The benefits that the Tangle offers over Blockchain.

The blockchain is a type of distributed ledger that stores a history of all transactions sent through its network. Validating and processing these transactions produces a distributed consensus, a fancy way of saying that the network agrees with all of the transactions it’s received.

With Bitcoin, for example, every time a transaction is processed on the network, that transaction is stored as a hash (a cryptographic string of numbers) on this ledger in one of its blocks. Once a block reaches a certain height (its data limit on the number of hashes it can hold), this block is closed and it is added to the chain of preexisting blocks (hence the name blockchain). After a block is built, it cannot be altered and its data is completely untouchable.

Miners are responsible for processing the transactions that build these blocks. For example, when you send a transaction to the Bitcoin network, a miner solves the encryption puzzles within that transaction to add its hash to the current block being built. Miners are crucial to maintaining the integrity of the system, as they ensure that every transaction is legitimate and that no one is using the network to double spend (sending the same value to two different places). 

Blockchain networks that use miners process transactions using a mechanism called Proof of Work, meaning that miners have to actively do work (and compete against each other) with their computers to validate transactions. There are other mechanisms, such as Proof of Stake, wherein validators are chosen to build blocks based on the amount of a currency they hold in what is called a staking wallet.

A validator is a computer program used to check the validity or syntactical correctness of a fragment of code or document.

Regardless of the mechanism, Blockchain reaches distributed consensus thanks to an individual or individuals connected to network nodes who process transactions for the network. Tangle and blockchain differ the most. Instead of having a group of miners or validators dedicated to processing transactions, everyone sending a transaction is responsible for processing other transactions on the Tangle. What’s more, this means that no one is required to run a crypto’s core software and connect to network nodes to validate transactions.

IOTA, for example, uses the Direct Acyclic Graph (DAG) algorithm to manage its distributed ledger. This allows the network to reach distributed consensus without using blockchain technology or storing transactions in blocks.

Direct Acyclic Graph

To accomplish this, every transaction on the network must confirms two previous transactions before it can be validated. So if you were to send 10 IOTA to your friend, your computer would then single out two previously unconfirmed transactions, process them, and store them on the Tangle. Then, yours would be added to the queue and solved by another user on the network.

Decentralized protections: Since everyone using the network is responsible for its upkeep, it doesn’t require miners; and since it doesn’t require miners, it’s not susceptible to the sort of mining centralization that ASIC mining has brought to Bitcoin and other Proof-of-Work, non ASIC-resistant cryptocurrencies.

Asic Bitcoin Mining Hardware

An ASIC is a (application-specific integrated circuit) is a microchip designed for a special application, such as a particular kind of transmission protocol or a hand-held computer. You might contrast it with general integrated circuits, such as the microprocessor and the random access memory chips in your PC.

Quantum resistance: The IOTA team has laid out how the Tangle would offer a security buffer for cryptocurrencies against quantum computing, which could threaten the security of blockchain technology.

Scalability and micro payments: Currently, these are two of the Tangle’s biggest benefits. In theory, Tangle networks actually scale more efficiently the more people use them. That’s because the more transactions that are pushed through the network, the more there are to process others.  The consensus mechanism is inherently low-cost and friendly towards micro payments thanks to these peer-to-peer confirmations.

The last two points are key to understanding the market IOTA is especially targeting. IOTA was built for the Internet of Things, the ecosystem of smart devices that use the internet in some fashion to function (e.g., Google Home, smart TVs, those fancy fridges that also tell you the weather).

In a future where all of these machines are part of an interconnected infrastructure of internet-run devices, they’ll need a means to exchange data and value in real time at little to no cost.

Theoretically, the Tangle makes it possible to perform such transactions, micro or otherwise, in a manner that won’t cause the same network bloat as Bitcoin (which, in its current state, does not scale too successfully).  

IOTA and its Tangle is good for scalability and micro payments, the network has not yet been proven on a mass scale. Within the speculative market, it’s held up, but we’ll wait to see how this rabbit runs when it’s implemented into the Internet of Things before we get too hopped up on the future of Tangle technology.

The number of connected devices that will permeate our modern landscape in the coming decade is estimated to be 50 billion. Each of these are designed to make the world a better and more seamless and connected.

There are many obstacles to be overcome, of which one major one is micro-transactions. These connected IoT devices must be able to automatically pay minuscule amounts to one another in a friction less manner without having to compromise on product design by introducing additional hardware.

One alternative technology other than Blockchain is Tangle Technology and what are the benefits that the Tangle offers over Blockchain.

What is IOTA

IOTA is a cryptocurrency designed for the Internet of Things. But before we get into why the Internet of Things needs IOTA, lets look at what IOTA can offer to the existing cryptocurrency scene. IOTA has 4 HUGE advantages over Blockchain cryptocurrencies in that it is:

• Scalable
• Decentralized
• Modular

How is this achieved

Unlike Bitcoin which uses a blockchain architecture for maintaining it’s ledger, IOTA uses the ‘Tangle’ which is a Directed Acyclic Graph, known as a DAG.

In mathematics, particularly graph theory, and computer science, a directed acyclic graph (DAG) is a finite directed graph with no directed cycles. That is, it consists of finitely many vertices and edges (also called arcs), with each edge directed from one vertex to another, such that there is no way to start at any vertex v and follow a consistently-directed sequence of edges that eventually loops back to v again.

DAGs can model many different kinds of information. For example, a spreadsheet can be modeled as a DAG, with a vertex for each cell and an edge whenever the formula in one cell uses the value from another; a topological ordering of this DAG can be used to update all cell values when the spreadsheet is changed.

DAGs can also represent collections of events and their influence on each other, either in a probabilistic structure such as a Bayesian network or as a record of historical data such as family trees or the version histories of distributed revision control systems.

Directed Acyclic Graph

A directed acyclic graph (DAG!) is a directed graph that contains no cycles. A rooted tree is a special kind of DAG and a DAG is a special kind of directed graph.

For example, a DAG may be used to represent common sub expressions in an optimizing compiler.

In mathematics and computer science, a directed acyclic graph (DAG /?d?g is a finite directed graph with no directed cycles. That is, it consists of finitely many vertices and edges, with each edge directed from one vertex to another, such that there is no way to start at any vertex v and follow a consistently-directed sequence of edges that eventually loops back to v again.

Equivalently, a DAG is a directed graph that has a topological ordering, a sequence of the vertices such that every edge is directed from earlier to later in the sequence.

In summary the Tangle solves both the scalability and transaction fee issues faced by Bitcoin (And most cryptocurrencies) by requiring the Sender in a transaction to perform a kind of proof of work which approves two transactions.

Thus, the act of making a transaction and validating transactions are coupled. This removes dedicated miners and makes the system fully decentralized. Those making transactions (the systems ‘users’) are the only actors who can affect the system (whereas in bitcoin miners are not ‘using’ the system, rather they are simply enabling it to operate).

The remarkable result is that in IOTA, the network transaction speed INCREASES as the number of users increases (as opposed to blockchain cryptocurrencies which get slower with increased numbers of users).  It also eliminates the need for users to pay ‘miners’ for doing the proof of work (because they do it themselves). Thus, there is no Fee to make a transaction, For details see Read the Tangle Whitepaper.

IOTA looks to be Fee less and scalable. This alone makes IOTA incredibly promising as a technology for a huge number of applications.

Centralization of control of IOTA

Small miners form big groups to reduce variation of the reward. This leads to concentration of power (computational and political) in hands of few pool operators and gives them ability to apply wide spectrum of policies (filtering, postponing) on certain transactions.  Although there are no known cases where pool operators abused their power, there have been several instances where the opportunity were present. This possibility in a monetary system powering a multi billion (in  $ USD) industry is completely unacceptable.

Bitcoin

It is argued that Bitcoin has somewhat centralized control. A quick look at the data shows that 8 Mining Pools account for over 75% of the mined blocks over the January 30th 2018 

Source: Coin Dance

• Anifoll (16.6%)
• BTBC (13.1%)
• BTCCOM (8.9 %)
• F2Pool (8.5%)
• BitFury (7.4%)
• BTCC (6.2%)
• Slush Pool (5.6%)

Combined total: 75.6%

Of these 8 all are based in China excluding BitFury and SlushPool. This is potentially an issue as a change in regulation in China or tighter control over the Great Firewall could result in a large proportion of Bitcoin’s mining hardware being isolated from the rest of the world.

It should be pointed out that many of these pools are used by independent miners (as opposed to the pool operators being the sole miners in the pool). However, despite this, having 8 pools controlling 75% of the network makes political centralization a real danger.

If any 7 of these 8 pools can be controlled by a ‘bad actor’ through extortion or bribes over 50% of the Hash power in the Bitcoin network could signal for a specific bitcoin protocol.

IOTA

In comparison there is no separate ‘mining’ in IOTA. If you make a transaction you validate two transactions. Thus, by taking part in the network you speed it up. As a result each user can be viewed as an independent ‘miner".

Obsolete Cryptography 

Although large scale quantum computers do not exist yet, future oriented companies have already begun initiating the steps towards quantum-resistant cryptography. From a security point of view it makes perfect sense to assume that hardware capable of cracking classical crypto algorithms may appear in the very near future, so preparation is the only defense.

Bitcoin

Bitcoin could be crippled by the sudden deployment of large scale Quantum computers. As of 2017,  NSA has succeeded in building a quantum computer  and they aren’t the only people trying! 

IOTA

IOTA uses ‘exclusively quantum resistant cryptographic algorithms’ which are immune to this brute force attack (unlike current blockchain projects).

Furthermore the Tangle decreases impact of a Quantum consensus attack by 1 million times. The details of this can be seen in the Whitepaper.

Inability to conduct micro payments

IOTA

Transaction fees are used to cover miner expenses and mitigate spam-attacks. They also set a threshold on the minimum amount of a payment below which money transfers become inexpedient.

Bitcoin

In 2013  it was possible to make bitcoin transactions for an incredibly low fee. This was one of the major selling points of bitcoin at the time. Bitcoin was being lauded as a cheaper alternative to the existing infrastructure which also had lots of added benefits (decentralised, irreversible, non-inflationary etc).

As time has gone on transaction fees have grown to the point that many/most bitcoin services have become impractical and the billions of unbanked people across the world have seen their (potential) access to the world’s financial marketplace (via bitcoin) severed due to cripplingly high transaction fee.

Through scaling solutions such as lightning will be able to solve this problem, these systems are not live on the network today.

IOTA

In IOTA there are no transaction fees. You can send as little as 1 IOTA. As of today 1 IOTA is worth $0.0000006 and will always be able to be sent with no fee.

Partition intolerance

IOTA

Blockchain-based currencies are unable to survive long-sustained partitioning of the network because this may lead to reversal of a large number of transactions. It is also impossible to initiate an intentional partitioning in cases when it is required.

Bitcoin

Transactions must be relayed by nodes connected to the network. Transactions cannot take place off chain without other layers of abstraction (lightning) as the ledger must be updated constantly to ensure double spends are not possible.

IOTA

IOTA nodes can operate without being connected to the main tangle quite happily. If they later wish to connect to the network (when, for example, an internet connection is available) they can do so with ease.

(Note The Bitcoin Protocol may fork (Due to split camps of bitcoin supporters whose beliefs about scaling) and Ethereum has already forked (ETH and ETC). Though it is true that these forks cannot recombine, these are not the network partitions which IOTA refers to.)

What Coming Soon

Discrimination of participants

Existing cryptocurrencies are heterogeneous systems with clear separation of roles (transaction issuers, transaction approves). Such systems create unavoidable discrimination of some of their elements which in turn creates conflicts and makes all elements spend resources on conflict resolution.

Scalability limits

Some cryptocurrencies have hard limits on the maximum transaction rate and this limits cannot be removed in a decentralized manner. A magic number of a limit set before the launch cannot satisfy requirements of a system unless it is set by a person with extraordinary prediction skill. A too low value may hinder growth of the user base, a too high value may open system to different kinds of attacks.

High requirements for hardware

Bitcoin-derived cryptocurrencies use its original script-based approach which allows implementation of a wide range of use-cases. Other currencies use an approach similar to one used by banks but add extra features. They both substantially raise requirements for hardware because of complex transaction processing logic.

Unlimited data growth

Storing of all state transitions leads to fast growth of data while does not increase stored balance information significantly. This inefficiency cannot be removed even with data pruning technique and high popularity of the currency may lead to its collapse.

Source: UK cryptocurrency, IOTA, Wikipedia