What is IOTA (IOT)?

what is iota

“Kingpin of IoT?”

IOTA was introduced in July 2016 as a cryptocurrency for managing “Internet of Things” (IoT) devices in a completely decentralized way.

The premise behind the coin was to create a system which would be entirely free (unlike Bitcoin which encourages transaction fees) and – interestingly – was built on top of the “DAG” (directed acyclic graph) system, rather than blockchain.

The core of the system is the promise that it can handle unlimited transactions simultaneously (as opposed to the 10 per second that Bitcoin can handle) and can scale infinitely. This is actually very important as one of the major drawbacks of Bitcoin has been its inability to scale effectively, with many people reporting prolonged processing times for transactions.

The aim of the system is to have a decentralized platform onto which “Internet of Things” devices can be made available for rent or use in an open marketplace.

It was created by David Sønstebø, Sergey Ivancheglo, Dominik Schiener, and Dr. Serguei Popov (according to Wikipedia). As ever, this is not financial advice or endorsement.

What is IOTA?

Unlike other cryptocurrencies, IOTA was designed to focus on its implementation rather than adoption. As such, it doesn’t matter how many people use the system, it will always provide FREE transactions with unlimited scale and processing potential.

The whole premise of the system has been to create a central system through which companies, private owners and governments could provide “IoT” services for rent or small microtransactions.

To give context to how these work, the next step for the Internet is looking to be the “Internet of Things” – a way to manage and connect ALL the devices in your life.

IoT basically works by each device either in a home or business environment being equipped with a sensor and the ability to connect to a network (either LAN or WAN), through which it can receive commands and send data.

The idea for IoT has been that if you have an office with a laser printer, the IoT landscape would give those with credentials the opportunity to not just connect to the printer, but also use it and manage it. Whilst this exists already (through a LAN), what doesn’t exist is a means (platform) by which everyday people would be able to use said printer.

Iota has been designed to be that means. More so, it’s meant to be a completely decentralized system which is able to provide a framework through which any IoT device will be able to be used and managed by other people. To do this, you need a “token” through which is where the IOTA market value has been derived.

The most important thing to consider about IOTA is that it’s NOT positioning itself to be a currency, nor is it trying to change the world by decentralizing the entire financial infrastructure of the west. It’s trying to bring systems together in a way that’s never been possible before – by allowing people to engage with one another through the use of different connected devices.

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Ultimately, you have to remember that IOTA has been designed to be everything that Bitcoin wasn’t. Part of the third wave of cryptocurrencies, it has the immense benefit of being able to take leaves out of many books. Its market cap might be large but it’s based on its scale, not its veracity.

Who Created It?

The main advantage that IOTA has had over many of the other coins that have been created is partly its tangle technology (which not many people are sold on) and its uptake with a number of larger institutions, most notably Bosch, Consensys, USbank, and Cisco.

The founders are as follows…

  • David Sønstebø
  • Sergey Ivancheglo
  • Dominik Schiener
  • Dr. Serguei Popov

Announced in Q4 2015 (via an ICO) and was able to raise 1.337 BTC (at that time worth around $584.000). The company has since developed its technology and built a number of partnerships through its IOTA foundation.

Why Does It Exist?

The most important thing to consider with IOTA is its place in the cryptocurrency environment. Currently, crypto is not dissimilar to the early Internet, with millions of dollars flooding into the market to fund a range of unprofitable ideas.

Most of the coins we’ve seen in the first and second waves of the crypto boom are likely going to fade into oblivion when new ones come out (that drastically improve performance etc). This is undisputed. What is disputed is how that’s going to happen.

As we saw with the Internet, essentially what we have right now is a primordial soup of a number of different currencies vying for position. These currencies have been designed to perform different tasks but are ALL reliant on the core decentralized infrastructure being in place & adopted. This is the main job at the moment – getting adoption for the idea of decentralized systems.

Thus, we’ve begun to see a large number of new coins come forth in the past couple of years to provide users with the ability to gain different benefits from each.

The majority of these have been released via an ICO, which is exactly what IOTA ended up doing.

IOTA wanted to be the coin that allowed users to manage IoT devices autonomously. For example, the ability to share car charging ports, city bikes and other public facilities. The problem is that whilst the system is packed with a lot of new technology (such as the “tangle” idea), there are a number of issues which could prevent it from achieving critical mass.

According to its white paper, the following is why it was created:

The rise and success of Bitcoin during the last six years proved that blockchain technology
has real-world value.

However, this technology also has a number of drawbacks that prevent it from being used as a generic platform for cryptocurrencies across the globe. One notable drawback is the concept of a transaction fee for transactions of any value.

The importance of micropayments will increase in the rapidly developing IoT industry, and paying a fee that is larger than the amount of value being transferred is not logical.

Furthermore, it is not easy to get rid of fees in the blockchain infrastructure since they serve as an incentive for the creators of blocks. This leads to another issue with existing cryptocurrency technology, namely the heterogeneous nature of the system.

You can read the full Whitepaper here.

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The price of each coin reach around $4, at the time of writing, which means that it’s the scale of the system that’s lead it to be ranked so highly; not necessarily yet its adoption or usage.

Thus, what you have to appreciate with this is that if you’re looking to use the various metrics for this coin, you need to beware that its sheer size might have skewed the listings. The rate of transactions is by far the most important metric you need to consider.

To this end, the growth of transactions from the coin seems to have been steadily growing since its public release, and as such its adoption by a number of influential institutions seems to have been confirmed.

The most important thing to consider here is the wider picture.

What we’re currently witnessing is a bloodbath very similar to the early days of the web (where money flooded the market to fund companies that had little to no hope of survival).

As such, when considering the myriad of altcoins (such as IOTA), it’s vital to consider the perspective of the market as a whole. Why is the coin being adopted?

Who made it? What’s the underlying technology? Why does it benefit people more than Bitcoin?

The underlying answer to the above questions is that the IOTA coin has been developed as a way to manage a much broader interface than just financial transactions. Because of this, and its seeming adoption by a large number of institutions (including some subsidiaries of Microsoft), a lot of people will have likely jumped onto the bandwagon in order to try and make a quick buck. Never make trade decisions from looking at a chart only.

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