Crypto without Blockchain: Surprising Facts
By Ivan Dikalenko 707 25 Feb 2023
The word "crypto" has come to be closely associated with blockchain in the minds of many. It's no wonder, as the masterminds behind cryptocurrencies rely heavily on blockchain technology! Nevertheless, there are some exceptions to this trend.
Definitely not a blockchain
Let's start by talking about IOTA, a cryptocurrency controlled by the German non-profit organization IOTA Foundation. Back in 2017, the foundation joined forces with major companies like Microsoft, Deutsche Telekom, Fujitsu, Bosch, and others to create a decentralized market for data provided by third-party sensors. This translates to an enormous amount of data – 2.5 quintillion bytes per day, to be exact – which was meant to be monetized.
Most data warehouses keep information within their own closed environment, meaning that over 99% of data is never analyzed and is essentially lost (according to a McKinsey study). But devices connected to the IOTA network can transfer, buy and sell information generated by various sensors in real time. This includes everything from air quality measurements to anonymous medical readings.
"So what?" you may ask
Instead of using blockchain – the technology behind cryptocurrencies like Bitcoin – IOTA's developers opted for a different approach called directed acyclic graph (DAG). In blockchain, blocks are added in sequence, one after the other. In a DAG, transactions are recorded without any set of order, and they are processed simultaneously. IOTA’s variation of DAG is called Tangle, where each node (i.e. a computer or server) is connected to the other two, but you'll never encounter the same node twice when moving through the system.
IOTA, unlike other cryptocurrencies, doesn't involve mining. All the cryptocurrency has already been issued. When a user makes a transaction, they verify two randomly chosen previous transactions, each of which in turn verifies two more. As the number of transactions increases, so does the "tangle" of their confirmations. IOTA developers believe DAG is a cheaper and more efficient alternative to blockchain. IOTA transactions are free, confirmed relatively quickly, and can be processed concurrently without limit.
Another interesting DAG use case is the DLT-based public network Hedera Hashgraph, which takes its name from the Latin word for "ivy". This project has a fundamentally different ideology from IOTA, which aims to create a "data market for everyone, without anyone getting left behind." Hedera intentionally restricts user access, positioning itself as a corporate-level platform. Its development possibilities are also severely limited, if not entirely blocked, as the project team has patented the Hashgraph technology (which is a specific type of DAG). Hedera makes it clear that any unauthorized use of Hashgraph guarantees a legal summons for the offender. The network should not be copied and launched by other players in the crypto market – this is the project team's position. AThis differs significantly from the Bitcoin worldview, where anyone can create their own ecosystem using the blockchain code.
Hedera's potential for scalability, energy efficiency, low usage fees, and other benefits attract corporate users. However, outsiders might get the impression that this network is a closed VIP club. In addition to all restrictions, Hedera is governed by a board of trusted companies, including such giants as Boeing, IBM, Nomura Holdings, Japan's largest brokerage company, and others. They determine the policy for admitting new members, manage the platform's finances, and are responsible for the project's technical development.
TOP 5 DAG cryptocurrencies by market capitalization