Even as bitcoin has dominated headlines and valuations, another lesser-known cryptocurrency has exploded in price recently and you need to be aware of it. We recently covered a list of bitcoin alternatives, which you should most definitely read (or bookmark), but we left out one key player that we think you need to be aware of:
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 one billion dollars. Well that has all changed.
At our last look it was trading at $4.08 and had a total market capitalization of $11.4 billion. This past week, IOTA overtook Ripple to become the world’s fourth most-traded cryptocurrency. In a CNBC interview, IOTA’s co-founder David Sonstebo described it as a “sleeping giant.”
What The Hell Is IOTA?
David Sonstebo, a co-founder of cryptocurrency, wrote that it was developed to enable the “paradigm shift” to the Internet of Things by establishing a “de facto standardized “Ledger of Everything.”
Well what does this mean.
This means the cryptocurrency will enable data exchange between sensor-equipped machines that populate the Internet of Things.
It is NOT blockchain technology. IOTA does not use the traditional blockchain design used by most cryptocurrencies.
Instead IOTA has developed a new platform called Tangle, which uses a mathematical concept known as Directed Acyclic Graphs (DAG). For its own transaction to be valid, each node in a DAG Tangle must approve two previous transactions at the other node.
This has two key consequences. First, it removes “miners” as entities to validate transactions, thereby removing a possible bottleneck when transaction speed and numbers are high. Second, the network’s growth and speed becomes directly proportional to the numbers of its users. That is a major advantage. Another major advantage?
IOTA also does not have transaction fees and claims to have solved scaling problems, such as network delays due to block congestion, related to bitcoin.
IOTA use is expected to simplify transactions and processes involving objects that have sensors. A simple use case is that of an IOTA-enabled vending machine, which can dispense soda without the associated transaction costs and latency of bitcoin.
A more advanced use case is illustrated in this Reddit chain. For example, you might be able to scan the code at the bottom of your milk carton and have it delivered to your door from Amazon using IOTA funds. Again, this is not possible with bitcoin because of its high transaction costs and network delays.
Why Is IOTA’s Valuation So High Now?
According to consultancy firm Bain, the IoT market is expected to be worth $470 billion by 2020. Through IOTA Foundation, the German nonprofit behind the cryptocurrency, IOTA is an early mover in this space.
It has already partnered with companies which will play a leading role in IoT, such as Cisco Systems Inc. and Samsung Electronics Ltd. to create a data marketplace that can be monetized later. IOTA has also partnered with Innogy, an energy company.
“We can expect that a machine will be able to pay its assembly, its maintenance, its energy and also for its liability insurance by giving data, computing power, storage or physical services to other machines,” said Kerstin Eichmann of Innogy. The network effect of these partnerships is expected to popularize IOTA and nanotransactions on its platform. At the end of 2016, IOTA claimed to have processed more than 3 million transactions on its platform.
There are risks
The Internet of Things is a glamorous buzzword but it might be a while before a sensor-filled future of machines becomes a reality. Also, IOTA is a technology under development and is still improving flaws in its protocol.
“Once we developed our attack, we could find collisions using commodity hardware within just a few minutes, and forge signatures on IOTA payments,” Neha Narula, director of MIT’s Digital Cryptocurrency Initiative, wrote. IOTA later rectified the problem.
The cryptocurrency’s adoption rates could also be stymied if players within the IoT and ecommerce ecosystem, such as Amazon.com Inc develop their own cryptocurrencies or form their own separate alliances for data sharing.
Still, we at Quad7Capital believe that this cryptocurrency should at least be on your radar.
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