IOTA – Internet of things – analysis – why invest?

Another cheap cryptocurrency that’s on the rise is IOTA – Internet of things. In human language, this means connected devices around you – in your household for example. Things connected to the internet around you – like a smartwatch. They can communicate and do things for you. IOTA is a solution to push this movement further. It is not running on a blockchain, as do most of the other cryptocurrencies. And that’s its key benefit, bringing other benefits like 

    1. Scalability (better than blockchain or bitcoin)
    2. Decentralisation (even more than bitcoin)
    3. Modularity
  1. Lower fees

IOTA is running on a system called the Tangle. In simple terms, it’s more efficient than blockchain, because it doesn’t create two participant groups – miners and users – as the blockchain does. On blockchain, the miners with the most powerful machines get the most transactions and fees. A level of centralisation happens, which is what the blockchain system was designed to remove. If you want to use IOTA (send a transaction), you have to do the work as the miners do on blockchain. In other words – if you want to make a transaction, you have to process two other transactions. You are the user and the miner. And there’s no reward system like on blockchain, so no one gets more or less based on their purchasing power (like on blockchain – buy better machines = get more transactions = get more rewards).

The differences:

Blockchain (like Bitcoin):

  • users send transactions and pay a fee so the transaction gets processed
  • the faster you want it processed, the higher the fee (financial reward for the miners)
  • miners process transactions (write them into the blockchain)
  • they process transactions with higher fees first
  • miners with better equipment get to process more transactions
  • this creates a system, where it’s no longer financially viable for users to do the mining too and big miners are getting more control
  • if there are transaction spikes, a backlog is created and who pays more, get’s there first – unfair system

 

Tangle (IOTA):

  • users send transactions, but in order to use the system, they need to process someone elses transactions
  • users are therefore using and helping to run the system at the same time
  • no financial rewards
  • all users are equal
  • there are no fees
  • there isn’t any backlog of unprocessed transactions, because if you want yours to go through, you have to process two another – so there’s always bandwidth for more

Removing any financial rewards from the system makes it truly equal, fair and neutral. There’s no benefit to be gained if you process huge amount of transactions.

Why is IOTA so good?

source: IOTA foundation blog

It creates scalability for connecting millions of small devices into one pool. Think smartwach, but for many other things you use daily – your fridge can communicate with your computer or Amazon account and let you know that you’re running out of almond milk. Or if you allow it, it can order it for you. Or your washing machine can report issues to the manufacturer. Or your car can charge itself and then pay at the same time – you just approve the transaction.

Bitcoin has scalability issues – as we have seen in November 2017 and the backlog of unprocessed transactions or fees increase. You can’t use it for micro transactions if the fees are high.

IOTA creates a system for devices to communicate (machine to machine) that’s scalable and has no fees – and is therefore the best candidate for Internet of things industry application. It costs $ 0.94 as of today and therefore has plenty room for growth. Investing a few hundred today can grow exponentially – to several thousands, whilst the downside (what you can loose) is limited.
If you ask me – it’s a very good opportunity to invest into something that has a strong potential to grow big. Say you invest $100. If the whole thing dies, you lose $100. But if it shows growth close to Bitcoin, you’ll be a happy investor.

 

My key indicators why IOTA could be a good investment:

  • they have been around since 2014
  • their code is public https://github.com/iotaledger
  • IOTA is the 8th biggest cryptocurrency in terms of market size (cap)
  • they are first of their kind (same as bitcoin was), they address or solve a big issue with blockchain / bitcoin (fees and scalability) and their use is very wide – machine to machine micro transactions, first without transaction fees – remember another cryptocurrency that started at a few cents as first of it’s kind? Yep, BTC and it’s $8000 a piece today.
  • no known hacks, issues, scandals since inception in 2014
  • offer product & service as well as a cryptocurrency that’s actively used in the market for years now, growing trend
  • their data marketplace project has some strong partners (Microsoft, Fujitsu, Bosch, T-com etc.) on board and is more than promising
Cryptocurrency / ICO IOTA
Years around since 2014
Marketcap $2,630,650,302
Marketcap rank 8
Code public? Y
Has it’s own cryptocurrency / coin, is it usable in the market? Y
Business model – does it address a solid need / market gap? Yes – machine to machine micro transactions, first without transaction fees, FIRST OF ITS KIND
Key USP (unique selling point) – first tangle solution (alternative to blockchain)
– NO FEES
– really decentralised
– gets faster with more users
– lays the foundation for quickly changing machine learning industry
– wide adoption possibilities
Challenges? Big companies like Apple, Amazon, Google can create their own Tangle networks and block IOTA from use. Although it’s unlikely – like with Android, it’s more likely to be bought by a big company rather than replaced
Adoption? Innogy (RWE group), Canonical (behind Ubuntu)
Official list of investors – corporate investors? N
Any hacks, scandals, known major issues? N
Warnings? It’s very early days – althoug the idea has been around since 2014, the IOTA coin has only entered the markets in june 2017

 

Is anyone already using IOTA?

It is already being used in projects by companies like:

 

Where to buy IOTA?

I recommend Bitfinex:

  • open an account
  • buy BTC or other cryptocurrency as Bitfinex doesn’t accept deposits in USD currently
  • exchange BTC for IOTA
  • hold 🙂

Where to store IOTA?

I’m afraid for now there’s not many options. Best is to keep them on Bitfinex.com – read why in our analysis of IOTA wallets.

From their whitepaper:

“IOTA is an open-source distributed ledger protocol that goes ‘beyond blockchain’ through its core invention of the blockless ‘Tangle’. The IOTA Tangle is a quantum-proof Directed Acyclic Graph, with no fees on transactions & no fixed limit on how many transactions can be confirmed per second in the network. Instead, throughput grows in conjunction with activity in the network; the more activity, the faster the network. Unlike blockchain architecture, IOTA has no separation between users and validators; rather, validation is an intrinsic property of using the ledger, thus avoiding centralization. IOTA is initially focused on serving as the backbone of the emerging Internet-of-Things (IoT). For a more in depth look at the technical design of IOTA read their https://iota.org/IOTA_Whitepaper.pdf

And a good IOTA introduction video:

As always – invest  – it’s very speculative, new and volatile market, don’t bet all your savings on it.

I will share many more suggestions what to buy like this one – if you are looking for useful info like this, Become a patron, support me and get access to more premium articles, useful information on cryptocurrencies, blockchain – how, where, tools, why…

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