IOTA (IOT) Review – Crypto Coin Judge
Over thousands of years, accounting has been a fundamental aspect of all advanced societies, and our modern human world is no different.
In 2008, with the advent of Bitcoin and the work shown in its white paper, the new revolution was born. By utilizing a distributed ledger, combined with cryptographic security measures, and a compensation system to encourage hash mining, cryptocurrency as we know it was born.
Bitcoin is not without flaws, however. When it was small and used by thousands of people, transactions were cheap or free, routinely costing pennies to send any amount, with transactions confirming immediately in the next block. With the growth of the user base, and the increasing complexity of the political situation regarding how to resolve this problem, Bitcoin fees have grown sky-high, with the cheapest transactions now being costlier than the oft-mentioned cup of coffee that a crypto coin user might want to purchase.
Many of the most important and exciting future use cases for Bitcoin, such as registry and data analytics, advanced accounting and smart contracts, are now all but impossible, as transactions have become too expensive. The Internet-of-Things has grown beyond the reach of Bitcoin or its similar off-shoots and competitors.
What is IOTA?
IOTA is a solution to these problems.
By removing the blockchain and developing a new kind of distributed ledger, IOTA is one of the most exciting and innovative solutions available to the users and doers of the crypto coin world. It will provide opportunities that other cryptocurrencies cannot by taking the next step towards the revolution started by Bitcoin.
The Problem with the Blockchain
The blockchain is an incredible innovation. It’s the first major advancement in accounting in perhaps thousands of years, since the debit/credit system came into use. But it has some problems which hamper the ability of the blockchain to solve difficult problems such as billions of transactions and incentives for use and mining that contribute to the strength of the ledger and its utility. It is slow, and energy intensive, with one linear chain storing all transactions.
The problem of mining is also capital intensive, and miners cannot always be trusted to be strong advocates for the blockchain they are mining, due to political reasons. The oft-proposed solution of using “sharding” or splitting transactions into groups so they can be managed and mined separately is one that resembles the system used by IOTA, but has not yet been used in a practical environment.
In many ways, almost all cryptocurrencies can be lumped into a single group: blockchain users. Many different systems of cryptography and mining have been developed, from ASIC resistant to high throughput to methods of sharding, but they all share the blockchain.
IOTA doesn’t try to overcome the problems inherent in the blockchain by just pushing its coding and design to the limit.
By changing the shape of the blockchain from a series of blocks into a web of competing, pushing nodes, it provides a new platform for high-throughput, censorship resistant transactions.
How is IOTA solving these problems?
Removing the Blockchain: the Tangle and the DAG
- Using the directed acyclic graph (DAG) – also called the tangle. It is a type of distributed ledger, performing the same basic function as a blockchain, but in a very different manner.
- Using nodes as with other cryptocurrencies, but with a key difference. IOTA has no miners, and the nodes provide the verification of transactions. However, the nodes do have an incentive structure, which makes them a sort of hybrid.
In the IOTA network, a transaction can only be sent from a node if other transactions are verified by that node first. This creates a system of nodes that are constantly reviewing and approving the transactions of other nodes, creating a decentralized system of accounting without relying on miners loading transactions into a block over a period of time.
This vastly increases throughput, and limits the cost of transactions to a negligible amount.
Iota Offers Added Security
Iota provides greater security to transactions. This massive network of nodes uses the history of transactions from other nodes to confirm that the transaction is valid. As a transaction travels through the nodes successfully, it increases in confidence and validity. It works like the blockchain. For example, in the blockchain, a transaction is placed into the block, which is then “buried” as other blocks are mined on top of the one with the transaction.
How does IOTA’s system of nodes work?
IOTA transactions are similarly secured as they travel through nodes, with each successive jump to a new node recorded in the tangle, and ensuring that the transaction is both valid and secure. For many blockchain savvy users, knowing that their transaction is being kept safe by a history of transactions will be reassuring.
In most ways IOTA is similar to other cryptocurrencies and the confirmation process for transactions confirms this.
- When a transaction is received, a node first validates that this transaction is not conflicting with two other transactions in the tangle. If the transaction is not valid, then the transaction is not passed on by this node.
- If it is valid, then the node solves a cryptographic problem similar to a mining hash like the kind used by other cryptocurrencies. This hash allows the transaction to be secured and linked to this node, so when it is passed on to other nodes, it can be easily and securely verified.
Why the nodes are essential to IOTA’s security and speed of transaction
The system of nodes is essential to verifying transactions. They are often working apart rather than together on specific transactions.
- By splitting transactions and handing them to nodes for verification, IOTA increases throughput. As the number of nodes increases, the throughput increases as well. Therefore, the network itself scales as the number of users scales, without a compromise in transaction speed, and without the need for an increase in fees, as miners are not involved in the process.
- Each transaction can be reviewed a significant number of times, and as it flows through the tangle, it will continue to pick up confirmations. In this way, its path reflects the path of a transaction in the blockchain, allowing users to transact with absolute certainty about the validity of their transactions.
Speeding up Transactions
All transactions are not equal in the tangle.
- By giving transactions separate values in the tangle, the IOTA network is designed to ensure transactions are processed in a logical and useful manner. The more productive a node is, the more weight it gives to transactions that pass through it. Additionally, the more approvals that a transaction receives, the more weight it carries.
- This means that valid transactions will receive more attention from nodes than invalid ones, as the valid transaction will accelerate through the tangle while the invalid one evaluated more slowly. Additionally, as a transaction is approved with other approved transactions in its history, it gains some of the weight of those transactions. The more valid transactions in contact with each other while being validated by nodes, the more they will be pushed through the tangle.
Strengthening the Network with Smart Nodes
The weighting of transactions is important because it is not only a tool to manage throughput, but also for the purpose of defending the IOTA network from spam attacks or other attacks related to abuse of throughput mechanisms. One of the concerns for an equal weight system is that it can be easily manipulated by spamming transactions.
- IOTA focuses on valid transactions thereby limiting the ability of nodes to process transactions in a specific framework, to maintain security and prevent the abuse of its significant throughput capabilities.
Having a strong and well-designed algorithm is critical to maintaining order and usability in the tangle, and IOTA does exactly that.
Protecting Against Attacks: The Double-Spend Attack
There is an additional system at work that is helping to secure the IOTA tangle: the tip system. An unapproved transaction is called a tip.
An attacker may attempt to create a double spending situation by developing their own network of nodes and transactions separate from the rest of the network, and then “dump” their chain ahead of their initial spend.
By making a legitimate transaction, and then sending their own secret work ahead of that transaction, they could cut off and remove a seemingly legitimate transaction. However, the central tangle has a significant advantage over a high-powered system of nodes: it will have more tips.
However, when the nodes of the broader network are considering which transactions to validate, they will not just prefer greater weight, but also more tips. The long chain of the main network will have more transactions going, with more tips, and more history than the attackers’ protected chain.
When the attacker attempts to put himself into the main chain ahead of his legitimate transaction, he will not simply be weighed in comparison to that transaction, but the previous tips will also be considered. His small chain will be rejected compared to the longer and broader chain, even if it temporarily is outweighed by his attack.
Protection against Quantum Computing
One of the most important future developments for cryptocurrencies is the potential of quantum computing. While it is not currently considered to be feasible and has not been practically developed, many experts and scientists in the field consider the potential development of practical quantum computing to be a situation of when rather than if.
How does IOTA defend against quantum computing, versus, say, Bitcoin?
1 – By being lightweight in its system of transactions.
The key advantage for a quantum computer is its potential ability to solve hashes. This would make Bitcoin miners useless in comparison.
2 – IOTA is relatively well protected because it relies on hashing only for signing verification and not for weighting or sending the transactions themselves.
Because of the nature of the network and its design, quantum computers could potentially be disruptive in this part of the process, but the broader IOTA network retains significant defenses over other mining-centric cryptocurrency networks and transaction systems.
IOTA overcomes political risks
Unlike other coins as RaiBlocks, Ripple, SALT and more, IOTA overcomes the political risks and ulterior motives of mining conglomerates and the risks of attack that come from such foes by removing mining from the equation. By relying on an advanced method of weighting, it can help to process legitimate transactions quickly and safely, while thwarting double-spending attacks and reducing other network related risks.
There are many options for investors and users to choose from in the cryptocurrency space. However, once a user starts listing their requirements, the list starts a shrink. If you want a network that has no fees, strong censorship resistance, quick confirmations, and scalable throughput, your options are truly limited.
IOTA naturally has all of these qualities, and those are just the most obvious use cases. For linking the disparate uses of the blockchain together, ones that have become unrealistic with the reality of high fees and confirmation times, IOTA stands alone.
IOTA is truly the next step in the development of blockchain technology and cryptocurrency.