Before I tell you what IOTA is and why you should pay attention to it, let's dive into the following scenario:
Let's assume you can go back in time to the year 1934. You find yourself in Saudi Arabia (one of the poorest countries in the world at that time). Someone tries to explain to you why you should put your money into oil. Unfortunately, you don't speak Arabic but you managed to understand that oil will very soon be used for transportation fuels, heating, electricity generation as well as road-building by people all over the world. After receiving this intriguing hint, would you invest in oil?
Arguably, this depends on your risk-appetite. However, fast forward to the year 2017, and we find ourselves in a similar situation. Digital currencies and new technologies pop up every day but most investors don't know what they are or what they do. How do you make an informed decision about whether to invest in these emerging and game-changing discoveries? And now we are experiencing a culture shift with the development of the internet of things. The internet of things (IoT) isn’t new though: tech companies and pundits have been discussing the idea for decades, and the first internet-connected toaster was unveiled at a conference in 1989.
What is the internet of things?
IoT is simple: it’s about connecting devices over the Internet, letting them talk to us, applications, and each other. The popular, if silly example is the smart fridge: what if your fridge could tell you that it was out of milk, texting you if its internal cameras saw there was none left, or that the one carton left was past its use-by date?
According to Forbes, the IoT will be a $250 billion industry by 2022. Basically, it will change the way we live our lives. And to run this technology, a digital currency is needed to interact with the millions of machines that we engage with every day.
This digital currency is IOTA.
Now the real question is:
What is IOTA and why is it the oil of the 21st century?
IOTA is the first cryptocurrency built without using blockchain technology. Instead it uses “tangle”, a network which is based on DAG technology. In a traditional blockchain, various transactions are bundled in each block before this bundle of transactions is verified by miners. In the tangle, every single transaction forms a new block and is essentially verified by itself: in order to successfully conduct a transaction, you first have to verify two randomly chosen transactions in the network. This is done with essentially a series of mathmetical problems and the help of proof of work (PoW) to solve these. Almost any modern device including laptops and phones can solve these problems. We know that PoW can be expensive and one could argue that due to this transactions aren’t zero-cost. Yet, transaction costs are essentially non-existent, as the needed PoW is so low that every single device is able to independently carry it out.
Simply put, we have never seen a cryptocurrency currency like IOTA before. IOTA is not here to take on ethereum, bitcoins or any other digital currency. IOTA is here to fuel communications between machines and hence it is the perfect digital currency for IoT.
The bigger the crowd, the bigger the problems?
As IOTA operates independently of blockchain, it will not have scaling issues like bitcoins. You might be aware that bitcoin struggles with long confirmation times due to a growing user base. The opposite will be true for IOTA. In fact, confirmation times take the longest when the network is very small, while they will approach zero as the user base grows in size. Along the same lines, as the number of transactions in IOTA increases, the capacity of the tangle to handle even more transactions is increased.
This is an entirely new concept and I suppose I am not the only one out there who does not fully understand it as of yet. What do you guys think? Do you believe that IOTA can become the 21st century oil?
Until next time,
Rick
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