Already today we produce huge amounts of data with our smartphones and other smart devices. Industry 4.0, Smart Homes, Cities and Cars will all increase this data stream, posing new challenges to the digital infrastructure. The expansion of the Internet of Things (IoT) is also based on the continuous transfer and storage of data and the communication between devices. However, this cannot always be guaranteed today due to an inadequate infrastructure.
Blockchain technology is often seen as a decentralized solution to this problem. With increasing popularity and implementation, however, weaknesses also emerged. Due to inefficient scalability and high transaction rates and costs, Bitcoin and Co. are currently unable to keep pace with the dominant central solutions.
Since 2015, the Internet of Things Application (IOTA) of the Berlin non-profit IOTA Foundation has offered an alternative to Blockchain. The actual goal of IOTA is to enable machines within the context of IoT to exchange data and information directly with each other free of charge, trustworthily and permissionless, thus making a centrally managed instance, such as a backend, superfluous. It should also solve the known weaknesses of Blockchain.
Within the framework of IOTA, the following functionalities are relevant:
In contrast to previous crypto technologies such as Bitcoin or Ethereum, IOTA is based on a new decentralized peer-to-peer system. Instead of creating a simply chained list of blocks containing multiple transactions, they are stored in a so-called Tangle. In this complex network structure of directed acyclical graphs (DAG), each transaction refers to two predecessors. This means that transactions can be output simultaneously, asynchronously and continuously.
In order to participate in the network, all Tangle actors must take over a certain computing power (proof-of-work) and reference and confirm two previous transactions before each one. The more new blocks are added to the Tangle, the more often an existing block is referenced directly or indirectly. The recipient of the transaction then decides when to trust it. As the number of transactions increases, the Tangle becomes more secure against attacks, as the cumulative number of proof-of-work increases.
Since transaction output and validation take place simultaneously in the Tangle, a significantly higher transaction throughput can be achieved. The more activity there is, the faster the transactions are confirmed. What causes a transaction jam in the blockchain and slows down the network leads to increased security and speed.
Since there are no hierarchical roles or competing interests in the Tangle, the validation of transactions becomes an intrinsic task: the reward is the confirmation of one's own transaction, no monetary incentives are required. This ensures both that the transactions remain free of charge and microtransactions can be conducted.
However, this is still a relatively new technology – especially when int comes to encrypting transactions in the Tangle and using them without a backend, there are still challenges to be solved in order to think of a productive use.
Another critical component is the so-called coordinator, a central instance of the IOTA Foundation. This coordinator is additionally used for validation by proof-of-work. The coordinator carries out a transaction every minute, the so-called milestone, and thus confirms all directly or indirectly referenced transactions during this period. The new validations by proof-of-work can therefore start with the first unconfirmed transaction after the current milestone, which reduces time and computing power. The goal, however, is to gradually make the coordinator superfluous and thus completely decentralize the network.
Although IOTA is not yet a productive link in IoT communication, we will continue to explore this promising cryptographic technology and examine its potential for our customers. We are already discussing the usability and suitability for use cases.