What is the Internet of Things (IoT)?
The most important resource in the world right now is information. If the information is gathered and applied in the right place, the results can be excellent.
Chances are, you have plants at home. When they get dry, you water them. You gather the information (check if the plants are dry), then apply it (water the plants).
Now, let’s suppose you wanted to automate this process. You would need a gadget that can water the plants. But how does it know when the plants need watering? It lacks this kind of information – it just opens and closes the water on demand. You would need to install some kind of sensor that checks if the soil is dry as well.
Okay, now you have a sensor and a water opener/closer. The problem is, they do not communicate. They have no connection to each other. The solution? You connect both of them to the Internet. This way, the sensor will let automatic tap know when to water your precious plants, and the tap will apply water. This is what the Internet of Things is.
The Internet of Things are all the gadgets connected to the Internet. These gadgets can be anything: fridges, cars, kettles, doorbells, lamps, soil dryness sensors, automatic taps. When working together, they share information in order to automate the tasks and save humans money and energy.
No more milk left? No problem, the fridge will order a few cartons itself. It is getting dark? The lamps will turn themselves on. And so on, and so on.
Importantly, the applications of IoT extend far beyond household tasks. For example, autonomous cars will need to communicate with each other to optimize traffic flow – this requires them to be part of IoT. There are also plenty of industrial applications. For instance, Amazon warehouses use IoT to coordinate Kiva robots helping workers to transport packages.
Projected IoT market growth
Even though nowadays IoT is already being used, it is still somewhat new to the major part of consumers. However, that is about to change.
When more users will realise that there are many benefits to IoT devices, the demand for connected smart home gadgets will rise. This, in turn, will force manufacturers to compete even more fiercely for market share in IoT. New, better devices will be launched. IoT marketing budgets will be increased. This, in turn, will make even more people to purchase connected devices. The circle closes.
What’s more, the rollout of 5G networks worldwide will open up new possibilities for IoT. Because 5G is so fast, with latencies as little as 0.001 second, IoT will be used in new ways. There are 1 billion cars in the world. If just 1% of these cars would be replaced with IoT-enabled, 5G connected autonomous cars, there would be 10 million autonomous cars on the roads!
Due to these factors, IoT industry will continue growing at an accelerating pace.
Take a look at this graph of projected North American IoT market revenue created by Grand View Research:
The need for currency
Sometimes, IoT devices will not only need to exchange information, but to pay each other as well. Here is an example.
Let’s suppose two autonomous cars drive on a highway. When a vehicle B drives behind vehicle A, it experiences less wind resistance. This way, it saves fuel (or battery charge). However, vehicle A experiences almost the same wind resistance. It does not save fuel. This is unfair. Vehicle B takes advantage of vehicle A.
In order to balance this, vehicle B automatically pays vehicle A. Vehicle A can then draft behind vehicle C and pay it and so on, and so forth.
Cryptocurrency is an ideal payment method for this situation. But which cryptocurrency exactly? Maybe Bitcoin will do? Well, not exactly.
Limitations of the blockchain
There is no getting around it: most blockchains are painfully slow. Take Bitcoin, for example. It can only process 7 transactions per second (Lightning Network does improve the situation, but it is still not perfect). Can such a network be used for payments between millions of IoT devices that communicate and pay each other all the time? No.
Another issue of the blockchain-based cryptocurrencies are high fees. Some blockchains have pretty low fees, but the costs will accumulate quickly. Remember, we are talking about millions of transactions daily.
The last, and perhaps the most important issue is the bad scalability of blockchains. Yes, there are blockchains that can process thousands of transactions per second. But what happens when they have to process even more? Tens of thousands of transactions per second? That’s right, the network gets overloaded, transaction fees skyrocket and the whole system gets paralyzed.
With these three problems in mind, IOTA set off to create a system that is as decentralized and secure as blockchains, but without all their disadvantages – no easy task to accomplish.
Solving the problem: enter IOTA
Unlike most coins on the market, IOTA is not powered by blockchain. Instead, it utilizes a completely different concept – something called Directed Acyclic Graph (DAG).
Instead of grouping the transactions into a block and then processing this block, like a blockchain does, DAG processes each individual transaction. Multiple transactions can be processed simultaneously.
What’s more, IOTA’s DAG, called the Tangle, has no fees.
But how exactly does the Tangle work?
How IOTA’s Tangle works
IOTA calls its DAG simply – “the Tangle”. Transactions in the Tangle can be processed parallely because of the unique approval mechanism. To make a transaction, which is called “site” in the Tangle, participant has to verify previous two sites by performing a small amount of computational work. All the transactions are feeless.
Here is how the Tangle compares to blockchain:
Each transaction consists of 5 operations:
- Signing – a node first signs its transaction with its private key.
- Tip selection – the node randomly chooses two unapproved transactions (‘tips’). A tip is a newly created transaction that is waiting for approval by other transactions.
- Validation – after selecting the tips, the node makes sure the two transactions are not conflicting and selects new tips if they are. It also verifies that those two transactions performed appropriate Proof-of-Work. If one of the previous transactions verified is invalid, that transaction will not be verified.
- Proof-of-Work (PoW) – the node solves a cryptography puzzle similar to those in the Bitcoin blockchain, acting as a spam protection. Does not require powerful hardware, because nodes do not compete for rewards, keeping difficulty unchanged
- Publishing – the transaction is published to the Tangle.
As you can see, the node does all the work itself. There is no need for miners that verify transactions. Brilliantly simple, isn’t it?
This working principle means that the Tangle is infinitely scalable, unlike blockchains. The more network is being used, the more transactions it can process. The other upside of the Tangle is that with sufficient amount of participants, the network can be much more decentralized than Bitcoin, for example, or any other blockchain-based coin.
Coordicide: Improving decentralization
In the past, IOTA was not as decentralized as initially planned. Due to the Tangle being untested, a special coordinator node had to approve transactions once in a while. This meant that technically, the Tangle was centralized, because the approval of transactions depended on IOTA Foundation’s coordinator.
From the very beginning, IOTA team pointed out that this solution is temporary and will be replaced as soon as the solution is developed.
As of the time of publishing, Coordicide is still not fully launched. However, IOTA makes giant leaps to get rid of coordinators as fast as possible:
- On March 5, 2019, IOTA launched Coordicide testnet
- On May 28, 2019, IOTA announced Coordicide mainnet
- On July 22, 2019, IOTA released an updated roadmap
- On July 25, 2019, IOTA announced a 5 million USD worth grant for Coordicide-Related Research
The tech behind Coordicide
Blockchain is haunted by a certain trilemma. It sounds like that:
“Secure, scalable, decentralized – pick two.”
It is hard to name a big cryptocurrency project that has solved it. However, once IOTA removes the Coordinators, it could solve this trilemma. Here are 5 mechanisms that will replace the Coordinators in the Tangle:
- Mana. Each node will gain reputation (or “mana”, how IOTA calls it). The more mana the node has, the higher its reputation. Mana is hard to earn and easy to lose. If a node that has a lot of mana misbehaves, it can be punished manually and stripped of its mana.
- Auto-peering. Each node will choose potential neighbours using a certain set of rules. The process is automatic, making it near-impossible for hackers to attack a certain part of the network. What’s more, this will make the network efficient. Every node is tries to reach every other node with the smallest number of “steps”, increasing the speed of the network.
- Adaptive spam protection. The Tangle uses PoW to protect the network from spam. However, static PoW is not perfect. According to IOTA, it proposes mining races and simply is not efficient enough for low-power IoT devices. In the future, IOTA plans to implement a dynamic PoW spam protection, which will adjust the difficulty depending on a number of factors. For example, such factors are node’s mana and a number of recently issued transactions.
- Voting layer. In order to successfully resolve conflicts in the network, IOTA will add a voting mechanism. Any node can vote, even if it is not issuing any transactions. A node’s vote weight is calculated accordingly to mana. This way, honest nodes are more influential than potentially dishonest ones.
- Shimmer. Shimmer is a group of mechanisms that allows nodes to reach consensus on which transactions are valid, and which are not. For example, one of the mechanisms works in such a way that the node adopts the opinion of the majority of its neighbours.
Once these mechanisms are implemented, IOTA will be able to ditch Coordinators for good.
Just having a technologically advanced network that is superior to its competitors is not enough. This network also has to be used by many in order to have value. IOTA recognized this from the very beginning. Right now, the project boasts an impressive portfolio of partnerships.
Here are some of the biggest companies cooperating with IOTA.
In November 2017, IOTA launched the first-ever public data marketplace on an IoT. The idea of the marketplace is simple yet novel.
In the marketplace, anyone collecting data from IoT devices could sell it to anyone interested. Here’s an example IOTA representatives mentioned:
“If you have a weather station collecting wind, temperature, humidity, and barometric data, for instance, you can sell that to an entity that is doing climatic research.”
The marketplace was launched in collaboration with Microsoft. However, this collaboration remains somewhat low-key, because the companies did not announce partnership officially. Still, the fact that a company as big as Microsoft is interested in cooperating with IOTA shows the value of the Tangle.
Also, it is entirely possible that IOTA and Microsoft will announce a partnership in the future. It seems plausible given Microsoft’s eagerness to explore new technologies, such as AR, VR and cloud computing.
Volkswagen AG is a massive automotive concern. It includes not only Volkswagen, but also brands like Audi, Porsche, Seat, Skoda, Ducati and several more. It sells colossal 11 million vehicles annually – more than any other automotive concern.
Therefore, it is hard to overestimate the power of IOTA and Volkswagen AG partnership. The former is already working with several Volkswagen AG child brands:
- With Volkswagen – the brand plans to introduce the Digital CarPass, to track vehicle data securely.
- With Audi – both teams joined their forces to research future automotive technology through Audi Denkwerkstatt.
- With Porsche – IOTA team announced their partnership with Porsche via Startup Autobahn.
What’s more, because Volkswagen AG is known for its willingness to share technology between its child brands, it is safe to assume that IOTA’s tech, once adopted by one Volkswagen AG brand, will quickly become adopted by several other ones.
11 million vehicles sold annually complete with IOTA technologies – such a possibility sounds impressive, doesn’t it?
Jaguar Land Rover
Jaguar Land Rover has found an interesting use case for IOTA. The group plans to equip its future cars with “smart wallet” in order to reward their owners for certain actions.
For example, the owners of the cars equipped with this technology could earn tokens if they choose to let their cars collect information about potholes and traffic congestions and share it. Another way to earn tokens would be to participate in a ride-sharing program. The tokens themselves could be later spent on parking or electric car charging, for example.
DnB, which is the largest financial group of Norway, has signed a partnership with IOTA in June 2019. The main focus of collaboration will be on the formulation of new business models, privacy management systems and collective cross-silo hackathons.
German-based BOSCH is heavily invested in IoT. The company, which is the largest supplier of automotive components in the world, believes that IOTA’s Tangle could play a big part in the future of connected devices.
The companies announced their collaboration in October 2017. At the time of publishing, the collaboration has already started to bring benefits: BOSCH designed XDK-110 sensor that can work together with the Tangle.
Here is a little video about XDK series sensors:
Another technological company that has teamed up with IOTA is Fujitsu. In April, 2019 the company showcased its own Tangle-based system. Fujitsu representatives praised IOTA as “a new protocol standard for IT products and services”.
IOTA (MIOTA) token
IOTA token is a crucial part of IOTA ecosystem. It is used for payments inside the network.
The current supply, which is also the maximum supply, is a little over 2.75 billion tokens. To put that in perspective, that is approximately 130 times more than Bitcoin’s maximum supply. That means that if IOTA had the same market cap as Bitcoin, the price of a single token would be 130 times smaller than the price of a single Bitcoin.
Historical price of IOTA (MIOTA) coin
When IOTA (MIOTA) tokens first became available to trade, the price of a single token fluctuated around $0,40 – $0,50 before finding a bottom of $0,17 per coin in the middle of 2017. During the late 2017 rally, IOTA reached an all-time high price of approximately $5,20 per coin. At the moment of publishing, IOTA’s price is under $0.3, representing a decline of more than 90 percent from ATH.
If you want to monitor IOTA’s price, you can use our Crypto Prices section.
Best IOTA coin wallet
If you want to invest in IOTA, you have to store the private keys of the coins bought. In order to do this, you have to use the wallet that supports IOTA.
Your best option, undoubtedly, is the IOTA’s official Trinity wallet. It is a modern piece of software that is designed to be as intuitive to use as possible. Trinity is available on all major platforms, both desktop and mobile. Importantly, it supports hardware wallets (check out our list of the 7 best hardware wallets!), making it extremely secure.
The wallet is in active development with many new features planned for all platforms. For example, the future releases will have better 2FA support and in-built Tangle explorer.
Where to buy IOTA?
Use one of the exchanges from our list. For example, Binance has a good volume for both IOTA/USDT and IOTA/BTC trading pairs. Another good IOTA-supporting coin exchanges are Huobi and Bitfinex.
If you want to buy IOTA with fiat, then your best option is purchasing Bitcoin on one of the fiat exchanges (LocalBitcoins is a great example of such exchange) and selling it later for IOTA.
Where can I find out more about IOTA?
If you want to dive deeply into technical aspects of Tangle in order to understand it even better, and to explore other IOTA projects, here are a few resources that will help you:
- IOTA whitepaper – the project call it “academic papers”, so don’t be confused. Check it out here.
- IOTA ecosystem – a bunch of very useful tutorials on how to set up certain IoT devices to work with the Tangle. Read them here.
- Trinity – everything related to the official IOTA wallet. Here is the link.
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