As IoT increases in use daily, there is a need for devices in the ecosystem to exchange data and payment information easily with each other. IOTA, an innovative distributed ledger, intends to become the standard mode of conducting transactions between connected devices.

Let’s read on to learn more about how IOTA works and what its token is used for.

What is IOTA?

According to IOTA founder, David Sonstebo, IOTA was developed to enable the “paradigm shift” to the Internet of Things by enabling and simplifying data exchange between devices in a network of the Internet of Things.

Rather than operating on the traditional blockchain design used by most cryptocurrencies, IOTA makes use of a unique ledger technology called Tangle. Tangle makes use of a data modelling tool called Directed Acyclic Graphs (DAG).

Unlike the blockchain that records transactions as blocks, each transaction on DAG is built on top of another. Nodes perform a small Proof-of-Work operation before submitting transactions. This ensures that the network isn’t being spammed.

Using the DAG model removes the need for “miners” when validating transactions. This reduces any form of network congestion and delays when transaction speed and numbers are high, making it highly scalable. Since the launch of IOTA in 2016, it has continued to extend its boundaries in real-world applications and use cases.

IOTA Use Case: Smart City

Taipei, the capital city of Taiwan, entered an agreement with IOTA in January 2018 to embark on a smart city project. This IOTA-based project will be about creating digital citizen cards with built-in TangleID. This will hinder them from being tampered with.

With this, citizens won’t have to bother about identity theft or fraud while voting, providing background medical record information, or using any government-related service. Other areas that are being explored are inter-organization & inter-city data exchanges, and healthcare.

IOTA Use Case: Smart Energy

Energy is a major use case for IOTA and the Tangle. Since it focuses on machine-to-machine interaction, IOTA can decentralize the power grid for clean and efficient energy throughput.

For instance, Smart charging can be used to enable independent charging and discharging of vehicles as the car and station connect with special IOTA software and hardware.

The first working prototype for smart charging has been developed in the Netherlands, and it was built using IOTA.

IOTA Use Case: Manufacturing and Supply Chains

Global trade and supply chains are all involved in moving products from suppliers to transporters, to distribution, to retail and then it is picked up from the store by daily consumers. At every point of the supply chain, the IOTA can help in providing better authentication, documentation, and flow of products from the raw materials to the point of sale.

Questions about who created a product, what country it originated from, and when it was manufactured can all be openly stored and verified on the Tangle. This gives access to the data to all major players in the global trade and supply chain movement of goods. It will also create more trust in the product, data, and communication between all the people involved.

IOTA Use Case: Mobility

Soon sharing data will be big business in the transportation industry. Any vehicle will become a digital platform for transacting and transmitting data with other devices, vehicles, and stations.

Using their wallets, cars can pay fees for parking by the minute, tolls, charging stations, and other services. Also, with IOTA, vehicles will be able to receive payment for deliveries, ride-sharing, and selling data. Volkswagen also plans to use IOTA to enhance data integrity and audit trails by doing live updates on the Tangle.

IOTA will put an end to centralization in disseminating data on vehicles, making it difficult to tamper or distort the data.

What is the difference between IOTA and Bitcoin?

Even though Bitcoin is the first and most popular cryptocurrency, IOTA has significant differences from Bitcoin and many other crypto assets. This is because the technology that both cryptocurrencies operate on is entirely different. While Bitcoin runs on blockchain technology, IOTA runs on Tangle.

More so, Bitcoin is constantly mining new blocks every 10 seconds while all of IOTA tokens have been pre-mined already within the network to the maximum cap.

With Bitcoin’s blockchain technology miners earn rewards in the form of Bitcoins after successfully creating new blocks. While IOTA involves no mining and the reward for validating transactions is the execution of such node’s transactions.

Furthermore, since IOTA doesn’t require mining, it is self-sustainable, scalable, and self-rewarding. Hence, there is no transaction fee in IOTA, while Bitcoin involves high transaction fees to be distributed to the nodes maintaining the network.

IOTA Tangle

IOTA’s Tangle runs as a non-sequential, asynchronous, and parallel distributed ledger. On the other hand, the blockchain technology behind Bitcoin is greatly sequential and retains backlogs.

The rewards for mining on blockchain mining are getting more competitive to obtain than ever. This makes mining a very unprofitable and centralized affair among ‘mining pools’. The IOTA technology requires no form of completion for validating transactions, making it easily scalable.

To validate transactions on Bitcoin’s Blockchain, you need to have expensive infrastructure and tools. Validating transactions on IOTA is implementable on low-cost and low-energy devices..

IOTA in IoT

In conclusion, from smartwatches and home appliances to self-driving cars, the Internet of Things (IoT) ecosystem has advanced over the years to cover a lot of devices. Yet, the urban IoT infrastructure is expected to expand even more. IOTA, a ledger-based technology that is specifically for IoT, is allowing devices to connect at an advanced level with each other in an IoT ecosystem.

IOTA’s specific design offers zero transaction fees and it’s scalable. It will eventually develop into a standard crypto asset for the internet of things and Web 3.0.

Some experts hope that IOTA will be able to remove the existing technical flaws and vulnerabilities of web 3 technology and will emerge as a digital standard, not just another cryptocurrency.