You don’t need to own cryptocurrencies to trade
Learn how to go long or short on bitcoin, ether,
ripple and litecoin.
Does the emergence of new transaction-storing mechanism tangle, and IOTA – its associated cryptocurrency – signal a real challenge to the supremacy of blockchain and bitcoin?
The tangle is a network data structure designed to facilitate a range of secure transactions. Like blockchain, it is a distributed ledger that involves a group of independent operators performing an array of data-transfer transactions and coming to consensus on ownership. There’s no reliance on centralised authorities, such as financial institutions or governments.
While it bears significant similarities to blockchain technology, the tangle offers some divergent features designed to deal with the predicted establishment of the so-called ‘Internet of Things’ (IoT).
The IoT refers to a universe of interconnected devices, all communicating with one another – through a multitude of self-directed micro-transactions – in order to independently carry out the functions they have been created for.
Imagine an array of household appliances and personal electronics able to handle their own maintenance and upgrades. Toasters, washing machines and printers that can diagnose faults, order and pay for fixes and supplies to be carried out and delivered by other machines – all without consulting you.
While this may seem like something out of a science-fiction plot, the truth is that the IoT is already well on its way to becoming reality. In fact, certain estimates predict that, by 2020, there will be 20 billion interconnected devices autonomously conducting tasks and communicating with each other.
If the IoT is to work as it should, there will need to be a network capable of handling the vast amount of micro-transactions required – facilitating rapid, automated exchanges of small amounts of data and currency, all carried out seamlessly between devices.
Enter the tangle. This technology, its creators and fans argue, is uniquely suited to pull off myriad data interactions necessitated by the IoT, in a way that blockchain is not. This is due to features such as:
Blockchain technology – as well as the cryptocurrencies that it supports, such as bitcoin, litecoin and ether – has been on the rise for almost a decade, ever since it first appeared on the scene following the worldwide recession in 2009.
As companies across various industries, sectors and regions become more and more aware of blockchain’s potential to enhance efficiency and productivity, its fortunes continue to improve.
But are there competitors on the horizon ready and willing to mount a serious challenge to blockchain’s dominance? That is debatable.
From one angle, because blockchain itself is still relatively new and evolving, many technical innovators are content to keep developing new uses within its potential.
However, from another perspective, some enterprising tech pioneers firmly believe that blockchain has limits. They feel that the technology is unable to adequately cover all the eventualities presented by a constantly shifting technological and business landscape. In particular, some fear that bitcoin is ill-equipped to handle the myriad of micro-transactions that will be necessitated by the IoT. Therefore, they conclude, blockchain deserves some competition.
The tangle is one challenger that some believe can fill in perceived gaps left by blockchain in the network data transfer field.
In actuality, just a few technical variations exist between the tangle and blockchain networks – although they are significant ones. Proponents of the tangle claim that these differences make it more suitable for supporting the IoT:
In response to concerns that the tangle’s security lags behind that of blockchain, fans of tangle technology stress that – while its less strenuous node-addition protocol might make it less secure – it renders the network more agile. This, they believe, will equip the tangle to better handle the swift pace and massive volume of IoT interactions.
However, the tangle’s security vulnerabilities, as well as its still-unresolved centralisation issue, are just two of the kinks that this data structure will need to iron out before it can start to fulfil its stated purpose – much less compete with blockchain.
Unlike blockchain, which has spawned bitcoin, litecoin, ether and a whole range of other lesser-known cryptocurrencies, the tangle so far has only one: IOTA.
IOTA takes its name from both the IoT, which it’s meant to facilitate, and the fact that it’s designed to help complete a tonne of tiny transactions. It is essentially a micro-cryptocurrency, with the value of one IOTA recently calculated at $0.0000006. This stands in stark contrast to bitcoin, for example, which has soared as high as $19,783.06 (albeit briefly) and routinely hovers north of $6000.
IOTA faces an uncertain future. For starters, the tangle technology that underpins this cryptocurrency still needs to find its feet, having some way to go before it can begin to deliver on its promise.
In addition, even if the tangle manages to establish itself, IOTA may not end up being the sole or most successful cryptocurrency based on this technology. In fact, since there’s very little empirical evidence that actually showcases IOTA – or the tangle for that matter – in action, there’s absolutely no guarantee that they will ultimately survive the growing pains and developmental hurdles that lie ahead.
So, even though IOTA could appeal to traders who are lured by the excitement of capitalising on a just-emerging technology, many questions still surround its future prospects.
Bitcoin, on the other hand, has a proven track record. It has built up a solid reputation, largely based on the established blockchain technology that has gained the confidence of leading companies around the world. The relative trust that traders place in bitcoin seems to be reflected in its arc of value.
Read more about the investment in blockchain technology
In recent years bitcoin’s price has enjoyed a steady increase, culminating in a skyrocketing rise at the end of 2017. Since reaching this stellar height, perhaps inevitably, the price of this most famous of cryptocurrencies has course-corrected somewhat.
Nevertheless, even though its value still demonstrates a fair amount of volatility, bitcoin shows credible signs of being here to stay – both as a viable cryptocurrency and a tradable asset.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.