What if I told you that not every cryptocurrency uses a blockchain? And what if I told you that one of the most popular cryptos on the market is a blockchain nonbeliever? Well, you best bet your bottom dollar on it, because today we’re going to get acquainted with the Tangle, a cryptographic alternative to blockchain technology. In addition, we’ll be going over IOTA, the top 15 coin that has popularized the Tangle, and whose developers believe that it’s the future of the cryptographic economy.
Blockchain: A Brief Review
Before we look at the Tangle and what makes it unique, it’d be good to have a refresher on blockchain technology. For those of you who don’t need this refresher, go ahead and skip to the next section.
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 pre-existing 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. Regardless of the mechanism, Blockchain reaches distributed consensus thanks to an individual or individuals connected to network nodes who process transactions for the network.
What is Tangle?
That last point is where 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.
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.
- 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 micropayments: 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. Furthermore, the consensus mechanism is inherently low-cost and friendly towards micropayments 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).
I say “theoretically” because, while IOTA and its Tangle sound like a godsend for scalability and micropayments, 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.