If you follow technology or financial trends, chances are you’re now at least somewhat acquainted with the “cryptocurrency” leader known as Bitcoin. Recently, you’ve probably also come across varying opinions about its future use and whether or not it’s just a colossal bubble nearly ready to burst.
The cryptocurrency industry is undeniably dramatic. I’ve witnessed the price of alternative cryptocurrencies or “altcoins” drop 80% in a matter of minutes and then recover almost immediately. Without question, this industry has turned into a circus of speculation, ripe with temptations for day traders.
It’s easy for cautious individuals to assess the massive clouds of hype surrounding Bitcoin, altcoins, etc. and conclude - “Oh, all those cryptocurrencies are highly speculative investments, and I’m not interested in playing this game!”
That’s fine - but I would strongly encourage you to step away from the alluring “price action” for a moment.
Forget the money and forget any “get rich quick” plugs you may have come across online or heard from excited crypto evangelists. Take a breath of fresh air ... and consider a different angle behind the distributed ledger technology that Bitcoin has introduced to the world.
What if Cryptocurrency can Help Bring "Futuristic" Concepts to Life?
Try to imagine a greater purpose behind the electronic exchange of value on a global scale. What if a cryptocurrency was capable of transferring payments quickly, securely, and without any fees? Better yet, what if this cryptocurrency could issue “micro-payments” - say tiny transactions of $0.001 every hour or even every minute?
A group of developers and visionaries are gradually starting to capture the attention of billion dollar companies and demonstrate the potential of this very currency. It is known as IOTA.
IOTA was created to serve as the missing link for future Internet of Things (IoT) concepts and applications. By “IoT,” I’m talking about real IoT applications in a truly connected world - not just some cylinder on a coffee table that can interpret “Alexa, play Moonlight Sonata” and begin enchanting your evening with Beethoven.
Real IoT applications involve futuristic technology and a complex machine economy. Although the full integration of IoT in our lifestyle may sound like a fool’s dream that couldn’t possibly come to fruition for another 100 years - hold on! These IoT concepts are exciting, practical - and perhaps best of all - they may not take nearly as long to develop as you may be expecting.
What Could the IoT in the Future Look Like?
In a true machine economy, devices will constantly be talking to each other, sharing data and resources. IOTA can be used to securely share data and ensure that proper payment is received in return - and, perhaps most importantly, it can accomplish all this without charging users ANY transaction fees (which we’ll investigate in more detail later).
For example, EV’s (electronic vehicles) and autonomous vehicles have created plenty of buzz over the past few years. Many automobile manufacturers are expected to release the first functioning models of autonomous vehicles on the road by 2020. The process of refining the technology and encouraging wide adoption of autonomous vehicles is likely at least a decade or two away, but IoT integration could eventually change everything we’ve come to expect about cars and cities.
Imagine that your vehicle is an entity capable of storing large amounts of data, thinking for itself, communicating with other devices, and conducting transactions on your behalf. That’s a lot of power - maybe more than you’re comfortable with right now - but think of the possibilities!
Your vehicle can determine when its battery is low, drive itself to a charging station, and use an electronic currency, like IOTA, to instantly pay for the energy. It can drive into parking structures, cross tollways, park near “smart” meters and make immediate payments. No more congested traffic from people swiping credit cards and depositing coins - your vehicle’s IOTA account just took care of all of that for you.
Long-term IoT “use cases” expand far beyond transportation, so if autonomous vehicles and connected cities don’t necessarily excite you, start thinking about appliances in your home. For example, how about a “Smart” fridge?
Picture this - it’s absolutely freezing outside on a winter morning, and you just ran out of crucial consumables, like milk, eggs, or (heaven forbid) your favorite “wake-me-up” cold brew. No worries at all - you don’t need to wander out into that miserable, frigid weather! Your refrigerator just detected that your inventory was depleted, automatically searched for and selected the nearest store, placed an order and paid for it using IOTA. A drone or delivery vehicle will be arriving to your house shortly to replenish your fridge.
I’ll concede that these IoT examples may seem far-fetched at first. A significant reason these concepts are often dismissed as “next-century” technology is because they require true, fee-less (or “zero fee”) transactions for businesses to feasibly build and invest in them.
Why is a Zero Fee Transaction System so Important for IoT?
We currently live and operate in a world with transaction fees. Those fees are everywhere - whether it’s merchants accepting credit cards, e-commerce shops receiving Paypal, or even consumer-to-consumer exchanges of other cryptocurrencies, such as Bitcoin, Litecoin, and Ethereum.
Fees may be readily used and anticipated in the existing business world - but how do they stack up against transactions with IoT applications? What if a device only needs to pay $0.002 for an extremely minor data or energy transfer?
Fees associated with most “blockchain” based cryptocurrencies, such as Bitcoin, are several cents (and have even reached levels as high as $50.00 for a single transaction!!) So, perhaps your device wants to transfer $0.002... but it costs $1.00(+) in fees? Nope! That fee structure obviously does not work in a machine economy.
Now consider the benefit of zero fee transactions. You can facilitate micro-transactions on an hourly (or even minute by minute) basis and never be penalized by fees. So, if your phone or laptop needs to access data from another device for the low cost of $0.002 per hour, no problem! You’ll transfer $0.002 - nothing more - and the merchant receives exactly what you transfer.
Or perhaps your autonomous car only charges up $0.39 worth of electricity at a nearby station before work. That’s fine too! In theory, your car may be engaging with hundreds of other services over the course of a single hour. Each of these service providers can easily be paid their fractions-of-a-penny due for that short period of time via IOTA, and none of them will be restricted by a fee structure.
How can IOTA Function Without Any Fees or Financial Incentive for Facilitating Transactions?
So, no fees... Almost sounds too good to be true, right? It’s real - though a bit complicated - but it truly works.
IOTA’s secure, fee-less method of conducting micro-transactions relies on the first practical implementation of a DAG, or “Directed Acyclic Graph.” The DAG architecture within IOTA is specifically named the “Tangle.”
Think of the Tangle as an endless cluster of nodes - each node being an IOTA transaction. When you attempt to make a payment with IOTA, you will first need to verify two other randomly selected transactions in the Tangle. Your electronic device will automatically handle these verifications for you by performing a small proof-of-work (PoW), which is essentially a computational puzzle.
After your device has completed its mission of verifying the two random transactions, someone else in the world will randomly select your transaction, perform the PoW, and your transaction will also be complete. The entire process can be completed in a matter of seconds. This cycle continues for all future transactions - everyone who sends IOTA also helps complete other transactions - and no additional incentive, such as transaction fees, are ever necessary.
It’s worth noting that the PoW required to verify transactions was previously misunderstood, and a common criticism of IOTA was that this mandatory verification of random transactions could be costly in terms of processing power. For example, if your phone is processing a bunch of data in the background every time you initiate a transaction - uh oh - couldn’t this wreak havoc on your battery life?
David Sønstebø, an IOTA co-founder, debunked this fear, explaining that the processing required for the PoW is negligible and should go unnoticed by users. In other words, battery life will not suffer and future IoT devices should not rack up unreasonable energy costs when approving other IOTA transactions.
Just Remember - There’s More to This Technology Than Money
There is no point in denying it - the cryptocurrency industry is full of hype and “Oooh I’m gonna be a millionaire” dream talk. For a pragmatist, reading all the day-to-day price speculation is probably akin to nails on a chalkboard. Please do not let the ceaseless drama discourage you from looking at the practical side of cryptocurrencies. Look beyond the short-term financial motivations.
It’s also true that IOTA is a long way from perfection. Could IOTA eventually be usurped by another DAG-based cryptocurrency - or perhaps by another distributed ledger technology and protocol altogether? It’s certainly possible. That’s why I encourage you to complete your own due diligence and examine the deeper purpose and vision behind cryptocurrencies and this IoT movement.
Fascinating innovations may soon come to fruition because visionaries, such as the IOTA team, are building transaction protocols and a storage of value that propels the development of new, IoT technology.
This is about something much bigger than “money.” It’s about transcending from the “Information” Age... to the “Connected” Age.