What is IOTA? | The crypto currency for machines

IOTA is one of the most exciting old coins currently available on the cryptographic market. From a technological point of view, the developers at IOTA have chosen a completely different approach to (almost) all other crypto currencies. IOTA is not based on a blockchain but uses the so-called “tangle” protocol. More about this later. According to co-founder Dominik Schiener it is a blockchain without blocks and without a chain.

It should serve as the backbone of the Internet of Things. How this should work, what the IOTA team plans in detail and what can be expected in the future, you will learn in the following article.

The basic idea of IOTA

In order to understand the great meaning and purpose, we have to make some adjustments: The Internet of Things is a huge and highly promising field of innovation. Everything that can be digitized is digitized. In the best case, so that the goal of Internet of Things is that the machines should communicate with other machines independently of humans and thus make people’s everyday lives easier.

For example, the refrigerator will automatically order the weekly groceries when the refrigerator is empty. A car should not only be able to drive autonomously, it should also be able to book a parking ticket.

The company intends to add a machine-to-machine payment (M2M) system to this environment behind IOTA. This means that the refrigerator also pays for the weekly purchases, the car automatically pays for the multi-storey car park. The IOTA token is the basis for the fully automated transactions. This solves the problem that currently a person is needed to take over the payment between machines or an intermediary who translates between the different machine languages and centrally checks and finally executes the transaction. On the one hand, this central instance must be trusted, on the other hand, there is a central and potentially vulnerable vulnerability. This should be eliminated.

Why is IOTA better suited than Bitcoin, Ethereum?

First of all, other digital/crypto currencies are just as suitable for this. Payment between machines could also take place via Bitcoin, for example. According to the founders, the decisive advantage for IOTA is the scalability and transaction costs of the in-house crypto currency. The Tangle protocol enables infinite scalability and requires no transaction costs.

Scalability is particularly important because it is estimated that 50 billion machines could be networked in the future. With such a volume and the demands placed on the system, millions of transactions would have to be processed in real time. Scalability in the growing crypto world is a general and central problem. For example, Bitcoin currently only manages 8 transactions per second (despite SegWit2X). Ethereum plans to implement an update this year (2017) to realize an incredible 1 million transactions per second. But with 50 billion machines, even this seems to be still too little. IOTA seems to have Tangle, the better protocol, as its basis.

In addition, micro-payments (e.g. a parking ticket for 2 EUR) must also be possible without considerable effort, i.e. additional costs for a transaction. This, too, is a unique selling point of IOTA (at least currently in comparison to the other large Altcoins). IOTA does not charge any transaction costs.

Free Transactions IOTA – How does it work?

IOTA’s consensus process is based neither on mining nor on staking. Thus there is no “effort” required, as in mining where expensive technology and a lot of electricity are consumed or in staking where the effort is in buying or owning (to validate). Each network participant who makes a transaction must automatically confirm two more transactions. Due to the elimination of miners and stackers, there is no need for rewards and therefore no transaction costs.

The aim of the company is to become the central protocol of the “Machine Economy”. For this purpose, the Tangle protocol can be used not only to send money but also data. Among other things, the protocol should also become compatible with Ethereum and Bitcoin (in planning).

The Tangle Protocol

As described above, each user is forced to validate two different transactions for each new transaction. To perform the validation, the node of each user must perform a simple proof of work. This sounds very similar to Bitcoin’s Proof of Work, but technically there is a big difference. Iota’s Proof of Work is realized by the IT-technical “Hashcash” procedure and has the sense to prevent Sybill attacks, i.e. attacks by false identities, to influence the intended majority voting, to slow down the network or to intercept the communication between peers. In addition, each participant in the IOTA network participates in consensus building.

Which transactions to validate is determined by a random algorithm. Now the question might arise for you: Can it happen that you have to validate your own other transaction? The answer: Theoretically yes, but this requires a lot of chance or very high computing power.

The special thing about Tangle is that transactions are processed in parallel. A blockchain is sequential, i.e. blocks can only be added one after the other. Tangle, on the other hand, is based on a DAG (Directed Acyclic Graph), which achieves parallelism and allows several transactions to be validated simultaneously. The larger the network grows, the more secure and faster the overall system becomes.

The token IOTA

All IOTA tokens that will ever exist were generated in the Genesis block. This number will never change. The total number is about 2.7 trillion. In contrast to other coins, an IOTA coin is not divisible, i.e. it cannot have decimal places. You can find the always current IOTA price here. You can find out how to buy IOTA here. We will show you how to create a wallet in our step-by-step guide.

The Company of IOTA

IOTA 2015 was founded by David Sønstebø, Sergey Ivancheglo, Dominik Schiener, and Dr. Serguei Popov. The original idea for the project goes back to the Norwegian David Sønstebø, who developed microprocessors with his startup and realised that a Machine2Machine payment system was needed to implement his ideas. While Sergey Ivancheglo and Dominik Schiener took over the programming, Dr. (the mathematician) Serguei Popov was responsible for the mathematical foundations of Tangle.

At the ICO, held in December 2015, all tokens were sold. A total of 1337 Bitcoin were collected, most of which flowed into the IOTA

Foundation and serve the further development of IOTA. The Foundation is based in Berlin.


From our point of view, IOTA is definitely one of the most interesting crypto currencies in the future when it comes to innovative projects with application possibilities in the “real” world.

In the future, the Internet of Things will become more and more public and part of public life. If IOTA manages to become the backbone for transactions on the Internet of Things, then IOTA could have a great future. In particular, areas such as smart cities, supply chains and mobility could be an important area of application. Whether and to what extent IOTA will prevail remains to be seen.

IOTA is still in its infancy. The roadmap is long. Big features to be added are among others:

Smart Contracts IOTA

  • further programming languages like Python and Java
  • “Permanodes” for storing all snapshots
  • “Masked Authenticated Messaging (MAM) to store sensitive data encrypted on the tangle

What do you think about IOTA or the Internet of Things? We would appreciate your opinion in the comments.

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