Even as bitcoin has usurped headlines and ratings, another lesser-known cryptocurrency has recently exploded in price. A month ago, IOTA, a coin for Internet of Things (IoT) transactions, was priced at $0.35 per pop and had a market valuation of less than $1 billion.
At 21:09 UTC Wednesday, it traded at $4.17 and had a total market capitalization of $11.6 billion. Last week, IOTA overtook Ripple to become the fourth most traded cryptocurrency in the world. In an interview with CNBC, IOTA co-founder David Sonstebo described it as a “sleeping giant.”
In a blog post about IOTA’s road map, David Sonstebo, co-founder of cryptocurrency, wrote that it was created to facilitate the “paradigm shift” to the Internet of Things by creating a de facto standardized “Ledger of Everything”. As he said, this means that the crypto would enable the exchanging of data between sensor-equipped devices that inhabit the Internet of Things.
IOTA does not use the conventional blockchain architecture used by the majority of cryptos. Instead, it has developed a new platform called Tangle, which uses a mathematical framework known as Directed Acyclic Graphs (DAGs). In order for its own transaction to be true, each node in the DAG Tangle must accept two prior transactions at another node. It has two effects. First, it excludes “miners” as agents to verify transactions, eliminating a potential bottleneck when transaction speed and numbers are high. Also, the growth and speed of the network is directly proportional to the number of its subscribers.
IOTA still does not have transaction costs and says that it has overcome scaling issues, such as network delays due to block congestion, relevant to bitcoin.
The use of IOTA is intended to simplify transactions and processes involving sensor objects. A simple use case is that of an IOTA-enabled vending machine that can dispense soda without the associated transaction costs and bitcoin latency.
A more sophisticated usage case is seen in a Reddit chain. For eg, you could be able to scan a code at the bottom of your milk carton and have it sent to you by Amazon to your door using IOTA funds. Again, this is not feasible for Bitcoin due to its heavy transaction costs and network delays.
What Caused the Recent Spike in IOTA’s Valuation?
According to the consultancy company Bain, the IoT industry is expected to be worth $470 billion by 2020. IOTA is an early mover in this room with the IOTA Foundation, the German nonprofit behind the crypto. It has also collaborated with companies that will play a leading role in IoT, such as Cisco Systems Inc. (CSCO) and Samsung Electronics Ltd. (SSNLF), to create a data market that can be monetized later. IOTA has collaborated with Innogy, an energy firm, too.
Kerstin Eichmann of Innogy believes they can hope that the computer will be able to pay for its installation, repair, energy and liability insurance by supplying data, computing power, storage or physical resources to other devices. The network impact of these collaborations is supposed to make IOTA and nanotransactions more common on its platform. At the end of 2016, IOTA claimed that it had processed more than 3 million transactions on its platform.
What’s The Catch?
The Internet of Things is a glamorous buzzword, but it may be a while before the sensor-filled future of machines becomes a reality. IOTA is still a project in development that aims to boost vulnerabilities in its protocol. For eg, the MIT Media Lab recently uncovered a security problem with Tangle. According to the MIT team, the IOTA protocol hash function, Curl, triggered collisions or a condition where different inputs suggested the same output.
Neha Narula, director of the MIT Digital Cryptocurrency Initiative, said that as soon as they developed their attack, they could find collisions using commodity hardware in just a few minutes and forge signatures on IOTA payments. IOTA fixed the problem later.
Adopting cryptocurrency prices may also be stymied if figures in the IoT and e-commerce sphere, such as Amazon.com Inc. (AMZN), create their own cryptocurrency or form their own independent data exchange partnerships.