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IOTA – The currency for Internet-of-Things

By Victor Hedman - June 25, 2017

What is IOTA?

Overnight IOTA popped up on the cryptocurrency monitoring sites as the 6th largest cryptocurrency with a 1.5 $ billion marketcap. It left a lot of people wondering, what is IOTA?

IOTA is different from every other cryptocurrency. Bitcoin, ethereum and most other well known currencies uses the blockchain technology. On the blockchain, nodes (miners) mine blocks by verifying transactions and each new block connects to the previous one forming an irreversible chain. While this technology is a great solution for decentralising the economy, it might not be the only one.

IOTA uses a new technology they call The Tangle. Instead of using a blockchain and allowing miners to verify transactions, users verify two previous transactions in order to make a transaction themselves. IOTAs developers claims this technology enables free and instant transactions, which makes microtransactions viable. Microtransactions is a business model where users can buy virtual services or goods online for very small sums of money. Given the current state of bitcoin and even ethereum true micropayments are still impossible on those chains because of the transaction fees. IOTA aims to solve this problem.

Internet-of-Things

Internet-of-Things, IOT, is everyday items such as clothes, vehicles and accessories provided with small computers which can connect them through the internet. The developers behind IOTA believe that the Internet-of-Things will connect most of our items in the future. A way to utilize those items would be through micropayments. Some things have to be very cheap and thus any transaction fee may make them unviable for the Internet-of-Things. Imagine paying for your subway ticket using a cryptocurrency. In most cities, the transaction cost of a bitcoin transfer greatly exceeds the cost of a ticket. IOTAs goal is to become the transaction method and currency to solve this problem.

IOTA brings a lot of benefits in theory, such as free transactions with little to no transaction time. There are some issues and concerns however.

While the Interet-of-Things is growing, it is in very early stages and it is not certain how far it will develop and if it requires a currency for microtransactions.

The viability of microtransactions itself may also be questionable. While it may be possible in theory, human psychology could be a threat to its implementation. Nick Szabko, known for creating Bitgold and his knowledge of cryptocurrencies, claims that even though we have the technology to implement microtransactions into our economy, they are impossible due to human psychology. Szabko argues that the human mind cannot comprehend the small significance of microtransactions. Transactions does not only have a technological transaction cost, but also a cognitive transaction cost. His conclusion is that the mental costs will greatly exceed the computational costs of micropayments.

Conclusion

Today it is unclear to what extent the Internet-of-Things will affect our lives in the future. IOTA may offer a lot of benefits simply as a payment system if their technology works as in theory. As with most new cryptocurrencies, its value is highly speculative at this moment. It may be huge one day, or not. Remember to diversify your cryptocurrency portfolio and do not put all of your eggs in one basket if you intend to buy IOTA. You can read more about their project on https://iota.org/ and https://www.reddit.com/r/Iota/.

Today Bitfinex is the only exchange to offer USD / IOTA and BTC / IOTA pairs.

You find the best exchanges for Bitcoin and Ethereum here at Coinworld in our exchange section.

Resources

https://iota.org
https://en.oxforddictionaries.com/definition/microtransaction
http://nakamotoinstitute.org/static/docs/micropayments-and-mental-transaction-costs.pdf

Disclaimer: I own a small amount of IOTA at the time of writing this article.

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