IOTA Cryptocurrency & Non-Blockchain Technology Comprehensive Guid...

IOTA Cryptocurrency & Non-Blockchain Technology Comprehensive Guide

in Newbie, Altcoins

IOTA crypto money overview
IOTA stands for Internet of Things Application, and it’s a new crypto technology that facilitates transactions between devices on the Internet of Things (IoT). IOTA addresses the transaction fees and scalability issues of blockchain technologies by getting rid of the block and chain. Instead, in order to submit a transaction to the IOTA ledger, you must verify two other previous transactions. This method of verification means there’s no central ledger, and there’s no need for miners to power the network. As the devices on the network randomly verify each other’s transactions, they build consensus through the web of connections between transactions. In cryptography, this type of verification is known as Directed Acyclic Graph (DAG), but the creators of IOTA call it the Tangle. Since computing power in the Tangle grows as the network grows, IOTA is promising free, fast transactions. It’s also designed to process micro-payments and payments between machines, facilitating a whole machine-to-machine micro-economy. While IOTA makes big promises, the technology is still new, and it’s not without its detractors. In this article, we’ll look at how IOTA works, what it might be used for, some of the criticisms it’s facing, and whether you should invest in the token.
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IOTA Features
1. Zero Fees
In order to send an IOTA transaction, a user’s device must simply confirm two other transactions on the Tangle (the network). To confirm these two transactions, a device performs low difficulty “proof of work”, which is essentially just a series of math problems. These math problems can be done by almost any modern device including laptops and phones. The user and validator (miner, staker, etc.) are no longer decoupled entities in IOTA. This removes the need to waste large quantities of energy on mining or risk inevitable validation centralization. Perhaps more importantly, because the Tangle eliminates the requirement of miners/stakers/etc., newly minted units of currency and transaction fees do not need to be extracted from the system to pay validation fees. The result is that IOTA has zero fees.The proof of work in IOTA should not be compared to that used in traditional blockchains. IOTA’s proof of work is directly comparable to Hashcash, and it serves two purposes: To prevent spam and to prevent Sybil-attacks. The proof of work in IOTA can even be outsourced from small lightweight devices to something more able to handle the computational load.
  1. Infinitely Scalable
Since each transaction requires the sender to verify two other transactions on the Tangle, more transactions can be confirmed as the number of users sending them increases. This means that IOTA scales proportionally to the number of transactions ad infinitum. IOTA scalability is depicted in this graph.
IOTA Cryptocurrency
  1. Fast Transactions
Transaction times are inversely proportional to the number of transactions on the Tangle. The more transactions, the more quickly each transaction will be confirmed. As IOTA approaches a critical mass of adoption, transaction times will approach the network propagation time. 
IOTA cryptocurrency
  1. Fixed Money Supply
All of the IOTA that will ever exist were created in the genesis block. The amount will never increase or decrease. The total money supply of 2,779,530,283,277,761 is optimized for ternary computation and notation ease of use utilizing SI units. ((3^33-1)/2) = 2.779 x 10^15 
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  1. Quantum Proof
IOTA uses hash-based signatures instead of elliptic curve cryptography (ECC). Not only are hash-based signatures much faster than ECC, they also greatly simplify the signing and verification process and reduce overall complexity of the Tangle protocol.  
Other Features:
  • immutable ledger;
  • sharding/snapshotting/swarming;
  • modularity;
  • extremely lightweight;
  • secure data transfer;
  • decentralized;
  • private;
 
How does it work?
The main innovation behind IOTA is tangle, a directed acyclic graph (DAG) based ledger. In DAG-based cryptocurrencies there are no blocks. Instead, transactions are confirmed by one or more following transactions (tangle requires two parent transactions). As a result, the structure of the network and nodes is represented by a direct graph with no directed cycles, this makes for a lighter structure that resembles a never ending tree like the one represented below.
crypto money cryptography
  However, if there are no blocks, how are transactions verified? Instead of having a portion of the network responsible for the overall consensus, be it miners in Proof-of-Work or stakers in Proof-of-Stake, consensus and validation are decided by the whole network of active participants. This makes it so that everyone has an equal say in the network regarding the transaction making process. Transaction making process is split into three steps: first you sign the transactions with a private key, then MCMC (Markov chain Monte Carlo) algorithm is used to select two unconfirmed transactions and check if they are not conflicting, and finally, for the transaction to be valid, the node must solve a cryptographic puzzle. This means that, similarly to bitcoin, some Proof-of-Work is required. Once the three steps are completed, the transaction will become part of the network. Executing the MCMC algorithm gives information about the probability of your transaction being accepted by the network. If you’re a merchant in IOTA, you have the freedom to decide with which probability you want to start accepting payments.  
Is IOTA a cryptocurrency?
The IOTA cryptocurrency is one aspect of the larger IOTA platform. Designed with mass adoption in mind, IOTA hopes to provide a foundation for digital transactions to occur throughout the Internet of Things. The IOTA cryptocurrency will serve as a universal method of payment for the future of machine-to-machine transactions that happen on the IOTA network.  
How is IOTA different from bitcoin?
Bitcoin introduced two fundamental concepts to the world:
  • decentralised digital currencies
  • blockchain
IOTA has built upon both of those ideas to create a new kind of infrastructure designed for the expanding network of Internet-connected machines, or smart devices. Instead of focusing on peer-to-peer transactions, like bitcoin, IOTA is designed primarily for transactions that happen on a machine-to-machine level.  
The Tangle
IOTA uses the Tangle, which is a software protocol that fundamentally differs from the blockchain protocol. The brilliance of the Tangle is that transactions are processed in parallel. The Tangle differs from blockchain in two main ways:
  1. IOTA is able to achieve high transaction throughput by parallelizing validation. As the Tangle grows with more transactions, IOTA becomes faster and more secure with transaction finality happening more quickly as network critical mass is approached.
  2. The way consensus is achieved in a blockchain is through a rigorous mechanism that requires multiple parties to “race” against each other in an attempt to add the next block and earn the block rewards. Since “miners” and “users” are decoupled entities, block rewards paid to miners will eventually mostly consist of users’ transaction fees. In the Tangle, “miners” and “users” are no longer decoupled entities.
In order for a transaction to be confirmed on a blockchain, a certain arbitrary time interval must elapse for block creation. The Tangle allows for asynchronous settlement, meaning that there are no extrinsic arbitrary temporal restraints on transaction finalization. The Tangle is programmed in ternary which is a deviation from the traditional binary code. Ternary is much more efficient than binary, and provides for some significant improvements in functionality. The Tangle can be run on binary or ternary systems.
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IOTA Team Members
The IOTA foundation consists of dedicated and talented people with a proven track record of getting things done properly and is the public organization behind IOTA. Most important members of the Foundation are David Sønstebø (IOTA founder), Dominik Schiener, Serguei Popov (Mthcl) and Sergey Ivancheglo (Come-from-Beyond).
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  (to be continued) See also: IOTA Cryptocurrency: How & Where 2 Buy & 2 Store  

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