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What is IOTA?

Written by Alexandra Perry
Posted August 15, 2017 at 1:01PM

What is the Digital Currency IOTA?

Great question. To many people, IOTA is a revolutionary technology laying the foundation for the Internet of Things.

For less serious traders or technology enthusiasts, IOTA is just another altcoin. But for the momment, it's an altcoin that is gaining traction, sparking investor curiosity.

I wrote about IOTA when it first became available on major digital currency exchange, Bitfinex.

Since that initial article, IOTA has followed the rest of the market through some agonizing drops. It crashed and burned alongside Bitcoin (BTC) and Ethereum (ETH) in July. Trading volume picked up again in early August, with the price beggining its climb upward.

In the past seven days, IOTA has climbed the Coin Market Cap ladder. As I am typing this, it's sitting at #5, right below Bitcoin Cash (BCH). On Monday, IOTA gained nearly 20%.

IOTA chart 2017

In the digital currency world, it's hard to make assumptions. IOTA could be surging because of investor faith in the underlying technology. Also, holding a spot in the Coin Market Cap top 10 could increase investor exposure.

Outside of those two reasons, there is also one exchange related factor adding to IOTA's surge.

I'll get to that in a minute. But first, I want to talk about what IOTA is. Like most digital currencies, it has a unique function and purpose, but that is where the similarities end. IOTA operates using different technologies than most digital currencies.

IOTA Allows Machines to Communicate Without Fees

Many people are referring to IOTA as a backbone for the Internet of Things (IoT), and this name does not come without merit.

Iota_Screenshot

IOTA was designed to help machines communicate and settle transactions without fees. This would allow the Internet of Things to exist.

How does IOTA do this? After all, don't all digital currencies struggle with transaction fees?

IOTA is actually different than any digital currency. Instead of using a blockchain, it uses a distributed ledger referred to as "The Tangle."

IOTA's team alludes to why they use the Tangle instead of normal blockchain technology in their white paper:

"The rise and success of Bitcoin during the last six years proved the value of blockchain technology. However, this technology also has a number of drawbacks, which prevent it to be used as a one and only global platform for cryptocurrencies. Among these drawbacks, an especially notable one is the impossibility of making micro-payments, which have increased importance for the rapidly developing Internet-of-Things industry."

On the IOTA website, the team also emphasizes that IOTA was built to scale, unlike Bitcoin or Ethereum which have grappled with such issues.

Beyond this scaling ability, IOTA has also decoupled consensus from the token itself. Consensus, in this case, means mining. IOTA does not need miners to operate. It has the ability to maintain itself, operating in a 100% self-regulated environment. This has a lot of appeal to investors baffled by the mining model.

I know that is a lot of information to absorb, so here are a few takeaways:

Utility: IOTA has utility as a technology that allows machines to communicate. It can process micro-transactions with no fees, something that no other digital currency in the space can do.

Function: IOTA operates using a technology called "The Tangle." It's not a blockchain, but a decentralized ledger that is self-regulating.There is no mining.

But Why is IOTA going up? It's Could be Bitfinex.

IOTA's rise coincides with another major event in the digital currency world: Bitfinex's discontinuation of services to U.S. customers.

On August 11th, Bitfinex released a statement saying they would be closing their doors to U.S. customers.

The announcement sparked panic in the digital currency world, with investors flooding the exchange to remove their coins. But it also had an opposite effect. It sent buying of certain digital currencies through the roof.

One such digital currency appears to be IOTA.

You see, Bitfinex is the only digital currency exchange trading IOTA. Investors seem to be buying it up in chunks and then hoarding it away.

This is likely not the sole reason IOTA is rising, but in a news dominated market, it certainly appears to have had an affect.

We will keep you up to date as the Bitfinex situation develops. If you are curious about learning more about digital currencies, make sure to check out of free resources or sign up for our e-letter below.

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