IOTA: A blockchain for the Internet of Things

IOTA: A blockchain for the Internet of Things

Blockchains haven't had good press recently. Simple word-association connects 'the blockchain' to Bitcoin, Bitcoin to ransomware, ransomware to crime. So the blockchain is, to the uninformed, obviously a bad thing. On the other hand, technology evangelists around the world are touting the blockchain concept as the greatest invention since sliced bread, their predictions often based on nothing more than hyperbole and hope.

In reality the blockchain concept is neither of these things, of course. It's just a decentralised method of keeping track of transactions. If the blockchain is 'bad' or 'good' then so is ledger accounting and banking in general (discuss...) since they can be used for crime as well as for legitimate commerce. Blockchain is just a method of storing and verifying transactions independently of a central authority.

There's no shortage of startups involved in taking the blockchain concept out of Bitcoin and applying it elsewhere. Some of these will fail, some might succeed. One that seems more promising than most is IOTA, whose basic premise is to apply blockchain transactions to the Internet of Things. The aim is to allow IoT devices to exchange value between themselves – i.e. to make transactions – without a central authority.

If, as seems likely, almost every device we buy in the near future is to have internet connectivity, there needs to be some way of allowing those devices to transact between themselves. There's a huge potential value that would otherwise be wasted. IOTA uses the examples of a server with spare runtime for rent, or an electric car that needs to purchase a recharge.

Other scenarios might be imagined, such as a local network of solar-panel-equipped houses sharing surplus power between themselves rather than sending it back through the national grid. Or perhaps your apocryphal internet-enabled fridge might negotiate with the neighbours' wine-chiller for their spare bottle of Chardonnay, now that it's 1am and all the off-licences have closed. OK, perhaps not that one, but it's not hard to imagine a vast range of potential transactions on a micro-payment basis.

Firing all these transactions off to a central server for validation and exchange would be expensive in terms of time, bandwidth and processing power. So IOTA allows IoT devices to transact with each other directly. The 'cost' to participate in the network is the requirement that each device validates two other transactions first.

The big advantage here is scalability. The 'Tangle' platform on which IOTA is based provides a truly distributed network. Bitcoin started out in a similar way, but to an extent became a victim of its own success. Transactions that used to take milliseconds may now take hours, as the Bitcoin blockchain has become so large that it takes longer – which equates to more expensive – to validate.

In fact Bitcoin recently faced its own 'Brexit', with two different choices for its future structure (coin afficionados can read more here). Both sides have strong proponents, both have what they believe to be logical arguments, and inevitably the final decision will leave one group disappointed and aggrieved.

It's not practical to re-start Bitcoin's blockchain over from scratch. But it is possible to learn from that crypto-currency's limitations and do something to overcome them. That's what IOTA is attempting to do, by making the blockchain for IoT devices potentially infinitely scalable. It's one of the more interesting ventures in this space, and was valued at US$1.5 billion on its first day of token trading on the Bitfinex exchange in June this year.

The outcome for the Internet of Things should be a simplification of inter-device value exchange. This in turn makes smaller and smaller transactions possible and even profitable, since there's no cost – bar the need to validate two other transactions – to the use of the network.

So, to go back to those previous examples, for the server even a few seconds of spare runtime might be worth selling, while the car could recharge from multiple charging points as required, with no additional cost overhead. And maybe you'll get your late-night Chardonnay after all.

IOTA calls this system the world's first blockless blockchain. Time will tell whether that's the way blockchains should be going, but it certainly opens the door to a multitude of new possibilities for IoT developers.


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Alex Cruickshank

Alex Cruickshank has been writing about technology and business since 1994. He has lived in various far-flung places around the world and is now based in Berlin.  

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