From $1.94 on 4th of December to above $5 on the 6th. A return of around 150% within 2 days. Sounds like another crypto-craze for people who are used to such surges in price.
Yet one wonders with each cryptocurrency: is this a truly new one that will set the scene for mass adoption? This article will explore the underlying differences from other cryptocurrencies, initial areas of application and what lies ahead for IOTA.
The Cryptocurrency Society Needs
IOTA is secure, scalable and fast. In a future world where most of the cryptocurrencies will be vulnerable to quantum computers, IOTA will be standing tall. And unlike most cryptocurrencies, the transaction speed increases as more users make transactions. This allows it to be scalable, where its speed increases with its scale. Yet these are not its main divergences from other cryptocurrencies.
No Fees – No Mining
The fundamental difference from most cryptocurrencies is that IOTA does not have transaction fees as there is no mining involved – IOTA does not use blockchain. Instead, it uses a Directed Acyclic Graph to store transactions, or as they have eloquently put, the tangle. In this system, “when a new transaction arrives, it must approve two previous transactions”, and when it does, the transaction is cleared.
They also stress that “all of the tokens were created in the genesis transaction. No tokens will be created in the future, and there will be no mining in the sense that miners receive monetary rewards”. In addition, since there are no fees, and the wallet costs nothing, one can send IOTA to a friend around the world for free.
Micro-transactions and IOTA
The no-fee concept is invaluable for a system that relies on continuous micro-transactions. Currently, one cannot buy a coffee with bitcoin, at least not without losing money, as the transaction fee is larger than the actual transaction amount. IOTA completely bypasses this system by having no fees. Then again, is all this commotion only for people to buy coffee and tea with cryptocurrencies?
What Is the Added Value?
Most certainly not. The true added value comes from connecting users and companies by creating a data marketplace where users can sell and companies can purchase data. To quote them: “IOTA makes it possible to securely store, sell, and access data streams”. In a world where the new oil is data and new oil wells are IoT sensors that continuously collect data, one can see the driver behind IOTA’s value.
How Does it Work?
Although the framework on which IOTA is built is rather complex, the user interface is simplistic and accessible. Currently at its initial stages, the IOTA data market shows that one simply selects the desired data source, pay for the sensor and have access to the data stream thereafter. When mass adoption is underway, one can see how numerous companies would be interested in such a platform.
When the Major Players Reel In
All this is exciting, but the reason for the most recent price uptick came after the announcements that quoted major companies showing interest in IOTA. These include Microsoft, Cisco, Volkswagen, Samsung, Fujitsu, Accenture and many more. Omkar Naik of Microsoft said:
“This next-generation technology will accelerate the connected, intelligent world and go beyond blockchain that will foster innovation real-world solutions, applications and pilots for our customers”.
With such support that stretches across different sectors, IOTA is not another crypto-madness. So what do we see in the horizon at the moment?
The End Goal
The end goal is the mass adoption of IOTA and the creation of a network where data flows between machines, essentially creating a machine economy.
This has major applications in smart cities where energy efficiency, automated allocation of resources and communication plays an important role. Jan-Peter Doomernik, a senior business developer at a Dutch grid operator said, “As a grid company we believe in the power of sharing and open (free) data to co-create beneficial for society.” With increasing access and storage requests to data, such initiatives will be fueled by IOTA, driving humanity to a better future.
With its proposed system, IOTA will not only create an environment for the sharing economy to flourish, but also skyrocket. The idea goes beyond idle cars being shared by others while one is at work. A project under development by Rabobank, a Dutch bank, uses blockchain to create a system where assets are rented P2P. As an example given by Djuri Baars, co-lead of the Blockchain Team at Rabobank, one does not have to save money to buy the energy efficient washing machine; one simply rents it and pays per use.
Using IOTA in such a system, one could not only achieve the same purpose, but sell his/her usage data anonymously to whoever is willing to buy it. The key point here is that IOTA has no fees, hence micro-transactions such as washing clothes can be made without the worry of spending too much on fees.
When this is expanded to any other smart appliance in a house, it is possible to see how the sharing economy will expand fast.
Data From Everywhere
The influx of data need not come from only shared appliances in a house. Facilitating the movement of data, IOTA will also be the in the eyes of deep learning algorithms, which require vast amounts of dynamic data to improve themselves.
As data becomes more accessible and readily available, one should expect leaps in efficiency across multiple industries.
Seeing how Google, Facebook and other major tech companies utilized big data and AI, it is not difficult to predict that the development of IOTA will accelerate humanity’s transition into the fourth industrial revolution.
The stage is set for IOTA’s rise, and this is just the beginning of its story. How its price will develop in the future is set aside for the traders to figure out. Yet now, one can at least see an underlying reason behind its price.
South Korea Bitcoin Regulation on The Horizon
South Korea’s government held an emergency meeting to discuss the impact of cryptocurrency speculation last Wednesday. Banning minors from investing and introducing capital gains tax on cryptocurrency were suggested as means of protecting citizens, reports say.
The meeting was a response to talk of cryptocurrencies being in an asset bubble and the impact investing is having on younger generations. New measures to tackle this problem could be announced by the end of the week, according to Reuters.
Why It’s Important
South Korean exchange Bithumb – the worlds busiest – has hit it off with students. The ease of opening an account and the option to invest small amounts has caught the attention of many young people.
This group’s obsession with the digital assets prompted the emergency meeting. President Moon recently expressed his fear of students joining the trend and becoming obsessed with the rapid price changes of cryptocurrency prices. He labelled this a “serious pathological phenomenon.”
“Some even abandoned their studies and part-time jobs as they believed they could make much more money by investing in bitcoin,” said Reuter Correspondent Dahee Kim. The trend appears to be causing social problems in the country.
The country banned initial coin offerings back in September.
Indian Tax Authorities Swoop in on Bitcoin Exchanges
Indian tax officials are investigating transactions at Bitcoin Exchanges across the country on suspicion of alleged tax evasion, official sources have said.
The Income Tax department is conducting surveys in cities such as Mumbai, Delhi, Bengaluru, Hyderabad and Gurgaon. The aim of the survey is to gather evidence to establish the identity of investors and traders, their transactions and the bank accounts used.
The Indian tax authority is not the only one to be looking into cryptocurrencies. The famous US tax authority, the Internal Revenue Service (IRS), has recently asked Coinbase for information on users who had more than $20,000 in annual transactions between 2013 and 2015. This is because they realised that the number of tax returns claiming gains from virtual currencies didn’t coincide with the increasing popularity of them.
Bitcoin’s value has surged more than 17-fold since January, mostly driven by high demand. However, virtual currencies do not have a legal status in India and are not regulated. The Reserve Bank of India (RBI) has recently cautioned citizens about buying or transacting them.
In a statement on 5 December, it warned people of the “potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such virtual currencies”. Earlier on this year, the RBI also clarified that it had not given authorisation to any company or entity to deal with virtual currencies.
SALT – A Technology Bringing New Opportunities?
One goes to a bank, asks to take out a loan, but is denied – Bitcoin is not accepted as collateral. Given its price fluctuations, it seems natural that a bank declines such a request. Then comes SALT (Secure Automated Lending Technology) – the “first asset-backed lending platform to give blockchain asset holders access to liquidity without them having to sell their tokens”. Where the banks are not willing to get their hands dirty, cryptocurrencies seek to find an opportunity; lenders and borrowers are brought together with blockchain assets. Yet could this platform shake the foundations of a stable economy?
How SALT Works
A SALT coin is purchased for $25, which grants the user one-year access to a loan of up to $10,000. The more SALT coins one has, the larger the loan capacity. An amount of cryptocurrency is given as collateral, where the user pays periodic instalments for the loan. This framework creates a base demand for the coin, which can be defined as the underlying driver for its price.
This sounds very convenient for the blockchain asset holder, yet there is one catch: if the value of the crypto falls below the margin requirement, the borrower receives a margin call, and if not fulfilled, the asset is liquidated to cover the remaining part of the loan. If a payment is missed, a portion of the collateral is liquidated.
Everything appears to be in order. Yet when one considers that many investing in cryptocurrencies devote their entire savings – where they would also be inclined to leverage their position – SALT paints a scary picture.
No Credit Checks
Another attribute – or perhaps shortcoming – of SALT is that it requires no credit checks. So anyone can take out a loan; SALT has the collateral, where the lender can liquidate to cover its unpaid loan. The problem affecting society does not arise from a structural weakness of such a system, but from the borrower’s final state.
Stories of Past Misery
As it was observed in recent crises such as the housing market bubble, society fails to learn from its mistakes when it comes to leveraging and investing. This risk of a bubble is exacerbated when combined with a boom in credit.
As former Federal Reserve Chairman Alan Greenspan stated:
“All of us knew there was a bubble. But a bubble in and of itself doesn’t give you a crisis… It’s turning out to be bubbles with leverage”.
The Great Recession happened at the hands of the informed investors. Even though the financially innovative products used at the time were vague, they were created and traded by those informed investors, where the credit ratings of those products were given by well-respected organizations.
Today, when we gaze at the cryptocurrency peninsula, they are either lagging behind, declaring their lack of interest or outright calling everyone to avoid them. Wounds still fresh from the crisis, the average citizen is inclined to ignore their statements, if not completely stand against them. All of these factors brew the pot for a bubble enforced with leverage.
A Scary Tale
Although the market capitalization of all cryptocurrencies is a mere drop in the sea of investible assets, as the penetration of cryptocurrencies deepens, so will the risks along with it. As of now, no one knows how far the price of bitcoin or any other cryptocurrency can rise. But as long as they do, people will be attracted to the idea of depositing bitcoins for a loan to enable them to buy more, and to cover the loan along the way. As for when the bubble bursts, this is a tale with a well-known end.
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