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Why Is Everyone Talking About IOTA?
Things have changed a lot since Bitcoin first appeared in 2009. Few could have predicted the explosion in alternative cryptocurrencies that followed. Now there are hundreds of new cryptocurrencies vying for a space in the market, each with their own specific niches and specialties.
In many ways, IOTA (MIOTA) can be regarded as an attempt to move cryptocurrency beyond the blockchain. It uses a directed acyclic graph (DAG) called Tangle in order to attempt to solve the scalability problems that plague Bitcoin, and to facilitate free microtransactions between Internet of Things devices.
IOTA is the first cryptocurrency aimed at taking advantage of the potential offered by IoT devices and its use of DAG makes it a unique offering in the cryptocurrency world.
Five Interesting IOTA Facts You May Not Know
- IOTA began development in 2015 and many of the IOTA tokens were sold during a crowdsale from November to December 2015, during which 100% of the token supply was issued.
- After the crowdsale, a significant portion of the IOTA community decided to donate 5% of all IOTA tokens toward the non-profit IOTA Foundation. This organization is designed to incentivize future development of IOTA.
- Transactions using IOTA aren’t processed on a blockchain like other cryptocurrencies. Instead, IOTA uses a directed acyclic graph called Tangle in order to facilitate large numbers of transactions without running into Bitcoin scalability problems.
- IOTA is specifically designed to operate on the Internet of Things devices, such as smartwatches and weather trackers. The aim of IOTA is to allow owners to monetize the useful data stored within these devices.
- The Proof of Work (PoW) consensus method used by IOTA is designed to be low powered enough that ordinary Internet of Things devices are able to process transactions on Tangle.
Data from U.S. Equity Research estimates that the cryptocurrency market is expected to grow at a 32% rate by 2023.
According to RnRMarketResearch:
Growth is propelled by the benefits of compliance-free peer-to-peer transaction, cross-border remittance transfer, increase in use cases, volatility in the stock market, fluctuating monetary regulations in different countries, transparency, and immutability of the distributed ledger technology and benefits such as faster transaction and reduction in total ownership cost.
Despite the potential offered by IOTA, Kyle Samani has criticized the cryptocurrency:
Others, such as Bret Greenstein, VP of IBM's Watson IoT Consumer Business, believe that the blockchain could be a game changer for the internet of things:
What people missed about blockchain, because they were so focused on the financial side of things, which is the obvious use case” he told Forbes “is that all of this IoT data, particularly in supply chains or where things move between owners, requires all of that data to be stored in some kind of unchangeable record.
A Brief History Of IOTA
IOTA began in 2015 when it was founded by a team consisting of David Sønstebø, Sergey Ivancheglo, Dominik Schiener and Dr. Serguei Popov. Popov, Serguei and Ivancheglo helped complete the mathematics and programming behind the unique Tangle system. David Sønstebø is the project lead.
In December 2015, IOTA hosted a crowdsale, during which the entire supply of money was distributed. The event raised around 1,337 Bitcoin for the future development of the project. After the crowdsale, the community decided to donate around 5% of the total supply of IOTA towards the non-profit IOTA foundation. The community subsequently funded “The Big Deal” which aimed to gain corporate collaborations for IOTA.
September 2017 marked the beginning of a rocky period for the cryptocurrency. A team from the MIT and Boston University investigated the hash function, Curl, written by the IOTA team. They found that the hash produced collisions (when different inputs hash to the same output). This allowed the MIT team to develop an attack that could forge signatures on IOTA payments. The team rapidly patched the hole but the incident raised serious concerns about just how secure IOTA’s self-made cryptography was.
The bad press continued in December 2017 when various media outlets announced that IOTA was partnering with a number of tech giants, including Microsoft. This led to a 90% surge in the value of IOTA. It quickly became apparent that the claims had been exaggerated and IOTA was forced to release a lengthy retraction. The IOTA foundation claimed that any exaggeration was the fault of individual journalists and not their PR team. However, IOTA’s poor handling of the situation raised a number of questions.
Despite these incidents, IOTA has continued to enjoy broad support from traders and benefited from the cryptocurrency boom that began in late 2017.
What Is IOTA?
IOTA is a cryptocurrency designed to operate as the backbone of the Internet of Things economy. IoT devices have become an increasingly important part of the world economy. It is estimated that the IoT market will be worth $475 billion by 2020 with a compound annual growth rate of 28.5%. These devices all generate a lot of data that non-related companies might find useful. Unfortunately, at present, there isn't a way for those companies to purchase this information. IOTA is designed to offer a solution to this problem by creating a fee-free cryptocurrency that can operate on the most humble of devices.
Traditional blockchain technology is not particularly well suited for the IoT. Bitcoin and other blockchain-based cryptocurrencies run into scalability issues and the fees required to make a transaction mean that sending a microtransaction (say $0.01) is unviable.
In order to provide a solution that is fit for the IoT, IOTA needs to ensure that it is scalable, can process transactions quickly and can process Microtransactions without burdensome fees. To do this, IOTA looked away from the blockchain and opted to use a different kind of technology – a Directed Acyclic Graph called the Tangle.
The Tangle gives IOTA two main advantages over traditional blockchain technology:
- It eliminates the need for miners: Each transaction must process two other transactions before it can be accepted on the network. The Proof of Work required to process these transactions is so low power that essentially any device is capable of doing so. This means that miners are not necessary to maintain the integrity of the network and, thus, fees associated with mining are eliminated.
- It allows for near infinite scaling: When transactions are processed in a blockchain they are all grouped together and processed at once. This causes problems when there are a lot of outstanding transactions on the network. If they can’t all go into a block then they have to wait for the next block to be processed. The Tangle gets around this by processing each transaction individually. Before any transaction can be processed it needs to process two others, either directly or indirectly. This theoretically allowed the Tangle to accommodate an infinite number of devices.
Another feature of IOTA is the so-called Quantum Proof. This uses hash-based signatures that are generally faster than elliptic curve cryptography (ECC). Hash-based signatures also help simplify the signing and verification process and help reduce the overall complexity of the Tangle protocol.
These features are designed to make IOTA uniquely suited to being utilized by IoT devices.
IOTA vs BitcoinHow does IOTA compare to the leading cryptocurrency Bitcoin? What are the key differences? See below for our head-to-head comparison:
|IOTA (MIOTA)||Bitcoin (BTC)|
|Purpose||An attempt to move cryptocurrency beyond the blockchain||Decentralized digital currency|
|Founder(s)||David Sønstebø, Sergey Ivancheglo, Dominik Schiener and Dr. Serguei Popov||Satoshi Nakamoto (alias)|
|Market Cap||Over $5 billion||Over $250 billion|
|All time High||$5.80 (December 2017)||$19,908 (December 2017)|
|All Time Low||$0.1427 (July 2017)||$0.06 (July 2010)|
|How long did it take to hit $100?||N/A||51 months|
|Notable Supporters||Jeff Currie (Goldman Sachs)|
Peter Theil (Venture capitalist)
Christine Lagarde (IMF)
Marc Andreessen (Early internet Pioneer)
|Initial Distribution||Directed Acyclic Graph||Mining|
|Consensus Method||Proof of work||Proof of work|
|Network Hash Rate*||Over 40 BTC per hour|
|Difficulty Increase||Every 2,016 Blocks|
How is IOTA Made?
Unlike most cryptocurrencies, IOTA does not use a blockchain. This means that there is no need for anybody to mine tokens in order to ensure the integrity of the blockchain. As such all IOTA tokens were created at launch with a fixed supply of 2,779,530,283,277,761 tokens.
How Does Tangle Work?
Instead of a blockchain, IOTA is powered by a DAG called the Tangle. The team behind IOTA decided to use a DAG rather than a blockchain because they believed it would help resolve many of the scalability and cost problems associated with a blockchain. The Tangle allows each transaction to be processed individually, rather than simultaneously, and even allows for them to be processed asynchronously.
A Tangle is composed of sites and nodes. Nodes are the users of the Tangle who are able to issue transactions while sites contain one or more transactions that link together.
In order for a few transactions to be processed, it has to process two previous transactions. This theoretically allows the network to grow infinitely and even allows for faster processing when more devices are connected to the Tangle.
All nodes are subject to a propagation incentive whereby they are dropped by their neighbors if they do not process enough transactions.
It is possible for Tangle to process asynchronous transactions. The network works under the assumption that any incorrect transaction would be automatically orphaned, or erased, as the tangle grows.
A new unapproved transaction is called a Tip. Each new Tip should reference two previous transactions. Ideally, the network uses the Random Walk Monte Carlo240 algorithm to ensure that only good tips are chosen. This randomly checks a large number of nodes against the last known “legitimate” node, and if a sufficient percentage of checked nodes are good (generally 95-99%) the transaction is considered validated.
This consensus method is effective because every new tip must approve two older tips before it can be considered valid itself. This means that as more devices are added to the network it theoretically becomes easier to find consensus.
The problem with this method, however, is that it requires a very large network to function correctly. So initially, all Tip validation is controlled by coordinator nodes. Every minute the coordinator node makes a normal transaction with its signature on it, known as a milestone. In order for a transaction to be considered verified, the newest milestone must directly or indirectly verify your Tip. A milestone signature cannot be faked, so this helps prevent a malicious actor from hijacking the Tangle and creating fake signatures.
While an effective solution, the coordinator node has received a great deal of criticism for being too centralized. The argument is that if the coordinator node is somehow compromised then it could create two separate Tangles and double-spend funds on the network.
IOTA has argued that while the attack is theoretically possible, it would be economically illogical, so should not be a concern. They have also stated that the Coordinator node is a purely temporary solution to the small network size. Once the network is large enough to be self-sustaining, the Coordinator will be turned off and the Random Walk Monte Carlo algorithm will be used in its place.
What is the Price of IOTA?
What Drives the Price of IOTA?
Despite being a unique currency, the price of IOTA is governed by the same factors as more traditional blockchain-based cryptocurrencies. Even by cryptocurrency standards, the price of IOTA has always fluctuated wildly – however, it has generally trended in an upward direction.
One of the most important price drivers for a service-focused cryptocurrency, like IOTA, is corporate partnerships. When the media believed that IOTA had managed to form a partnership with industry giants on the launch of their data marketplace, the value of IOTA surged by 90%. This then dropped by 15% after IOTA and Microsoft issued a clarification that they were not engaged in a direct partnership. If any future collaborations are announced then you should expect to see major price rises.
Media attention and hype about new features also plays a key role in determining the price of a cryptocurrency. If a token appears in the news regularly, you should expect to see a sudden surge in price. This is often followed by a short, sharp corrective period as traders engage in profit taking.
What is the Price Outlook for IOTA and What Do Experts Say?
As with most cryptocurrencies, the short-term price outlook for IOTA can be described in one word – “volatile.” The cryptocurrency market is still young and, therefore, still unstable. That's why you should expect fairly big peaks and troughs in the short term.
On a medium- to long-term basis, the future of IOTA is very much tied up in the future of the Internet of Things. If IoT devices continue to grow in popularity, IOTA will serve as an incredibly useful purpose by facilitating simple machine-to-machine transactions. However, if IoT doesn’t take off, IOTA could find itself at something of a loose end.
IOTA is a new, fairly experimental piece of technology so it shouldn’t be surprising that experts have been vocal about it. Even MIT is divided over whether they believe that IOTA will be successful. The MIT technology review released an article stating that they believed IOTA could outperform Bitcoin. MIT media lab quickly shot back, arguing that many of the points in the technology review article were either incorrect or misleading.
This wasn’t the first time the MIT media lab had criticized IOTA. A team from MIT and Boston University had previously found vulnerabilities in IOTA’s code that allowed it to be easily attacked. While IOTA quickly patched the vulnerability, the MIT team argued that IOTA had made a mistake by breaking the first rule of cryptography, don’t roll your own crypto.
It is notoriously difficult to design your own cryptography and most systems undergo years of rigorous tests before they are allowed to go live. When told about the vulnerability, Bruce Schneier, a renowned technology and security expert, said:
In 2017, leaving your crypto algorithm vulnerable to differential cryptanalysis is a rookie mistake. It says that no one of any calibre analyzed their system, and that the odds that their fix makes the system secure is low.
Sergey Ivancheglo said that the flaw was a deliberate attempt to copywrite the code:
Remembering how quickly Nxt protection was disarmed I was keeping in secret the fact of existence of such mechanism in IOTA. I was pretty sure that the protection would last long time because it was hidden inside cryptographical part and programming skills would be insufficient to disarm the mechanism. But nothing lasts forever and finally the copy-protection measure was found by Neha Narula’s team.
Many, such as Ethereum developer, Nick Johnson, have argued that this excuse is not only inadequate but even hostile towards the very concept of open source technology:
It honestly astounds me that anyone would think this justification redeems them; it’s an admission of hostile intent towards the open-source community, akin to publishing a recipe but leaving out a critical step, rendering the resulting dish poisonous to anyone who eats it.
Despite the open hostility of many experts and developers from other cryptocurrencies, IOTA has found support from other sectors. A large number of companies have been working with IOTA to attempt to develop their data marketplace. Bret Greenstein, IBM’s VP of IoT consumer business demonstrates that IOTAs strongest supporters will probably continue to come from the corporate sector.
IOTA Market Sentiment
We’ve gathered data from leading exchanges to determine the general feeling in the IOTA market. Its calculation is simple; using data from the exchanges listed below, we gather buy and sell volumes for a given time period and weight this against the total transaction volumes.
2 Reasons to Invest in IOTA
- First mover advantage
- Dedicated community
First Mover Advantage
IOTA is the first major cryptocurrency to look at using a DAG in order to process transactions. If their experiment proves a success, they will gain the advantage of being the first in a new field. As with Bitcoin, early traders will reap the greatest rewards for taking a risk on untested technology. Despite the flaws in its security, IOTA is an interesting experiment and this alone makes investing even a small amount worth considering for some.
Most cryptocurrencies have their cheerleaders but the IOTA community can be downright fanatical. IOTA has a very active Slack channel where users are more than happy to extol the virtue of the cryptocurrency. These kind of users are in it for the long haul and will likely hold their assets no matter what. This could help mitigate any drops in IOTA’s value as the community resists the urge to engage in profit-taking.
2 Reasons Not to Invest in IOTA
- Security concerns
- Reliance upon the success of the Internet of Things
Despite the promise behind the technology IOTA has been plagued with concerns over the security of the Network. The most damning criticism stems from the fact that the team decided to roll their own crypto. This is a very risky thing to do – most cryptography goes under months or even years of testing before it considered safe enough to be used in the wild. Using untested cryptography in a network that will handle financial transactions could be a recipe for disaster.
Reliance On the Success of the Internet of Things
The success of IOTA is very much reliant on predictions about the IoT being correct. While the IoT industry is expected to grow rapidly, there have been reports of slow adoption among business and home users, although there are signs that this is changing. The IoT is filled with security risks, highlighted by a spate of recent attacks using poorly protected default passwords. Privacy concerns have also been raised and could slow down adoption.
If the predictions prove to be correct and the Internet of Things takes off, IOTA will have the perfect conditions to succeed. If, however, consumers hesitate to adopt IoT devices then IOTA may begin to struggle. An investment in IOTA is essentially reliant upon the IoT being successful.
How to Buy IOTA
So, you've decided that investing in IOTA is the right decision. The next challenge is figuring out how to buy IOTA. Acquiring IOTA isn’t as simple as acquiring Bitcoin, Litecoin or Ethereum. If you want to buy one of the “big three,” then it is possible to purchase them directly using fiat currency. Some exchanges will even let you use your credit or debit card. IOTA, like most other altcoins, can generally only be obtained by trading it for other cryptocurrencies through an exchange. The simplest way of doing this is is to trade Bitcoin for IOTA.
Most users will opt to go through an exchange like Bitfinex. This involves using fiat currency to purchase cryptocurrency and storing your newly acquired tokens in a virtual wallet. While this approach is common, it comes with some inherent risks. You need to make sure you do your research properly and choose a reputable exchange.
If you want to buy Bitcoin to trade for IOTA then one choice is an exchange called Coinbase. There are a lot of options out there but Coinbase is one of the best choices for newcomers to the cryptocurrency world. It has an easy-to-understand interface and you even have the option to buy BTC using your credit or debit card. Coinbase’s fee rate is competitive. Purchasing BTC will typically result in a 3.99% fee if using a credit or debit card and a 1.49% fee for the majority of bank transfers.
Coinbase requires ID and your address when registering. This is to comply with anti-money-laundering (AML) and know your customer (KYC) legislation. While not technically a legal requirement in most countries, ID checks are considered best practice by many exchanges. It helps prevent the exchange from being used to conduct criminal activity. However, there are legitimate reasons to not want your ID revealed to an exchange and privacy-conscious traders will want to take a different route.
If you are unwilling or unable to reveal your identity, you can instead choose to purchase Bitcoin through LocalBitcoins. This peer-to-peer exchange does not require any identification and it allows users to purchase Bitcoin with almost any currency.
If you decide to use LocalBitcoins you should remember to vet other users thoroughly. The exchange has a review function and you really should use it. Some unscrupulous users have been known to attempt to scam new traders. If you are unsure about a user or see bad reviews, it is generally safest not to make the trade. Some LocalBitcoins users will even meet in person to conduct business in an attempt to ensure both parties are being honest.
However you choose to acquire your Bitcoin the next step is to convert it into IOTA.
Binance is an exchange that's focused on Chinese and English language users. It has almost all of the major coins as well as some of the smaller cryptocurrencies. Binance is a good choice thanks to its relatively low trade fee of 0.1% and minimal withdrawal fees.
The process can be a little daunting for new users but it is not as complex as it looks at first glance. Once you have made your account, the first step will be to go to the “deposit” section and acquire your deposit address (it will be a string of numbers and letters). Keep this, you’ll need it in a moment.
Go back to your coinbase account and find your Bitcoin wallet. Click send and paste in the exact address provided to you by Binance. Click send and wait 40-60 minutes (depending on the amount of activity on Bitcoin). Once your funds are verified, your Binance wallet will be automatically updated.
Now you can finally trade your Bitcoin for IOTA. Go to the exchange tab and click basic. Next search for IOTA in the box on the right and click “market” in order to buy IOTA at the current market price and place your order. Now you just need to wait for your order to go through and once it does you will have your first IOTA tokens.
Keep in mind that exchanges are not safe and you will need to be serious about your security. Always enable two-factor authorization and avoid keeping all of your coins in a single wallet. Also, remember that you should never leave your coins in an exchange wallet unless you are planning to exchange them. The best way to secure your IOTA is in a hardware wallet or by putting them in cold storage.
Cold storage involves keeping your cryptocurrency in an offline wallet that only you have access to. Remember that you are entirely responsible for your own security. If you don’t own the keys to your wallet, you don’t own your tokens. You will also need to take extra care to ensure that your computer is secure and password protected. Any breach could result in your coins finding their way into the wallet of a hacker.
Managing your own IOTA isn’t an easy task. Not only do you have to navigate the exchanges but you will also need to take extra care to keep your computer secure. You will need to take extra precautions to protect yourself against phishing scams, viruses and other risks. You will also need to keep very careful track of your wallet’s access codes. If you misplace those then your IOTA investment will be trapped in a wallet you can no longer access.
To make matters worse, there is a number of risks that are completely outside of your control. Whenever you use an exchange to trade IOTA you are relying upon them to protect your investment. The problem is that exchanges have a record of failing to properly protect their users.
The most well-known example is the MtGox debacle. In 2013, MtGox was by far the largest Bitcoin exchange with control over 70% of the market. The cracks started to show in May of 2013 as FinCEN seized their accounts. This led to many users losing the ability to withdraw USD from the exchange. The situation continued to deteriorate as hackers attacked MtGox and stole around $500 million worth of Bitcoin, forcing MtGox to file for bankruptcy.
Sadly, it seems that exchanges have not learned their lesson. In August 2017, Bitfinex was hit by a similar hack. The attackers emptied random wallets and stole around $72 million worth of cryptocurrency. In order to prevent individual users from losing everything, Bitfinex decided to spread the losses, reducing everyone’s account balance by 37%.
Many traders will balk at this level of non-market related risk. The question is, how can you trade IOTA without putting yourself in the hands of a potentially incompetent exchange?
What’s The Best Way To Buy IOTA?
Our preferred option is to trade contracts for difference (CFD) using a regulated broker.
A CFD is a contract between you and the broker. Instead of directly buying IOTA, you are taking a short or buy position. You will then make or lose money depending on the direction that the market moves in. This allows you to take advantage of shifts in the market without ever actually owning any IOTA. In short, you can profit from IOTA without ever owning a single token.
There are a staggering number of brokers out there and it can difficult to separate the good from the bad. The first rule is to always make sure that you go through a regulated broker. Regulated brokers comply with strict standards to protect your money.
You should also take into account any commissions, overnight fees and any risk management tools that the broker might offer. We also recommend that you take advantage of available demos before committing to a platform.
It can take a lot of time and energy to select a platform but luckily for you, we’re here to help. After going through an extensive list of options we have come to the conclusion that our best pick for trading in IOTA CFDs is Plus500.
Plus500 – Our Best Pick for Trading IOTA CFDs (76.4% of retail CFD accounts lose money)
Plus500 is a way to trade Cryptocurrency CFDs. Plus500 subsidiaries are individually regulated by the following agencies; Financial Conduct Authority (FCA), Cyprus Securities Exchange (CySEC), Australian Securities and Investments Commission(ASIC).
See the table below for exactly which regulator covers you in your country and what protection is offered:
|Regulator||Countries Covered||Protection Offered||Additional Protection Offered|
|Financial Conduct Authority (FCA)||UK, Ireland and Germany||All client funds are held in a segregated client bank account||Clients of Plus500UK Ltd would fall under the ‘investments’ claim category, whereby the cover is £85,000 per person per firm.|
|Cyprus Securities Exchange (CySEC)||Andorra, Argentina, Austria, Bahrain, Belgium, Bulgaria, Chile, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Gibraltar, Greece, Hungary, Iceland, Isle of Man, Israel, Italy, Kuwait, Latvia, Liechenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Monaco, The Netherlands, Norway, Oman, Poland, Portugal, Qatar, Romania, Saudi Arabia, Slovakia, Slovenia, Spain, South Africa, Sweden, Switzerland, United Arab Emirates and Uruguay.||All client funds are held in a segregated client bank account|
|Australian Securities & Investments Commission (ASIC)||Australia, New Zealand and South Africa||All client funds are held in a segregated client bank account|
How Much Does It Cost to Trade IOTA CFDs with Plus500?
One of the big draws of Plus500 is its competitive fee structure. Unlike some other brokers, they charge zero commission. Instead, users are only charged on the spread of their CFD trades (spreads vary). You should keep in mind that there are premiums for holding an overnight position and you might be charged an inactivity fee if you do not use your account in a 3-month period.
Of course, there’s more to a good broker than just competitive fees. To help you manage your risk, Plus500 comes equipped with an impressive array of tools. For example, you have the option to set a guaranteed “close at loss” or “close at profit” limit. These tools give you a lot of control over your CFDs and help remove some of the micromanagement.
One of the more useful features is the trailing stop. This allows you to set a stop position that grows with the market. If the value of IOTA increases, so will the value of your stop position. This allows you to enjoy an uptick in the market without manually monitoring and updating your stop position.
Plus500 has gone out of its way to make its platform accessible to traders around the world. The interface is simple to understand and should help newer traders ease into trading in IOTA CFDs. The platform is also available in over 31 languages and has been localized in 50 countries. This allows traders from all over the world to feel comfortable using Plus500.
Many of us spend a lot of our time away from our computers so another useful addition is Plus500’s mobile app. This functions very much like their desktop app and can help you trade while you’re away from the desk. One feature that we found particularly useful was the inclusion of the demo mode on the app.
- Convenient, safe access to cryptocurrency CFD trading
- Easy sign-up, compared to the cumbersome process of enlisting in a cryptocurrency trading exchange
- Guaranteed execution at a fixed price, without having to wait for another trader to agree to a buy or a sell transaction
- Allowance of credit or debit cards, a service generally not allowed on cryptocurrency trading exchanges
- Allowance to trade 10 or more cryptocurrency CFDs, including Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and IOTA – with more being added all the time.
- Free real-time quotes and 24/7 trading availability
- Intuitive charting tools
Important: 76.4% of retail trader accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Trading in IOTA CFDs is the same as any other instrument. Make sure that you follow the golden rule – only spend what you can afford to lose. If you stick to this and use a regulated broker to protect yourself then your IOTA CFD trades will be off to a good start.