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IOTA, the Tangle, and its Use Cases: Why its Built Different and Actually Scalable

Thursday, January 27, 2022 03:30 PM | Nick Dey
IOTA, the Tangle, and its Use Cases: Why its Built Different and Actually Scalable

Cryptocurrencies continue to lose ground since the turn of the year following a wild rally for most of 2021 that was largely indiscriminate about whether a crypto project was 1) a legitimate project, 2) created with cool technology but was in search of an answer/use-case, or 3) was a SQUID-related fraud.

Now, I know including points two and three in there seems like a passive-aggressive jab at the crypto space, but this isn’t an article to rag on cryptos. In fact, it's quite the opposite. During pullbacks, the strong survive and the rest get forgotten, so we want to highlight cryptos that are actually doing some exciting stuff and have clear goals and transparent recording of progress on those goals.

So without further ado, meet IOTA.

IOTA, whose coin trades under the symbol MIOTA, is certainly one of those cryptos. The best part is, this isn’t even a blockchain. It's a DAG. If you found it frustrating trying to explain the blockchain to your family at Thanksgiving, boy are you gonna love (hate?) this.

What is it?

IOTA, and its native currency MIOTA, were named after the ninth letter of the Greek alphabet, which stands for the lowest amount possible.

The IOTA Foundation, which was created by the founders of IOTA, is a non-profit organization that is tasked with creating a production-ready IOTA that can be the foundation of the machine economy while researching and providing resources to help companies implement the technology. The foundation mostly runs on donations that it received back from companies and individuals that purchased MIOTA during its ICO or have otherwise joined the IOTA community, and grants.

IOTA’s detailed roadmap can be found here. And a list of their partners can be found here, which includes some notable names such as Dell and Jaguar Land Rover, the latter actually already has IOTA wallets in their I-Pace vehicles. As I said, this is not your typical, use-case searching crypto. It very much has an identity and purpose and is aggressively progressing towards it.

IOTA brings something new to the web3 decentralization narrative. Instead of using the blockchain, which is a distributed ledger that uses fees mixed with miners and/or stakers to keep the security of the blockchain, IOTA uses a Directed Acyclic Graph (DAG), which IOTA calls its ‘Tangle’.

What is the Tangle?

IOTA’s Tangle, or DAG, is an innovation on the blockchain that reimagines how to keep a  distributed ledger. On the blockchain, a node (either a miner or staker) approves transactions for a fee. The more people use the blockchain, the longer the wait time and the higher the fee as the two-step process slows down the network.

Currently, Bitcoin transactions take about 10 minutes per confirmation and typically require six confirmations before the transaction is completed, so you can expect about an hour wait. Meanwhile, Ethereum takes between 5 minutes and 4 hours.

On a DAG, the transaction and the security are one-in-the-same. This lets transactions get validated in a matter of seconds, rather than minutes or hours.

Before diving into the nitty-gritty, let's explore the acronym as that will help with visualizing the tangle. If something is acyclic, that means that it isn’t displaying or forming a circle, or it has an open chain structure. So if something is directed and acyclic, then that means that the graph - which is the ledger - is always heading in one direction.

When a transaction occurs using MIOTA, the new transaction partially approves a couple of previous transactions by referencing them. It then waits for a few future transactions to come along and reference it, which can be up to eight transactions. Once it's been referenced enough times, the transaction is completed.

Under this structure, the nodes - which would traditionally be miners or stakers - are the actual transactions. This means that transactions are approved faster and more securely the more IOTA is used. This is a huge improvement on traditional blockchains in terms of scalability as more use typically means higher transaction costs and longer wait times.

By structuring the protocol like this, IOTA is able to be completely feeless, as each transaction contributes to the security of the ledger.

What Are the Use Cases?

IOTA’s use-cases are abundant and you can see a list of some of the industries here that are currently using and implementing IOTA.

But I’m no square, so while I encourage you to pick IOTA apart and research it to death, I’ll tell you some of my favorite use cases.

First up, Mobility & Automotive.

One great application of IOTA is its ability to track the life of a car and create a “digital twin”, that is transparent and immutable. This can help prevent odometer fraud in the used car market, as well as get rid of the need for third-party vehicle history reports on cars, as, if there was an accident, it couldn’t be hidden since it would have been logged on the DAG.

The digital twin is also useful for “usage-based” insurances, which is expected to become more of a norm as self-driving cars will likely empower normal people to rent their car out for the day to tourists, friends, and such.

Data integrity is yet another use-case. In this Rooftop Talks episode, Dominik Schiener, who is one of the co-founders of IOTA, brings up one of the most important unique aspects of IOTA. Skip to 19:25 to just get the question and answer.

This feature is that on the IOTA network, you don’t need a token to participate. This is extremely powerful for the security of the internet of things. By allowing connected devices to participate with the IOTA Tangle without transacting IOTA, there arises true integrity of data on the internet of things.

What this means in the case of self-driving cars and so many other industries, is that commands are pure and, in theory, unalterable. Meaning, IOTA could become a digital fail-safe that protects us from hackers changing what certain things do.

Schiener’s example of this is, again, on the topic of self-driving cars. The idea of someone hacking your car to make the command [steering wheel right], actually do [steering wheel left], is frightening and extremely dangerous, to say the least. But if those commands were held on the Tangle, and the car was freely participating in the network with constantly transacting IOTA, then important features of the car are now immutably run through the Tangle.

Briefly, IOTA is also working with the nonprofit organization “REFUNITE”. There, IOTA hopes to help refugees reconnect with loved ones they were separated from when the conflict arose by giving digital identities to refugees. Those identities can be searched and found via lo-fi technologies, such as SMS and call centers, allowing displaced families to reconnect once again.

Lastly, just some rapid-fire applications found on IOTA’s website that you can explore more on your own. IOTA has plans for supply chain applications, which can be explored here and demo’d here. You can demo and explore farm applications here. Smart City applications can be found here and Industrial IOT applications can be found here.

Tokenomics

What you should know about IOTA's tokenomics is that it is slightly deflationary, as 2.78 billion were coins were offered at its ICO and there are no plans to add more. Thus, it's slightly deflationary because some amount of these coins get lost as people lose their keys and they aren't replaced.

Now, remember when I noted that one does not need to have IOTA in order to participate with the network? Well, that's important for the tokenomics of IOTA because the natural demand for IOTA does not arise from the use of the infrastructure like on Ethereum and Bitcoin’s networks.

That means price increases are directly related to transactions and not adoption. But that doesn’t mean adoption will have no future influence on the price. If IOTA is to be the framework for the machine economy, then there will be some natural amount of adoption that precedes the increased amount of transactions that those machines going online produces.

What About That 2020 Hack?

Last, and definitely not least, let's talk about the 2020 hack. Because that was a major setback.

The hack came from third-party Moonpay, which IOTA recruited to let users directly purchase IOTA. Moonpay’s code contained a hack that leaked critical information about users' IOTA wallets to the hacker. The hacker then waited until an update was about to occur before liquidating the wallets, as the update would then wipe the hack from the code making it much harder to trace.

The important lesson here is about the nature of the hack. It wasn’t the ledger being altered, which is good because the promise of these technologies is that the ledger can’t be changed. Not that you can’t have your private keys stolen and lose all of your money.

That by no means excuses the hack, but it is important to know where the bug came from. IOTA has a three-part series here, where you can see a summary of the events, actions taken, and lessons learned.

Conclusion

All-in-all, IOTA is a technology that is vastly ramping up its applications and has no foreseeable scaling issues. Like all cryptos, it isn’t immune to attacks, but that hasn’t stopped or even slowed new partnerships from forming as the nature of the hack wasn’t something that hasn’t happened to Facebook or The New York Times, The Guardian, Twitch, Reddit, or the British government.

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