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Tangle: A Cryptocurrency for the Internet of Things

Lester Coleman on 08/12/2016


Tangle, a cryptocurrency developed for the Internet of Things, will allow companies to explore business-to-business models by making technological resources potential services to be traded in an open market.


The Tangle ledger can settle transactions with no fees, allowing devices to trade exact amounts of resources on-demand. The devices can also store data from sensors securely and verified on the ledger.


Existing Systems’ Drawbacks

The Tangle project began in mid-2015 aimed primarily at Internet-of-Things for machine-to-machine payments and data integrity. The founders realized that Internet-connected devices need a way to do settlements and data transfers securely in order for IoT to work.


One drawback of existing cryptocurrencies is the impossibility of making micro-payments, which have increased in importance with the rapidly developing Internet-of-Things industry, the Tangle white paper [PDF] noted. In the available systems, one must pay a fee for making a transaction. Hence, transferring a very small amount makes no sense since there would also be a fee which can be many times larger. At the same time, it is not easy to get rid of the fees since they serve as an incentive for the creators of the blocks.


Existing cryptocurrencies are also heterogeneous systems with a clear separation of roles (transaction issuers, transaction approvers). Such systems create unavoidable discrimination of some elements which in turn creates conflicts and spends resources on conflict resolution.


The Tangle Ledger: How It Works

Instead of using a sequential chain and separating the network into users and validators, IOTA (as the protocol is known) uses a directed acyclic graph (Tangle) architecture which makes users and validators one and the same.


To issue a transaction on the Tangle, users must approve other transactions, thereby contributing to the network’s security. As a transaction receives more approvals, it becomes more accepted by the system. It becomes more difficult (or practically impossible) to make the system accept a double-spending transaction.


The project is largely at the cusp of its debut. “In fact, we have withheld exchange listing still in order to ensure this new technology works as promised,” David Sonstebo, one of its founders, told CCN. “Currently, a lot of different developers, start-ups and corporates are developing different use-cases on top of it. The most-unique thing about IOTA is that it is the only way to do transactions without fees, which means that every service that can benefit from ‘real time on demand payments’ can only be enabled through IOTA.”


The core founding team of IOTA includes Sonstebo, Sergey Ivancheglo, Serguei Popov and Dominik Schiener. The team has grown to include developers, cryptographers, activists and general community members.

IOTA Use Examples


IOTA use examples include:

1) Sensors selling data in real time to computational stations.

2) Sensors buying analytical capabilities of computational stations.

3) Consumers buying electricity from any kind of electricity generating prosumer.

4) Devices buying storage space.

5) Devices buying bandwidth on demand, with no need for subscriptions.

6) Ensuring data integrity for IoT devices.

7) Ensuring tamper-proof event logging for any kind of infrastructure.

8) e-voting and e-governance.


A fog computational station, for instance, can sell its analytical capabilities to sensors and then use the sensors’ payments to buy electricity from a smart grid.


“I don’t see IoT really working on a large scale without IOTA or equivalent due to the security requirements and absolute necessity of interoperability,” Sonstebo said. “However, IOTA is an agnostic protocol, so even though we made it specifically to act as the ledger-of-things for Internet-of-Things, we already now see it being adopted in several other areas. Fintech is one example, due to IOTA being the first protocol ever to allow digital transfer of funds without any fees or trust it opens up a whole new realm of opportunity wherever transactions occur.”


“Similarly due to IOTA’s unique ability to act as a medium for data transfer that ensures data integrity for free, we see it being explored heavily in areas where this is important, such as e-health, connected vehicles, critical infrastructure and supply chain.”

No Bottlenecks


“The other large thing IOTA got rid of is the bottleneck, which in blockchain is the blocks themselves,” Sonstebo said. “There is no ‘block size’ in IOTA, in fact, there are no blocks at all. This means that there is no hard limit on how much the network can scale as transactions can be added into the Tangle at any point, and the more the network grows, the more efficient it becomes, unlike blockchain, which becomes congested and unusable if too many try to use it at once.”


“Finally IOTA is partition tolerant in a manner that allows it to easily ‘branch off’ parts of the Tangle ledger to disconnected clusters so they can continue to ensure data integrity and do transactions among each other via some local protocol like Bluetooth,” he said.

Inherently Immutable


“The Tangle is inherently immutable through the fact that you can’t even fork it even if you wanted to, so there is no risk for anyone in that regard,” he said. “However, in the coming months, kinks are still being worked out and the protocol optimized, so there is no way to technologically guarantee that nothing can go wrong, as we have seen with Ethereum; even years on, things still go wrong.”


The Tangle network is said to be quantum-proof in its immutability.


“But overall, once the network is fully operational and self-regulating it will indeed be secure. IOTA also use a quantum-proof hash function as we consider the imminent threat from the arrival of scalable quantum computers serious enough to already account for it, you really don’t want to have to patch billions of devices a decade from now.”


Promotion To Begin

“In IOTA the focus has always been on 1) the protocol working as intended and 2) real-world use-cases, which is why we have largely withheld all promotional work and also refused exchanges from listing it yet,” Sonstebo said. “IOTA’s goal is to become an open non-profit standard layer in the IoT stack. Now that the network is operational and we have developed several libraries and tools for the development community, we are starting to do promotion.”


“Ever since the project began back in 2015 we have been working a lot with different start-ups and companies in the IoT sphere, so IOTA is quite well known in those realms, and we do have thousands of people in the larger community that is already aware of IOTA, so word of mouth combined with some promotion and planned hackathons is how people will encounter IOTA.”

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