Gareth Johnson
Gareth Johnson
Updated on October 4, 2021

The global cryptocurrency market includes thousands of digital coins and tokens, with a total market cap of over 2 trillion dollars. The largest and most popular cryptos are certainly Bitcoin (BTC) and Ethereum (ETH), with market caps that are far out of reach to other altcoins, but that doesn’t mean that only these two currencies are worth investing in.

Cryptocurrencies create value based on their use cases. For instance, BTC is the first decentralized digital cash in the world and it is great for storing value, while Ethereum provides developer teams and companies with open-source programming resources which are great for developing decentralized applications and smart contracts. Every cryptocurrency has its specific functionalities and use cases that motivate people to try them out. 

The IOTA (MIOTA) ecosystem is one among many cryptos with a lower market cap and trading volume that actually carries many interesting and useful functionalities. One of the main characteristics that make IOTA a cryptocurrency you should definitely pay attention to is the fact that unlike most of the popular cryptos, this one doesn’t use a blockchain network to facilitate operations and transactions. Instead, IOTA relies on the Internet of Things technology and applications.

Let’s take a closer look at IOTA and how it works, find out what its features are, and share how you can store your IOTA coins safely.

What Is the IOTA (MIOTA) Cryptocurrency?

The IOTA ecosystem was first known as Jinn, a crypto project that aimed to evolve into a versatile cryptocurrency with the help of a crowd-sale event back in 2014 when the developers managed to raise 250.000 USD for the project. The project had some regulatory problems during the following year, which led to the decision to rebrand Jinn into IOTA in October of 2015. Finally, IOTA managed to join the crypto market through an initial token sale that raised half a million USD for further development.

A few years later, in 2017, the IOTA Foundation was formed as an official body whose task would be to facilitate the further development of the ecosystem and support the market adoption of the currency in various sectors. 

Silver IOTA crypto coin on gray background

When IOTA was first developed, it was a chip manufacturer for utilities that use the Internet of Things technology and it is precisely this technology that enabled IOTA to function without a blockchain network. The Internet of Things refers to the millions of various applications and smart devices in homes, computers, mobile devices, and production facilities worldwide. This technology enables a seamless connection between large numbers of sensors that communicate with each other in a similar manner to blockchain technology. 

The systems that IOTA-manufactured chips for were able to communicate with each other when connected through IoT networks, enabling transactions between connected network nodes. For the IOTA developer team, this highlighted the opportunity for creating a native cryptocurrency for their network in order to facilitate transfers of information and power apps and machines more easily. When the IOTA foundation realized that a cryptocurrency based on IoT had huge development potential for exploring real-world use cases of the technology, the IOTA cryptocurrency with its MIOTA token became the primary focus of the foundation.

How IOTA Works

The IOTA cryptocurrency has a relatively simple operational mechanism. The system acts as a network of IoT-connected devices where the sensors that are hooked to the network can send information and data between themselves using the IOTA system. Also, multiple connected apps and devices can conduct smart contracts with several participating parties, enabling the execution of complex agreements. 

For example, a complex production operation that involves multiple IoT-connected sensors can easily be programmed with IOTA to work automatically, with the help of a smart contract. This eliminates the need for any manual control of the devices and saves considerable time and money for businesses.

The Tangle Mechanism

The mechanism which enables the IOTA network to conduct complex smart contracts with multiple devices is called Tangle. Cryptos like BTC or ETH that have classic blockchains with proof-of-work algorithms need miners to act as network nodes and validate transactions, making sure each transfer is legit and not some sort of double-spending scam. 

In the case of IOTA, the Tangle mechanism, which is a sort of consensus protocol, checks all transactions and validates them before they can reach their final destination. Tangle works as a directed acyclic graph (DAG) which has a virtual coordinator of the whole IOTA network. This coordinator is the main authority of the IOTA network. It automatically gathers information from network nodes, which are IoT-connected devices, and uses that information to process transfers. 

IOTA Features

The IOTA network has several advanced features that make it a great digital currency for investments, especially for individuals in the field of app development and IoT-based technologies. The network architecture eliminates all sorts of transaction fees because there are no miners that would need to be paid for validating transactions. This is a huge advantage compared to many of the more popular cryptos. 

Finger hovering over IOTA spelled in white dices with low and high arrows at the end on wood table

Also, the network is very fast and users can facilitate transactions of whole databases very quickly.

Let’s take a look at some of the other key features of IOTA.

MIOTA

MIOTA is the IOTA network’s native crypto token. It is actually a utility token because it helps power different operations and procedures on the IOTA network such as creating smart contracts and transferring data between users. 

IOTA Data Marketplace

The main aspect of the IOTA network is the Data Marketplace, which is a sort of digital hub where developer teams can purchase, sell, and activate the streams of information necessary to power apps and devices.  All the data on the marketplace is encrypted and secure. The market itself is decentralized and the concept of the market is to grant instant access to developers once they make a data purchase. 

All of the traded data is available in real-time, which means that the marketplace is similar to cryptocurrency exchange platforms in the sense that the market is live and constantly fluctuating. The IOTA Data Marketplace is a very useful tool for programmers and developers that deal with IoT-connected apps and devices because IOTA gathers some of the most advanced plugins and data tools for developing and upgrading devices. 

Instead of having to search the web and gather offers from numerous service providers, developers that use IOTA can simply go to the IOTA Data Marketplace and browse available tools and plugins to find those that are most appropriate for their devices. The best thing about the marketplace is that it’s constantly expanding its portfolio of available data, thanks to the decentralized aspect of the market, where anyone with legit data can participate in the ecosystem.

Masked Authenticated Messaging

The Masked Authenticated Messaging (MAM) is a communication form used by the IOTA network to provide users with a trustless, peer-to-peer data sharing system. The MAM system is very secure because all message contents are encrypted and use secure channels which maintain the privacy of the source of each MAM message.

Bosch XDK

The key link between the IOTA Data Marketplace and MAMs is called Bosch XDK, which is an open-source code that enables the secure communication and exchange of data between users on the marketplace. Developers also use this code to create IoT-powered sensors that work with each other, communicating through the IOTA network.

IOTA Eliminates Scalability Issues

One of the main problems with most cryptocurrencies that use classic blockchain networks is the issue of scalability. The more users join the IOTA platform and start using it to exchange data, the more stable and faster it becomes. With most other cryptos, a larger influx of users usually means that the system is becoming more robust, but with IOTA, new users mean smoother functioning of all the platform’s features.

Gold IOTA physical crypto coin on black background

When proof-of-work-based blockchain cryptos receive lots of new users in a short period of time, the network busyness rises and transaction times increase, along with transfer fees, which also become higher. IOTA doesn’t have any of these issues because of its specific network architecture.

Background of Iota Hacks

The very fact that IOTA carries so much potential for growth, based on its Data Marketplace and IoT-powered technology, has also made it a prime target for hackers who want to compromise the network and steal funds from users.

In 2018, the IOTA network suffered a serious cyber attack in which 10 million USD worth of tokens were stolen. This happened because the hacker infiltrated a seed generator software but he was caught by the police a year later.

This hack considerably compromised user trust in IOTA because many people blamed the IOTA foundation for the security breach. However, the security breach wasn’t the fault of the IOTA developer team because the security of the network was never actually breached by any third party. The hacker managed to get the user funds by initiating a Distributed Denial of Service (DDOS) attack with the help of user information which was stolen prior to the hack by phishing attacks which are known to aim at usernames and passwords. 

Basically, the reason why the hacker managed to get hold of the user funds is because of the phishing attacks that had nothing to do with the IOTA network’s security system.

Another hack also happened a year later involving the IOTA Trinity wallet, when the attacker managed to steal 2 million USD worth of coins. The vulnerabilities of this wallet were so serious that the whole IOTA network had to be shut down for a couple of days to fix the issue.

Best IOTA Wallets

In order to avoid any possible cyber-attack or security breach, it’s very important to store your IOTA coins safely in a reliable cryptocurrency wallet. There’s no reason to ever disclose your password or wallet seed phrase to anyone, anywhere on the internet, except when you are logging into your wallet to manage your IOTA.

If you’re just temporarily holding some IOTA as part of your daily crypto trading operations and plan to sell it shortly, then you can hold your coins in exchange wallets such as the Coinbase wallet, which is also downloadable as an Android and iOS compatible app.

The Nostalgia Light Wallet is a great choice for storing IOTA. It’s a desktop wallet that provides all the necessary services for the safe storage of your IOTA tokens. It’s a non-custodial wallet that keeps all your personal information and private keys on your device and not on the company server. The mechanism for storing IOTA is simple – you just send your wallet address to the other party that wants to send you some IOTA and watch your wallet get filled with coins. This wallet is compatible with Windows, Linux, and Mac OS.

Another great option for storing IOTA is the Ledger Nano X hardware wallet, which is one of the best wallets in the industry for keeping large amounts of cryptos safely offline. It comes with state-of-the-art encryption solutions and security features that protect your assets with passwords, seed phrases, and PIN codes. Also, it’s very user-friendly and intuitive. If you’re looking to invest large amounts of money in the IOTA network, then it is highly recommended to use a reliable hardware wallet such as the Ledger Nano X.

A Few Final Words…

Both crypto beginners and experienced traders often concentrate their crypto investments only on the top currencies that lead the market, but there are hundreds of additional, very interesting, and innovative projects that are also worth the attention and the investment. IOTA is one among many such projects because it stands out with its technological solutions that don’t use a classic blockchain but instead rely on a network of IoT-connected devices and sensors.