IOTA is a cryptocurrency designed especially for the internet of things. Development began in 2015, and it has since stood the test of time. Its innovative systems, industrial partnerships, and practical applications set IOTA apart as a novel, sustainable cryptocurrency.

Before we dive into the details that make IOTA unique, we’ll recap what cryptocurrency is and why a digital currency designed for the internet of things is important.

A cryptocurrency is a digital asset used to exchange. To put it simply, crypto is a form of money that exists without a regulating central bank.

The management of the currency comes from encryption techniques. The encryption and transfer codes protect the value and users of the coin. Most forms of crypto use a blockchain architecture to organise and protect the information.

What is the Internet of Things (IoT)?

The Internet of Things is the network of objects that connect to both the internet and each other. It describes the connection between your smartwatch, iPhone, and the cloud. The IoT is how Alexa can access your music streaming and home security system.

As the IoT becomes more powerful and expansive, all digital applications must work well within the system. Products and digital services that slow down the IoT or related devices will quickly become obsolete.

What makes IOTA special?

IOTA is a digital currency designed specifically for the Internet of Things. While other cryptocurrencies struggle to keep up with the developing technological world, IOTA functions smoothly within the IoT. 

The biggest challenges faced by most cryptocurrencies are the growth management and transfer process.

IOTA uses a new technology called Tangle to alleviate the problems of other digital currencies. Tangle is a Directed Acyclic Graph or DAG. This unique architecture is the key to keeping IOTA fast, relevant, and free.

When it’s time to transfer IOTA from one user to another, the sender has the responsibility to both initiate and validate the transaction. The sender completes a proof of work to approve the transference. Other cryptocurrencies keep these steps separate and involve a third party for validation. IOTA combines the acts of making a transaction and validating it into one straightforward action. 

Tangle also allows IOTA to grow exponentially without slowing down. With other cryptocurrencies, each transaction increases the length of the ledger entry. This ever-expanding naming system makes it more complex and, therefore, slower and more confusing.

IOTA’s structure removes the need for an extensive, complicated naming system. Transfer tracking happens on a graph instead of with a linear name. Tangle increases IOTA’s transaction speeds as more users participate.

What sets IOTA apart from other cryptocurrencies?

The unique features of IOTA are the lack of transaction fees and the increasing transfer speeds. For clarity, each of these is explained in relation to Bitcoin, a well-known blockchain cryptocurrency.

With IOTA, there are no transaction fees when transferring the asset from one user to another. In contrast, every transfer of Bitcoin comes at a price. The fees that accompany Bitcoin transactions come from the need to pay miners. Bitcoin miners validate transactions or create a proof of transfer. Without miners, the Bitcoin system cannot exist, and they must receive compensation for their time and effort.

IOTA does not need any outside actors to keep the systems in motion. The IOTA system operates entirely on its own. The decentralisation of IOTA keeps everything happening quickly and without a transaction fee. 

Where other currencies slow down, IOTA experiences increased transfer speeds as more users participate in the system. Blockchain cryptocurrencies use a blockchain architecture that slows down as the user base grows. With Blockchain, a record is added to the digital asset every time it transfers from one user to another. This method means that, as time goes on, the system inherently gets slower as the files become larger.

Tangle doesn’t continuously increase the length of the currency. Instead, it uses a system of vertices and edges to track transfers. This architecture prevents the eventual slog faced by Blockchain and other cryptocurrencies.

Tangle vs. Blockchain

To fully understand the characteristics and benefits of any cryptocurrency, it’s crucial to have a grasp on its architecture. The most common crypto architecture is Blockchain. However, newer currencies, like IOTA, bring innovative organisation systems to the table. The developers’ goals are to circumvent and improve upon the limitations of Blockchain.

As we discussed above, IOTA’s developers focused on creating a cryptocurrency for the Internet of Things. Research shows that soon, the IoT will include over 50 billion devices that all must be able to communicate and work together.

In the Internet of Things, each device has a set of information that other products need. Consequently, each device needs the information from and support of different items. However, no one wants to give up their hard-earned information for free.

In the past, companies had closed systems for their information. This setup ensured that producers kept all of the profits and benefits resulting from their information collecting products. A heart rate monitor would talk to one specific fitness watch which would record data in its unique tracking program. It wasn’t possible for cross-collaboration of information across platforms.

As the IoT has grown, users began to demand more collaboration. They want all of their devices to share information, regardless of the original manufacturer or developer. Because developers are not willing to share their data for free, some currency exchange must happen with every information-sharing transaction.

This creates the need for fast, universal micro-transactions without extra hardware, software, or cost.

Traditional cryptocurrency Blockchain architecture is too slow and cumbersome to handle transactions like this. IOTA, and its Tangle architecture, were developed specifically to meet the need for a universal micro-transaction currency for small value transfers in the IoT.

Who has control of the currency system?

One of the enticing benefits of cryptocurrency is the lack of a central bank or governmental body. However, for the sake of efficiency and functionality, there must be some regulation and organisation. These may be systemic or maintained as part of the cooperative, but there must be something.

With blockchain crypto, the miners hold control. They have the potential to filter, restrict, or postpone transactions. This power could make the miners a significant amount of money, cause others to lose significantly, or both at once.

Technically, miners are independent or working in collaborative pools. In reality, a small number of mining pools control the vast majority of the blockchain transactions. To increase the cause for concern, most of the dominant mining pools are in China. So, any change in Chinese governmental policy or infrastructure could create a catastrophe for blockchain currencies.

On the other hand, IOTA’s Tangle network is entirely decentralised. Users validate two transactions for every one they participate in directly. This method speeds up the entire network and eliminates the need for outside or governing parties. The system can maintain itself.

Can the cryptocurrency architecture withstand cyber attacks?

A substantial threat to cryptocurrency is the development of quantum computers. Even though they don’t exist yet, they likely will soon. With the looming of this advanced technology, crypto encryption must remain prepared.

Quantum computers would have the ability to quickly and repeatedly guess answers to problems and see if they’re correct. When these attacks are slow, it’s easy to prevent much damage from occurring. However, when these attempts to break through come from the large scale of quantum computers, most current cryptography methods won’t be able to withstand the attacks.

Encrypted blockchain architecture, specifically that used by Bitcoin and other cryptocurrencies, is extremely susceptible to the brute force attacks of quantum computers. Traditional blockchain architecture doesn’t stand a chance!

When creating IOTA’s Tangle architecture, designers had the potential for quantum computer threats in mind. All of the IOTA cryptography is quantum resistant. Additionally, Tangle makes it even harder to use the information found if a quantum computer were to break in. Thus, a negative impact from quantum computers is highly unlikely.

How does the currency handle micro-transactions?

As the world of digital currency grows, people want to use their cryptocurrency for everyday purchases of goods or services. They aren’t always interested in large, expensive transfers of funds.

Bitcoin and similar currencies are expensive to transfer as a result of the blockchain architecture. Mining time and transaction fees both continue to increase as the number of users and transfers grow.

Today, it’s impractical to use Bitcoin for purchases on a typical day, such as groceries or cleaning services. Many developers are working on solving this issue but have not released a widespread solution.

IOTA and the Tangle architecture, however, make microtransactions easy and affordable. You can send 1 IOTA at a time without any fees. It’s quick and free, which makes it ideal for common, daily transactions.

Will the architecture handle partitioning?

Sometimes, as cryptocurrencies grow, it can be beneficial to partition the architecture ledger. This makes it possible to perform transactions off-line or at a quicker pace.

IOTA’s Tangle architecture handles transactions off of the main Tangle with ease. Then, when the user is back online, the reconnection is seamless.

The blockchain architecture of Bitcoin, however, makes it impossible for off-chain transactions to occur. If part of the Blockchain is partitioned and performs transfers without updating the master ledger, then that fork can never reconnect with the rest of the Bitcoin currency.

How to Make a Wallet

Starting any kind of cryptocurrency wallet seems daunting at the beginning. IOTA is no exception. However, it’s not hard if you follow the simple steps laid out below.

First, you’ll need a legitimate wallet.

A cryptocurrency wallet, like any wallet, is a space for your cryptocurrency holdings. Unlike a traditional, physical wallet, it is a program or service that stores information such as the ownership keys or history of your transactions. And unlike a conventional portfolio, the currency itself does not live inside of this program. It only contains the information to connect with your digital currency holdings.

The first step to ensuring that you’re not using a scam or fake wallet is to download it straight from the IOTA Foundation website. Choosing to go from the source instead of a third party greatly decreases risks.

Once you download your wallet, then you check that the encryption on the file on your computer matches the listed code, or Hash, on IOTA’s website.

Hackers can make it seem like you’re downloading the official wallet program. If you don’t double-check that it’s safe, you could land yourself in trouble.

To make sure you get the official wallet, you must first find and copy the exact file name. The name will begin with the file’s location on your computer, then will include the specific file name, and will end with .exe. To find this on a Windows computer, you right-click the file, click “Properties,” select “Security,” and will then be able to copy the object name.

Once you have the name, you will check the encryption or “SHA256 Hash” of the file. For this, open the command window on your Windows computer. Type the following:

CertUtil – hashfile <FULL FILE NAME YOU COPIED EARLIER.exe> SHA256

This command will cause an extremely long series of letters and numbers to appear. If you’re investing a lot of money or are sceptical that your file is legitimate, then check every single part of this code. However, most people check the first six digits and the last four and consider it safe.

To find the SHA256 Hash of the official file, return to the IOTA website. The full encryption code will be there for comparison.

Now, it’s time to install the program.

The program installation works like any other you download from the internet. Click the .exe file and run the installer. When it’s finished, you’ll see a large window with the IOTA logo.

After about 15 seconds, one of two things will happen. We’ll talk you through the most likely scenario first.

A designated space should open for you to enter your seed and click login. If this happens, you’re all set. We describe how to generate a seed in the next section.

If there is no space to enter a seed, then your program has automatically connected to a node that is out of date, so you must change it before moving forward. To fix it, click “Tools” and then “Edit Node Configuration.” Here, you will enter a more current IOTA host.

To find current nodes, we recommend using either IOTAsalad or IOTAdance. Select a host and then paste it back into your wallet. Now you should be ready to enter a new seed.

How to Make an IOTA Seed

Making an IOTA seed can be extremely quick and easy. You could create the seed using the command line and then store it somewhere on your computer. Your investments could be fine using this setup, but it is not our suggested method.

We recommend always developing encrypted cryptocurrency seeds for your protection.

KeePass is an open-source password manager that can create and store IOTA seeds. The program itself is password protected and securely stores your seed names.

Download, verify, and install KeePass exactly like the IOTA wallet.

Begin by downloading the KeePass program from the developer’s website. This choice creates peace of mind that the installation is legitimate from the start. The same is not true for an application downloaded from a third-party website.

Once the file is on your computer, use the steps described above to verify that the SHA256 Hash matches the one on the developer’s website. Then, run the .exe file to install and initiate the KeePass program.

Create a secure password for KeePass and ensure that you will remember it.

The Master Password for your KeePass program must be something you have never used before. We suggest a combination of words, instead of a random mix of letters and numbers. Words are easier to remember.

If you forget this password or your program becomes hacked, then you’ll lose access to all of your IOTA seeds. Without your seeds, your investment is lost. Don’t let this happen to you.

Now, make your first IOTA seeds.

Right-click the blank box in the middle of the KeePass program. Then click “Add Entry.” When the window pops up, click the key icon to set the password generator.

Set the parameters of your seed generator. The length should be 81. Check the box “Yes” to include Upper Case. Ensure that it will also include the character 9.

Click “Generate” and your seed will form. Be sure to rename it to something that you can find and remember. “IOTA-Seed-001” is an excellent name choice.

Then, click “File” and “Save” to save the password. Make it easy to find. However, the name should hide it slightly in case someone is searching through your computer.

Return to your IOTA wallet and find the Checksum.

To do this, copy the password you just created using KeePass. Then, paste it on the screen in your IOTA wallet.

At the end of the seed information you pasted, three letters will appear. These letters form the Checksum of your seed. It should be the same every time you paste that seed password into your wallet.

You’ll want to keep this information nearby. If the wrong Checksum ever appears, your information is likely affected by malware.

An easy way to remember the Checksum of your IOTA seed is to add those letters to the seed name in KeePass. The name could become “IOTA-Seed-001-ABC,” with ABC being your Checksum.

Check and backup your information.

In case your computer fails, it’s essential to have your KeePass passwords in a second location. The cloud or a flash drive in a safe are great choices. Anywhere that is protected from a robbery or disaster is ideal.

After backing everything up, we recommend running the seed check one more time. Copy and paste it from KeePass and then look at your Checksum. If it still matches, then all is good.

Finally, you are ready to purchase IOTA.

Purchase IOTA from an exchange and send it to the seed you just created. Always create the seed first, then perform the transaction and transfer. That way, you don’t risk a double-spend.

Create a new seed address for every IOTA purchase or transfer from another wallet.