What is IOTA Cryptocurrency?
An In Depth Review of IoT Coins in 2018
Cryptocurrency is on the rise these days. At the start of December 2017, IOTA had its price increase by over 500% in just 2 weeks.
Even in the cryptocurrency world where huge surges and drops in price are common, sudden and astronomical rise is impressive.
The massive increase in value isn’t the only reason this virtual currency has received a lot of attention lately. It uses a technology that is very different from the blockchain most of the popular cryptocurrencies like Ecoin and Etherium use.
This unique technology means it doesn’t have the scalability issues blockchain currencies are currently facing.
With the ability to scale, many people are thinking IOTA could be the cryptocurrency of the future. Of course, it is still too early to tell but learning how it works can to decide if it is a worthy investment. Here’s more information about it.
What Is IOTA and How Does it Work?
The four founders, David Sønstebø, Sergey Ivancheglo, Dominik Schiener, and Dr. Serguei Popov, started IOTA in 2015 with a maximum supply of 2,779,530,283,277,761.
The crypto coin is maintained by the IOTA Foundation, which is a German nonprofit led by all four founders.
They created this cryptocurrency as a solution to the limitations currencies like Bitcoin and Etherium have.
The search for a solution to blockchain currencies led to the creation of Tangle, which uses a different approach for trading. Tangle uses a unique trading architecture called Directed Acyclic Graph (DAG).
DAG overcomes some of the shortcomings of Blockchain. Using it means there are no separate users and miners like there are for blockchain currencies.
Every time a user wants to send a transaction, they need to validate two previous transactions. This unique architecture means IOTA has two key benefits that allow it to be infinitely scalable:
- 1The more transactions that use Tangle, the faster the transactions.
- 2There are no transaction fees.
These features allow this virtual currency to be used in ways blockchain can not.The most notable case is for Internet of Things (IoT) devices that need to receive and transmit high volumes of data.
Another advantage is this cryptocurrency is quantum secure, another feature Bitcoin lacks. Here’s a closer look at what that means.
How Exactly Does The IoT Coin Work?
When a cryptocurrency is quantum proof, the public address key algorithm can’t be broken using quantum computing. This feature comes with an important caveat:
You can only use an address key once.
The downside to having keys that cannot be broken by quantum computing is half the key is revealed during a transaction.
It’s not an issue if you only use an address for one transaction. But if you use it multiple times, you risk losing the funds in your wallet.
It’s important to note your account (called a seed) can be used multiple times, you just can’t use the addresses more than once.
Most electronic IOTA wallets have features that prevent you from making this mistake. However, some people without wallets may unknowingly put their transactions at risk by reusing addresses.
Just like a few other cryptocurrencies, IOTA has developed its own off-chanel method for fast transactions called Flash Channels. These channels allow different entities to instantaneously transfer the cryptocurrency back and forth as many times as they want.
Flash Channels work in a very similar manner to Bitcoin’s Lightning Network. While the Flash Channels and quantum proof aspects are important, what determines the long-term viability of this cryptocurrency is the Tangle ledger system.
Tangle validates transactions well and could be the platform that takes the recent IoT boom to greater heights.
The micro-fees and payment processing times with blockchain currencies like Bitcoin are only going to worsen as they scale. This is where IOTA differentiates and seeks to capitalize on this Bitcoin drawback since it has none of those same issues at scale.
While IOTA’s central technology is about as different from Blockchain as it could be, it does have several similarities. Here’s more information on one of those similarities.
How Do You Store IOTA Coins?
Just like Bitcoin and other Blockchain currencies, IOTA can be stored on an exchange or in a wallet.
You access the cryptocurrency through a seed, which generates the private keys that allow transactions. If someone gains access to your unique seed, then they have access to your account.
Most people only store their seeds on the exchanges and don’t keep large amounts of the coin for security reasons. That’s why most people get a wallet to store their currency - because it’s safer.
Some of the most commonly used wallets are GUI and Mainnet. Storing this virtual currency is similar to other currencies, but not exactly the same. Let’s take a closer look at the key difference.
Can You Mine These Coins?
Unlike Bitcoin and other popular blockchain currencies, IOTA can not be mined. The amount was set by its creators at 2,779,530,283,277,761 and it will remain at that number.
With blockchain currencies, there are separate groups of users and miners. Tangle changes this feature, making the users and miners of this cryptocurrency the same thing.
For every transaction you send, you must verify two other transactions so you don’t get the block benefits miners of blockchain currencies get.
n short, mining is not possible with this virtual coin but you can definitely purchase it. Here’s more on how you can get this virtual currency.
How To Buy IOTA Cryptocurrency Coins:
Just like other cryptocurrencies, this one is purchased on an exchange.
Binance and Bitfinex are currently the two exchanges where you can purchase IOTA.
Despite having two options, this guide recommends you only use Binance because Bitfinex crashes on occasion and does not have 100% server uptime like Binance does.
To buy this cryptocurrency, register on the Binance exchange. Once you register, you will need to buy Bitcoins or Etherium and trade them for IOTA.
Keep in mind this won’t happen as fast as a regular purchase because you are dealing with the Binance exchange for the initial purchase and not Tangle.
You’ve heard some of the great things about this virtual currency, but it isn’t a perfect solution yet. Here are some red flags you should know about.
Here’s What You Really Need To Know About IOTA Before You Invest:
IOTA has a very promising future but it has some problems you need to be aware about before you consider investing.
The first issue was revealed with the Curl vulnerability. An MIT team found a weak spot that allowed them to forge signatures on virtual payments.
This on its own is not a big problem as the issue was quickly fixed. The real problem comes from one of the co-founders’ statements that this flaw was deliberately put in their code to prevent people from copying it.
Putting flaws in software to prevent copycats is common in the tech industry but it drastically undermines the security of this virtual currency. People are using their hard-earned money on their platform so putting a flaw in the system can be risky.
Another concern is with the development team. During the launch of this virtual currency’s Data Marketplace project, a third-party publisher claimed Microsoft was partnered with the foundation.
In reality, IOTA was just a customer of Microsoft and used their Azure platform to host the project.
The team didn’t comment on this and during the controversial time, their price increased from $1 to $5.
Once a new article came out disputing the claim, IOTA finally commented to confirm there was no partnership. It seems the foundation was content with letting erroneous claims benefit them, which could indicate unsavory behavior.
One last issue stems from this virtual currency’s use of a ternary numeral system. Unlike Binarys 1’s and 0’s, Ternary has 0, 1 and -1.
The problem with using a different numeral system is nearly all modern hardware uses binary. To translate IOTA’s ternary into binary requires excess computing and storage - which could become a problem in the future.
If the platform continues to function without any performance issues, then this won’t be a problem.
While these may seem like serious issues, so far it’s nothing that has seriously derailed IOTA’s viability yet.
Let’s Review: Should You Invest in IOTA?
All of the growing pains aside, this virtual crypto coin has the potential to be the cryptocurrency of the future.
It’s impressive technically and can scale in ways blockchain currencies can not, addressing the main problem with popular cryptocurrencies like Bitcoin.
Bitcoin users are seeing the fees and transaction times skyrocket, meaning they may start to look at other currencies like IOTA.
The problems with Bitcoin coincide with the rise of IoT and the need for a secure marketplace with quick transactions and little or no fees. IoT transactions are going to increase as businesses continue to find ways to use them more.
IOTA could be the platform to fill that need or at least stand as one of the top competitors. That being said, nobody can predict the future, especially one with a rapidly changing playing field for cryptocurrencies.
It’s also important to note companies are investing a lot of money in training their employees on blockchain technology. The switch away from blockchains is not going to happen over night.
This particular virtual currency also has a few milestones to hit before many will consider it as a worthy investment.
The most important issue they need to address is the need to decentralize the platform. Still in its early stages, the platform requires a special node to verify all transactions called the Coordinator.
This verification process prevents a security weakness from becoming disastrous and is present because the system is designed to have no miners. The problem happens because use of the system is low.
Once use of the system increases, the founders can remove the Coordinator and the system will become completely decentralized - making it more favorable among experts.
Despite its flaws, the technology and use cases of IOTA are impressive. If it can get past the current growing pains, it could become one of the key cryptocurrencies of the future.
The content of this post is for educational purposes only. Please do your own research and consult a financial professional before making any investment decisions.