In today’s digital age, there are many people on the quest towards the Internet of things (IoT). Now, a new micro-transaction crypto-token called IOTA looks to facilitate the architecture involved with IoT. However, while IOTA is a "decentralized cryptocurrency" it operates a little differently than those powered by blockchains.

The IOTA protocol runs off of Tangle, which has similar functionality to a blockchain yet acts more like an emulated version giving it more versatility. Tangle’s representation is an acyclic graph, which has an order yet can go in any finite partial order represented by the original structure. Co-founder of IOTA, David Sønstebø believes his team’s platform combined with its micro-transaction solution can not only create a new bridge of payments in our online world, but also change the landscape of everyday life.

Cointelegraph spoke with David Sønstebø to get an inside look at this new cryptotoken, the endless options with microtransactions, and how IOTA will facilitate the Internet of Things.

“IOTA is a decentralized, very lightweight micro-transaction token that is optimized for the Internet-of-Things. It is essentially a blockless ledger without any sort of fees on transactions. ‘Money of IoT.’”

— David Sønstebø, Co-founder of IOTA

Cointelegraph: What is Tangle and how does it apply to your system?

David Sønstebø: In short, the Tangle is a type of Directed Acyclic Graph, but you could also call it a generalization of a blockchain. Under the low-load regime, it takes on a blockchain-esque behaviour, while in high-load regime it creates branches that eventually merge with each other. This allows for a lot of transactions per second. It serves as the backbone of IOTA like the blockchain does in Bitcoin.

CT: How can microtransactions help the Internet of Things flourish?

DS: The first seeds of Internet-of-Things (IoT) were planted a long time ago, and we are already seeing it sprouting all around us. The constant challenge is to tie it together and make it open and useful. Most of the focus goes to the shiny devices that inevitably end up on Kickstarter, but those are only the tip of the surface. A tip that is often useless after the novelty has worn off.

“IoT micro-transactions will make technological resources and applications more ubiquitous and available to more and more people, which will greatly improve our world.”

IoT on a grand scale will only come to fruition once it makes our supply-chains, industry, convenience and lives better. Micro-transactions will play a substantial role in doing precisely this. While refrigerators are ordering their own milk, washing machines ordering deterrent or your toothbrush ordering new toothpaste are really cool applications, these and a plethora of other ‘smart home’ applications are quite known by this point, so I don’t think I have to elaborate more on those. To me what is a lot more exciting is how IoT micro-transactions will make technological resources and applications more ubiquitous and available to more and more people, which will greatly improve our world.

Imagine that you have a smart thermostat that gathers data such as temperature, wind and humidity. Now picture most other households having the same, so every city, town and village makes up this grand web of smart thermostat data from all over the country and world. This will be further amplified by data from sensors on cars and smartphones. This unprecedented proliferation of measurements will be of immense value for meteorologists making weather forecasts.

This in return could save society a lot of money and lives annually. Here you could use micro-transactions to incentivize people to share this data. This goes for all kind of data for commercial use too, instead companies having to use deep analytics to predict based on metadata, they can get tailored data of individuals (this will obviously have to be a choice). Today we see this voluntary data trade through companies offering people some incentive to complete surveys via online forms or telephone. Through micro-transactions, a person has control of the data and can voluntarily provide them with real-time data in return for real-time compensation.

Another cool use case can be found in the growth of residential solar panels and better batteries like TESLA’s powerwall, electrical production and distributed storage. This enables people to sell electricity back to the grid and with micro-payments you can now be compensated in real time. The same goes for distributed computational power. As the IoT landscape evolves, we will essentially live in a world permeated with mostly idle processors, every neighborhood being a growing supercomputer. Instead of being idle this computational power can now be sold via micro-transactions in real time.

“IOTA came about as a necessity for our IoT vision to be realized.”

One last use case I will mention can help solve a real infrastructural scalability problem of IoT itself. As more and more devices get connected, we will run into large problems with interference due to lack of channels in Wi-Fi and Bluetooth.There are countless attempts to solve this in preparation for this reality, one of them is LiFi, which has essentially infinite channels in the spectrum of light, but it’s only useful indoors and years from being ready for mass-market. So what IOTA does is use communication based on very short packets that can be broadcasted to a large number of endpoints at once significantly lowering time required to occupy a channel, lessening the problem.


CT: What gave you the idea to create a micro-transaction cryptotoken?

DS: All of us working on IOTA are also involved in a 1-year-old semi-stealth hardware startup that is working on Distributed Computing for the Internet-of-Things, and so there has been a lot of analysis of the IoT market and use-cases on our end for a long time. Additionally we are all veterans of crypto who have worked on different crypto projects and been in the space for several years. So our combined background and present projects gave us unique insight and a comprehensive view of what we deem necessary for IoT as well as what the weak points of the current blockchain projects have for the micropayments side of things. So IOTA came about as a necessity for our IoT vision to be realized.

CT: Can Tangle operate with other blockchains such as Bitcoin’s or Ethereum’s?

DS: Yes. It’s my stance that there won’t be a single universal key that unlocks all of the doors to a complete ecosystem for the economy and IoT. We rarely see these ‘omnisolutons’ because there are always trade-offs for adding more features. In product design, this is called ‘flexibility trade-offs’ and ‘feature creep’ (for more on these principles).

So instead of attempting to create this swiss army knife with mediocre features, it was obvious to us that we should focus on creating the absolute best solution for micro-transactions. Then we enabled the ability to communicate with the blockchains as an integral part of the design to create a cohesive ecosystem where you have really good solutions collaborating instead of having fragmented projects where we are all chipping away at a mediocre monopoly solution. Essentially the best of both worlds. We are already speaking with people from Ethereum, Bitshares, Nxt, and Bitcoiners about overlap and how the different technologies can work together in synergy.

“We are already speaking with people from Ethereum, Bitshares, Nxt, and Bitcoiners about overlap and how the different technologies can work together in synergy.”

CT: Why do you think it's necessary to incorporate quantum resistant algorithms?

DS: Quantum computation is very much science-fact, not fiction, and there are breakthroughs that bring us ever closer to scalable quantum computers weekly. In academia and security, this has been an ongoing concern for quite some time. Initiatives such as these date back over a decade. The NSA has begun their transition over to quantum resistant crypto.

In short, the timeline for when a scalable quantum computer can cause havoc is impossible to predict, but most experts agree that it’s not far away. So when it comes to something as vast and impactful as IoT systems, especially its economy, it’s a no-brainer for us that this is a requirement. Everyone that is interested in a more comprehensive answer to this question ought to read this tremendous article by Anastasia Marchenkova.

CT: How does IOTA tackle scalability?

DS: This becomes technical quite rapidly, but building on what I said about the Tangle: IOTA automatically adjusts its behavior depending on the different conditions that it is working in. This is done not via explicit algorithms but instead via feedbacks engineered into its concept.

“[T]he heart of the [Bitcoin block size] debate should focus around defining what Bitcoin’s role will be in the foreseeable future.”

CT: What’s your present opinion of the overall state of the Bitcoin network?

DS: For now the technical aspects can be put aside and instead the heart of the debate should focus around defining what Bitcoin’s role will be in the foreseeable future. If Bitcoin is to remain a holding value (i.e. digital gold), then the block size should remain low, if on the other hand if it wants to be a global payment system it will need to increase, but this brings with it other concerns again. So my opinion is that we must first clarify what Bitcoin’s role will be and then act accordingly.

CT: How can IOTA act as an oracle for smart contracts?

DS: Due to IOTA’s ability to communicate to the blockchain it can trigger smart contracts via acting as an oracle. One such use-case is checkpointing transactions for other platforms where there can be contradicting reports, so we count PoW of IOTA tied to each report and get a higher probability of getting the correct answer.

CT: What kind of real-world applications can be conceived with this idea?

DS: One obvious area where micro-transactions will have a significant impact is on pricing. Today’s pricing is egregiously bad. You pay a fixed sum for most services, which essentially means that the pricing estimates are extremely rough and based on a lot of unfounded assumptions that are drawn from statistics of a crowd, meaning that you as an individual does not get a tailor fit price.

“[M]icro-transactions will have a significant impact [...] on pricing.”

In addition to this you have to pay either in advance or after the fact. This is not ideal. Through micro-transactions, you can compensate directly for usage in real time, making it fair and reliable. This will be game changing for services (e.g. streaming) where you will be able to pay directly for only what you get and nothing more.

CT: What's the overall goal with this project and what do you hope to provide?

DS: The overall goal is to enable the Internet-of-Things ecosystem and to make real-time payments possible.