Welcome back to our tour of the cryptocurrency landscape. In the last post, we discovered Cardano, a self-described “third-generation” cryptocurrency touting robust development practices and a three-fold goal of implementing scalability, interoperability, and sustainability into the current crypto world. Cardano is quite unique in that it uses a proof-of-stake algorithm (Ouroboros) as opposed to the more well-known proof-of-work algorithms for verification and validation of transactions on the network. Because of this, there’s no need for energy-gulping machine monsters spitting out hashes faster than a miscreant kid with soap in his mouth. Instead, Cardano has organized a well-oiled machine of nodes, slot leaders, and methods to govern a sustainable blockchain implementation. Cardano hopes to implement its own network architecture – RINA – into the space to allow for smarter notification of activities to only necessary recipients.
What is IOTA
In this final leg of the journey across the cryptocurrency landscape, we’re going to take a look at IOTA. While the coins we’ve looked at so far have dealt with businesses or personal payments or exchanging money with a friend, IOTA is actually built for…machines to use?
Yep, you heard me right. Ever heard of the Internet of Things (IoT)? This is a world unto itself filled with microprocessors and Internet-connected devices ranging from thermometers to refrigerators to industrial control systems and beyond. Machines are becoming more and more autonomous, and as they advance, IOTA hopes to fill the void in microtransactions on a machine-to-machine basis in seeking to enable and enhance a niche, but ever expanding, market.
IOTA is a fascinating
cryptocurrency and has so many features to explore that it’s hard to know where
to start. Let’s begin by talking about
Oh, wait, it doesn’t have a blockchain?
Nope, IOTA actually uses a distributed ledger based on a stream of individual transactions that have been “tangled” together. And, as luck would have it, this mesh of transactions is known as Tangle. Take a look:
A standard blockchain’s bottleneck vs.
the IOTA Tangle.
Image taken from IOTA’s FAQs.
Before we dive into the details, let’s talk about Figure 1.
As can be seen in the first image, a standard blockchain requires a single stream of blocks to be output from a single validation point. This means that a network under heavy load may experience excessive latency in confirming transactions (and with Bitcoin’s average of 6 transactions per second, it’s easy to see why some validations can take many hours).
Take a look at how the Tangle differs – there’s no single, synchronous output of blocks. Instead a mesh of blocks that all refer to each other pass the same validation point but can do so much more quickly. It’s almost like trying to fit all traffic flowing into New York City into a single lane on the highway – you’ll never get to Times Square (at least not within the next week). Imagine all of the same traffic on a 27-lane highway though; you could really move a lot of cars at once on a road system that big!
This is the beauty of the Tangle. Because it’s distributed and permissionless, the web of transactions (technically referred to as a Directed Acyclic Graph or DAG) can increase tremendously to support a seemingly boundless flow of traffic.
Tangle Fees For Transactions
In addition speaking of transactions, there’s no fees of any sort to exchange MIOTA (the official name of IOTA’s token). This means that you could send your friend something as small as $0.01 (a penny in the USA), and your friend would receive $0.01. Nothing taken out. No fees removed or retained. Just money exchanging wallets.
But how can this be? The whole point of miners is to validate transaction on the blockchain – if there are no fees, there is no incentive to validate transactions…? Yet again, the beauty of the Tangle and IOTA’s methodology at work. When you make a transaction, you must validate two other transactions that get attached to your transaction. These in turn get re-validated over and over again leading to a trustworthy exchange of MIOTA among various nodes in the network. And, counterintuitively, the more transactions that are occurring on the network, the faster the transactions are validated. This is because there are more symbiotic relationships formed each second that allow for the mutual validation of transactions.
Tokens on IOTA
One more thing about the currency itself – all IOTA tokens that will ever exist were already created in the genesis block. For instance, at the very outset, 2.779 x 10^15 (yes, that’s peta-IOTA) tokens were created and will never be replenished. IOTA has no native method for “burning” tokens. Sure, you could send them to an address and never let them see the light of day again, but from a practical standpoint, all tokens that exist currently will forever exist in some fashion within the network.
What kind of cryptography is incorporated within IOTA? A new kind of cryptographic hash function known as Curl forms the basis of block signing. Curl is specifically optimized for utilization by low-power devices and as such is small and quite efficient. From a transaction validation standpoint, both computational power and Internet-facing bandwidth constrain the abuse that could be inflicted by malicious actors. Computational power is constrained by the solving of a random nonce (similar to the way Bitcoin nodes validate transactions). As more computational capability enters the network, the nonce values can fluctuate to ensure the honest capability far exceeds that of the malicious actor. Although it continues to grow exponentially each year, bandwidth is a limited resource – it would be next to impossible for a malicious actor to employ more bandwidth than the entire network of honest transactions.
Curl Signatures on the Tangle
Another important aspect about the cryptography of IOTA is how Curl differs from other signing approaches. Instead of utilizing elliptic curve cryptography, IOTA instead uses hash-based signatures that claim to be quantum-proof. The cryptography behind this will be discussed in a future post, but for now, check out this article for a very in-depth look at what this claim means.
Ultimately, it’s a moot point to claim with 100% certainty that no future quantum computing methodology could break Tangle, sure. But there are very strong proofs that can be used to show that, at least with the current technology, Curl will be resistant to brute-force attack by quantum computers. Final answer: we’ll see. Check out some of the whitepapers on IOTA’s site – these are semi-scholarly articles that will provide all the details you could want (and hopefully at least most of the answers you’re looking for).
Vulnerabilities in Curl
One thing to mention before we move on: researchers at MIT discovered a vulnerability in Curl in 2017 that led to the modification of the signing algorithm. The hashing algorithm Curl had previously used was found to produce collisions. In other words, multiple values could be found to produce the same output values such that an attacker could craft a message that would be interpreted as valid after hashing. Luckily, this problem was responsibly disclosed, fixed, and later updated with no known attacks in the wild.
From an investment perspective, what has IOTA looked like in the past few years? Eh, it’s not been everything that was originally hoped and dreamed. After a hack of the Trinity wallet used by IOTA and missteps in the overall governance of the network, MIOTA has not seen the rise in market performance other coins have seen. It’s a bit unfortunate that this is the case as there is no clear-cut contender for the space that IOTA possesses (that of being involved in the Internet of Things and the impressive scalability / unique Tangle design). Nevertheless, the IOTA team continues development and further enhancements to the system. With the world of Internet-connected devices growing leaps and bounds every year, it seems like the markets shouldn’t count IOTA out (here’s hoping they don’t experience any more major hacks or blunders).
Learn More About IOTA
Well, we really hope you’ve enjoyed this 5-part tour of the world of cryptocurrencies. There are so many other coins out there to explore, but hopefully this laid a foundation to understand a few major players in the space and some of the technological aspects behind how all of this crypto world operates. Still interested in learning more about IOTA? In particular, check out a few of these articles:
- The best place to get information? Straight from the source – IOTA’s FAQs.
- This article is a straightforward, to-the-point look at IOTA and several facets behind its claims to fame.
- Want some technical information? How about details concerning using the IOTA network for yourself? Check this out.
- Finally, a so-called “beginner’s guide” chock full of information about IOTA.
Now you know everything there is to know about cryptocurrencies, so it all ends here. Haha, just kidding. There are so many avenues to explore and details to uncover. Coming up, we’re going to really dive into the cryptocurrencies we mentioned in this past series starting with Ethereum. Thanks for reading, and we look forward to seeing you again soon!