things. Some of these devices will not only be exchanging data but will also be processing payments. This is where IOTA comes in.

The goal of IOTA is to become the standard of conducting on devices connected to the internet. The founders describe it as a backbone for the IoT. Furthermore, they claim that IOTA solves the problems with which many other cryptocurrencies have been plagued. These include scalability and mining centralization. The solution IOTA provides is found in the data architecture it utilizes. While most cryptocurrencies make use of the Distributed Ledger Technology (DLT) called blockchain, IOTA applies a different type of Distributed Ledger Technology named Directed Acyclic Graph (DAG). The DAG of IOTA is called Tangle.

What is Tangle?

In contrast with blockchains, the Tangle does not consist of transactions grouped together in blocks which are then stored in a single chain. Instead, the individual transactions are entangled together.

To participate in the network, you perform a small amount of computational work and verify two previous transactions. So, to conduct a transaction on the Tangle you are only required to verify two past transactions, the incentive to do is that your transaction will get validated accordingly. This system of validation results in a network where transactions are free of cost. The fact that transactions are free of charges makes IOTA very suited for the IoT as the transactions performed by devices are often micro amounts.

The structure also enables better scalability. More activity means faster confirmations of transactions.

Who founded IOTA?

IOTA was founded in 2015 by Sergey Ivancheglo, Serguei Popov, David Sønstebø and Dominik Schiener. The project was first announced on an online bitcoin forum and was a result of a previous project called Jinn. The purpose of Jinn was to develop low-cost and energy-efficient hardware processors for the Internet of Things. A token sale was held but found itself under pressure as it was marketed as a profit-sharing token which would make it a security. Later the token was rebranded to IOTA, and another token sale was held. This time the token was presented as a utility token.

IOTA vs other cryptocurrencies

IOTA differs from other cryptocurrencies in several ways. For example, there are no fees for conducting transactions on the IOTA network. Another difference is the implementation of DAG or Tangle instead of blockchain technology.

How can I use IOTA?

IOTA is a utility token. The purpose of the token is to be used in the IoT, which means that it is not necessarily meant for human use but preferably automatically by devices, which is why IOTA has been able to formulate partnerships with companies like Volkswagen, Bosch and Alliander. Each of those companies make extensive use of devices connected to the internet and see value in IOTA. As an individual, you are still able to use IOTA as an investment or for transferring value almost instantly and cross-border.

Can I earn money with IOTA?

Yes, you can make money with IOTA. Compared to early 2017, the value of IOTA has increased more than a hundredfold. However, IOTA has shown to be volatile. Large profits can be followed by large losses.

Trading any cryptocurrency always carries a degree of risk, just like trading with bonds or shares does.
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