What is IOTA?
No fees, quick transaction, and an alternative to the blockchain
The Internet of Things (IoT)
More and more, our appliances and machines aren’t just dumb things. They contain sensors, software, and network connectivity, all so that they can anticipate and respond to our needs. This “Internet of Things” is growing rapidly – experts estimate that by 2020 it will contain 30 billion objects, with a global market worth $7.1 trillion dollars. Increasingly, there’s a need for these objects to be able to talk to, and send payment to, each other, instead of just phoning home.
Bitcoin’s blockchain was an amazing step forward, but it isn’t the right solution for machines that need to communicate and send value, instantly. And Bitcoin’s transaction fees, which incentivize miners to secure the blockchain, are infeasible when machines want to send micro-transactions to each other.
A New Approach
The IOTA cryptocurrency does away with the blockchain, and mining, in favor of a Directed Acyclic Graph (DAG), which IOTA calls the Tangle, pictured below.
Before a new transaction can be sent, the node has to first perform a quick proof-of-work calculation to verify two previous transactions on the network. If the node cannot verify the previous transaction because it is invalid, the transaction is ignored by the network. In this way, every node contributes to the health of the network, and the more transactions that are sent, the faster transactions get verified.
Because mining isn’t necessary, there are no fees to send a transaction using IOTA.
Ternary Math and Quantum Computers
IOTA started life as a project related to the JINN processor by the Triangle company. There’s very little information on either JINN or Triangle available online, but apparently, it was an attempt to create a processor capable of dealing with cryptography in a post-quantum computer world. It’s believed that a true quantum computer (still mostly theoretical) would be capable of quickly cracking most cryptography available today.
IOTA is designed using the ternary number system (-1, 0, and 1), as opposed to the binary math (0 and 1) used by computers today. In order to achieve the use of ternary numbers, the IOTA developers were forced to create their own cryptography algorithms – an approach generally frowned upon by security experts. And those experts were proved correct when researchers at MIT & Boston University disclosed a vulnerability in IOTA’s cryptography. The issue was fixed and no funds were stolen, but, at best, it illustrates the huge undertaking the IOTA developers have in front of them.
However, assuming the IOTA developers are right and their system does protect IOTA in a post-quantum computer world, that may give IOTA a huge advantage if and when quantum computers become available.
Because of the way the IOTA tangle works, the larger the network, the more secure it is. Since it’s still early days for IOTA, the network is processing about 12,000 transactions per hour (versus over 40,000 per hour by Ethereum, for instance). An IOTA dev stated that a malicious actor could influence the network if they could control 1/3rd of the hashrate, which is certainly possible today if you have a large enough server farm.
To prevent this, the IOTA foundation is currently running a special node called the Coordinator. The Coordinator issues special transactions called Milestones which provide secure checkpoints for the network. Until the Coordinator is removed, IOTA is a very centralized cryptocurrency.
Additionally, many users have reported long delays when trying to send IOTA. This is apparently because there is a lack of full IOTA nodes on the network, which Bitcoin, and other blockchain cryptocurrencies, avoid because they incentivize miners to run full nodes so they can collect transaction fees. IOTA will need major growth in adoption to overcome this problem.
Potentially revolutionary, but unproven technology, with an immature and centralized network. Time will tell if the tangle is the following the right path or a dead end.
How to Buy IOTA
Unfortunately, IOTA isn’t as easy to purchase as Bitcoin. You can’t buy IOTA with a credit card, so you’ll have to use one of the cryptocurrency exchanges to buy IOTA using Bitcoin.
Buy Bitcoin at Coinbase
To start, if you haven’t already, head over to Coinbase and sign up. Coinbase will let you use a credit card to buy bitcoin, which is what you’ll be using to purchase IOTA.
Sell Bitcoin for IOTA at Binance
After you’ve purchased Bitcoin, you’ll need to sign up for a cryptocurrency exchange – we recommend Binance. It’s fairly easy to use, has good uptime, and is responsive to customer issues. After you’ve signed up, you’ll send the Bitcoin from Coinbase to Binance. Head to the Binance deposit page, find BTC in the list and click on the Deposit button to get your deposit address. Put that address into the field on Coinbase that lets you send Bitcoin.
After your deposit arrives on Binance, you’ll be able to head to the Binance IOTA/BTC market where you can Buy IOTA using the Bitcoin you deposited.