A Cryptocurrency For The Internet of Things
Apart from writing for Energy Central, I also write about stocks and financial markets for another site. For the last two months, I’ve been writing about price movements for bitcoins and other cryptocurrencies. (In case you haven’t noticed bitcoin is up by more than 1,000 percent this year). That’s how I came across IOTA, a cryptocurrency designed for the so-called Internet of Things ecosystem.
Essentially, the cryptocurrency claims to facilitate transactions within the ecosystem through exchange of data. Unlike other cryptocurrencies, IOTA does not use blockchain. It uses a mathematical concept called DAG (Decentralized Acyclic Graph) Tangle. This means that for each node’s transaction to be valid, it has to approve transactions at two other nodes. Thus, the more users in the network, the faster its transactions will be confirmed. The team behind IOTA claims to have solved two key problems plaguing bitcoin’s blockchain, namely a slowdown in transactional output and high transaction fees. According to them, IOTA has no transaction fees. IOTA has partnerships with a slew of prominent companies and institutions, such as Microsoft and University College, London and claims to have processed over 3 million transactions on its network.
The key to IOTA’s growth is the concept of an IDOT, an identity-focused Internet of Things device. The identity of each object within the Internet of Things ecosystem is expressed in terms of the manufacturing and functional attributes of its sensors. These include manufacturer, type of data being gathered and its purpose. “Intelligent devices will exchange small and big data packages, small and big amounts of energy - or any other resource (bandwidth, storage, and computation),” wrote Carsten Stocker, senior manager at Innogy Innovation Hub, which has partnered with IOTA Foundation, the nonprofit that runs the cryptocurrency. “In the near future, as a consequence, we can expect that a machine will be able to pay its assembly, its maintenance, its energy and also for its liability insurance by giving data, computing power, storage or physical services to other machines. For the first time, a device will be in a position to earn and spend money on its own.”
And how might such a device work with energy devices in the Internet of Things ecosystem? A Medium blogpost provides an example that can be used within the context of home energy. Instead of the long and complicated process of setting up an Internet connection, IOTA’s transactions may enable you to connect to the Internet, as and when required, and pay for data per MB usage through micro-transactions. On a similar note, one can conceive of a similar energy ecosystem in which smart meter devices could be set up instantly connect to utilities and enable transactions. In fact, Innogy innovation hub is a unit of Innogy SE, a German energy company. In its post, Stocker provides clues about possible use cases for IOTA. For example, it can be used to pay for energy services. “We see IOTA driving exciting data-driven business models in energy management, supply chain management, mobility logistics telematics, health care telematics, environmental observation, security, and telecommunication networks,” he wrote.
The nonprofit recently signed a partnership agreement with Volkswagen AG and Samsung Group to create a marketplace for data. Companies within the marketplace will share data from their IoT ecosystem to the marketplace. This data will later be monetized. (In simple words, it will be sold to advertisers). While IOTA has not announced plans or partnership with an energy company, it is not difficult to imagine an energy company or utility partnering with the utility for a similar initiative.
While IOTA seems promising, there are still kinks in the protocol that need to be ironed out. For example, it is not completely decentralized currently and requires a coordinator to manage and approve transactions within its network. A team at MIT also pointed out security flaws in the cryptocurrency related to a hash function (or, the function that produces a random hexadecimal number to each block in a blockchain). According to the MIT team, the IOTA team’s hash function, Curl, produced “collisions (when different inputs hash to the same output)”. This might produce security vulnerability in systems that use the IOTA protocol.
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