What is IOTA? How does it work?

Today there are more than 20,000 cryptocurrencies on the market. Many of these have been added in the last two to three years. A much older crypto project is Iota (MIOTA).

In this article we explain what Iota is, what MIOTA is and what advantages and disadvantages the crypto project has.

What is IOTA?

IOTA is a smart contract platform developed in 2015 to process payments and other transactions between internet-enabled physical devices. MIOTA is the coin in the IOTA network.

The Iota network is primarily aimed at the Internet of Things (IoT) or in German: Internet of Things. This means above all the communication between devices. Machines and vehicles should be able to communicate better with each other thanks to the Iota network.

Even if you’ve never heard of the Internet of Things (IoT), chances are you already have IoT devices in your home, car, or office. It could be the sensors in your car that indicate low tire pressure, your smart fridge, or your Nest thermostat.

IoT devices are connected to the Internet, typically over Wi-Fi or a cellular network. Nevertheless, it is difficult to enable transactions or payments between IoT devices. This is where the Iota network comes in. The Iota protocol was developed to enable microtransactions between IoT devices.

“We see the IOTA token as a link between the human and machine economy and create interoperability between the two,” explains Dan Simerman, Head of Finance at the IOTA Foundation.

IOTA can also be described as a network that helps investors and companies to monetize data from the IoT. MIOTA is the coin used to process transactions on the IOTA network.

How does IOTA work?

Unlike other cryptocurrencies like Bitcoin, IOTA is based on a distributed ledger technology that is somewhat different from the blockchain. Distributed ledger technology is a system of distributed cash books. Transactions are not stored centrally, but decentrally.

IOTA uses a technology called Tangle. This is a consensus algorithm that requires users to confirm two transactions in order to complete their own IOTA transactions.

Technically, Tangle is a Direct Acyclic Graph (DAG). With this method, there are no miners or validators, no blocks, and no transaction fees. This allows the cryptocurrency to “overcome blockchain cost and scalability issues”, according to the IOTA website.

The DAG structure was designed to eliminate the scalability issues and costs of the blockchain. To do this, it enables fee-free payments with lower computational costs and the ability to connect to IoT devices.

The structure of IOTA is therefore so important for the IoT economy, as so many processes can be automated much more easily and securely. It is then no longer necessary to additionally monitor certain processes.

This smart contracts platform is currently in the process of redesigning its ledger technology and consensus protocol: it is working on the so-called IOTA 2.0. IOTA version 2.0 is fully decentralized.

Advantages and disadvantages of IOTA at a glance

So IOTA is a communication protocol for internet-enabled devices. But what suggests that the Iota protocol could prevail against blockchain-based competition such as Ethereum ? And what are the disadvantages of Tangle technology?

iota Benefits

Iota offers the following advantages:

  • No transaction fees. With IOTA there are no transaction fees like Ethereum. Because there are no miners or validators, IOTA is a fee-free data and value transfer protocol.
  • Faster transactions. Traditional blockchains often experience bottlenecks because it takes too long to create new blocks. The Bitcoin blockchain can handle around five to seven transactions per second (TPS). Ethereum is typically around 15 TPS. The Iota network, on the other hand, can handle up to 1,000 TPS.
  • energy efficient. IOTA is designed for devices such as sensors that require little energy. Even IoT devices with minimal computing power, like toasters, can write data to IOTA’s Tangle.
  • Adaptable for different use cases. Large companies can customize IOTA for individual use cases. For example, with IOTA Access, an open-source framework, a car owner can remotely allow someone to access their vehicle.
  • Decentralization Roadmap. IOTA version 2.0 is fully decentralized.

IOTA cons

So while Iota’s advantages are primarily its efficiency, there are also some disadvantages.

  • security vulnerabilities. In February 2020, hackers stole more than $1.5 million worth of MIOTA. According to reports, the hackers appeared to be targeting some wealthy accounts. IOTA founder David Sønstebø agreed to compensate victims of the hack with the network’s tokens. IOTA’s new and improved version 2.0 aims to improve security.
  • Network still too small. The IOTA system is still in its infancy. As with many cryptocurrencies, success depends on broader network adoption and higher participant numbers.

In addition, the advantages mentioned above have not yet all been put into practice. The Iota network is striving to function completely decentralized, but most other crypto projects are also pursuing this goal. Furthermore, nowadays there are also smart contract platforms like Solana, which also achieve more than 1,000 TPS with blockchain.

Buy IOTA in 4 steps

It is important to understand that IOTA is the entire platform while MIOTA represents the cryptocurrency on the IOTA network. IOTA’s coin goes by the symbol MIOTA and is available on a number of crypto exchanges, including Binance and Bitvavo. Coinbase or Kraken, on the other hand, do not carry Iota. Here you can find out how to buy IOTA, step by step:

Buy Iota Step 1: Register with a crypto exchange that offers Iota and verify your identity

If you do not yet have an account with the crypto exchange of your choice, you must first register. For this it is necessary that you enter some basic information about yourself and verify your identity. While this may seem tedious, this is an important intermediate step that crypto exchanges must comply with for regulatory reasons. In order to be able to buy cryptocurrencies such as Iota from a provider regulated in Germany, you must also verify yourself using the video identification process. The whole process only takes a few minutes.

You can find a suitable trading place to invest in MIOTA in our crypto exchange comparison.

Buy Iota Step 2: Deposit cryptocurrencies or euros

Once verified, you can buy, deposit and sell cryptocurrencies.

Depending on the crypto exchange, you can trade iota with different currencies. Some exchanges allow you to buy iota directly with other cryptocurrencies like bitcoin. With other providers such as Bitvavo, however, you can only buy Iota with euros.

So, to buy Iota, the next step is to decide on a supported payment method. You can then deposit any amount of money that you feel comfortable with. However, note the minimum deposit limits, which differ depending on the trading venue.

Buy Iota Step 3: Buy your tokens

Now you are ready to buy Iota. Just find the pair that matches your cryptocurrency – e.g. IOTA/BTC if you buy with Bitcoin – and enter the desired amount of IOTA. Click “Buy” to complete the transaction.

Buy Iota Step 4: Keep your MIOTA coins safe

The most important step comes after you have bought your MIOTA Coins. You can store your coins on the exchange, but we don’t recommend it. This is how you run the risk of losing your coins if the provider goes bankrupt. Instead, you should always keep your purchased coins on a hardware wallet.

Should you buy IOTA?

Although IOTA and the explosive development of IoT technology look promising, there is no guarantee that MIOTA will rise. Many unpredictable external events can affect the development of IOTA, from a huge cryptocurrency sell-off to a recession and subsequent market crash.

Although the long-term prospects for IOTA seem positive, you should not invest on hype. MIOTA had already reached its all-time high of $5.69 on December 19, 2017. The price then fell more than 90 and never broke through $2.50 again. Cryptocurrencies are a volatile asset, and Iota (MIOTA) is no different. So you should keep in mind that you can lose your entire money bet.

But if you are passionate about IoT technology and understand the risks involved, investing in IOTA could be an option.

Frequently asked questions about Iota

Is Iota a blockchain?

No, the Iota network works without a blockchain. Instead, it relies on a direct acyclic graph, which, like blockchain technology, is also based on what is known as distributed ledger technology.

How many iota are there?

In total there are around 2.779 billion MIOTA coins. The amount in circulation of the cryptocurrency is limited, which is why no more coins will be added.