When Bitcoin was first released to the world in 2008 it started a revolution.
People claimed that the blockchain would solve many problems and that it has countless of
applications.
Blockchains indeed have very interesting properties and you can learn all about them in this video
here.
However they have one big limitation and that is that don’t scale very well.
This is exactly the problem that the creators of IOTA wanted to solve.
Instead of using a blockchain, IOTA uses something called a DAG or tangle.
DAG is short for Directed Acyclic Graph and it’s a storage system where individual items
link to each other.
“Directed” means that the link between items always have a direction and acyclic
means that you cannot create loops inside this structure.
This might sound complicated, so let’s take a look at a simple tangle.
Each square represents a single transaction and is also called a “site”.
Each site contains all the details about the transaction: such as the sender, the receiver
and the amount of coins.
It also has a connection to at least two other transactions.
These are called “edges” and they validate the transactions.
Here is an example of a bigger Tangle.
Near the end of our Tangle we find a few transactions that don’t have two or more incoming edges.
This means that these transactions are unconfirmed.
We also call these the tips of the tangle.
Alright now that we understand some of the IOTA terminology, let’s take a look at how
we can add a new transaction to the tangle.
We have to attach our new transaction to one of the tips of the tangle.
An algorithm selects two of them at random and makes sure that the transactions don’t
conflict with one another.
If one of the tips is a fake transaction, it is ignored and a new tip is selected.
If everything checks out, we attach our transaction to the two tips.
This adds our transaction to the tangle and verifies the two other transactions.
Our transaction is now part of the tangle and becomes a new tip.
This technique makes IOTA’s tangle incredibly scalable.
For every transaction that is added to the tangle, two others are being confirmed.
This means that the network doesn’t slow down when there are a lot of new transactions.
In fact, it actually speeds up!
That’s all great, but how do we know we can trust a transaction?
In traditional blockchains people often use the number of confirmations to check wether
or not a block should be trusted.
Well IOTA has similar technique.
Each site has a weight.
This number signifies the amount of work that a node has done to make this transaction.
In other words: a higher number means the node spent more time doing the proof-of-work
for that transaction.
Each transaction also has a cumulative weight.
This is the sum of it’s own weight plus the sum of the weights of all transactions
that approve this transaction.
It seems quite complicated, but it really isn’t.
Here is an example of a Tangle where every transaction has a weight of 1.
We’ll put the weight of an individual transaction in the bottom right of each square.
Now let’s check how trustworthy this pink transaction is by calculating its cumulative
weight.
To do that, we sum up the weight of the two transactions that have approved it.
But those transactions where approved by other transaction as well.
So we keep summing up all these weights until we get to the end of the tangle.
In this case, the accumulative weight of the site is 6.
Transactions with a high cumulative weight are usually older and have more direct or
indirect verifications.
So we can trust those transactions more then others.
So now you know what IOTA’s tangle is and how works.
But how does it stack up against traditional blockchains?
Well, the tangle solves two big issue’s: scalability and miners.
Let’s discuss _scalability_.
As we’ve seen: IOTA’s network becomes faster when more transactions happen.
This means that IOTA can handle almost an unlimited amount of transactions per second
while traditional blockchains can only handle a few.
But there is an other aspect to scalability that most people seem to forget and that is
storage.
In a blockchain, you need a full copy of the chain before you can start adding new transactions.
Right now the Bitcoin blockchain is almost 150GB in size and keeps growing very fast.
Storing all this data is not something every device can do and will get harder over time.
IOTA’s Tangle is much more lightweight.
You don’t need a full copy of the tangle to add transactions.
You only need a small part of the tangle to create and verify transactions.
This makes it much more future proof.
And finally IOTA has _no miners_.
Usually miners are there to create blocks and validate transactions.
For this hard work, miners take a fee from each transaction.
In IOTA, no miners means no fees.
Sending money around is this completely free!
So now you know how IOTA’s tangle works, and how it compares to regular blockchain
technology.
If you liked this video, please give it a thumbs up and get subscribed to my channel.
Thank you very much for watching, and I’ll see you in the next video!