The tangle vs blockchain: a comparison between IOTA and bitcoin

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?

Data
Source: Bloomberg

What is the tangle?

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:

  • No miners: removes the fees charged by miners, as well as their ability to block small transactions
  • Less stringent data transfer rules: makes the system more agile and better suited to handling a huge volume of transactions
  • Scalable data units: allows for the transfer of tiny bits of information, ideal for micro-transactions

The tangle vs blockchain

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.

Learn more about what blockchain technology is

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.

Differences between the tangle and blockchain

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:

  • Structure – Blockchain consists of a series of nodes, or blocks of data; each one attached to the previous one in a long, ever-growing chain. The tangle, on the other hand, is constructed of a group of data nodes that flow in a single direction. And, whereas blockchain can technically loop back on itself in a circular fashion, the tangle can only move in one direction, never doubling back. This allows for a more rapid transfer of data
  • Security – Blockchain boasts a higher level of security, due to its arduous block-formation process, which involves the solution of a mathematical problem and verification through group consensus. The tangle only requires that a device validate two previous transactions before it can complete one of its own and thus create a data node. This less-robust procedure renders the tangle less secure than blockchain
  • Decentralisation – Both blockchain and the tangle are billed as decentralised systems – free from outside interference and the associated fees and obstructions. Yet in reality, the tangle has had to implement a safeguard, which it refers to as a ‘coordinator node’. This node essentially introduces a centralising factor into the tangle’s structure and undercuts claims that it enables completely autonomous, uninterrupted transactions between the machines participating in 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.

What is IOTA?

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 vs bitcoin: which is the best bet for traders?

IOTA

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

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.

Cryptocurrency trading

You don’t need to own cryptocurrencies to trade
on them.

Learn how to go long or short on bitcoin, ether,
ripple and litecoin.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. 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. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.