Blockchain vs. the Tangle

Cryptocurrencies could radically change the financial sector by using IoT technology that stores and processes sensitive information in a way that is easy to trace, but difficult to hack. Blockchain, a digital ledger that records cryptocurrency transactions, logs each set of transactions as blocks and chains and distributes this data over a large network of computers, rather than just one, to protect the data and decentralize control. The main criticism of blockchain-based cryptocurrencies such as bitcoin is speed: Miners verify transactions that are added to the blockchain and monitor the system to keep the network secure from hackers. However, miners are incentivized to complete transactions in return for fees they receive for every block created. The diffused nature of blockchain makes it inherently secure. Any individual or group of people with malicious intentions must control 51 per cent of the nodes on the entire network to manipulate the transactions and balances.

Currently, blockchain miners complete 4.5 transactions per second, whereas Visa completes 4,000 transactions per second. It is difficult for blockchain to reach this scale because when more blocks are created, the system becomes slower. For blockchain to become mainstream, issues with speed and scalability must be resolved. Despite being the most talked-about technology hosting cryptocurrencies, it is not the only solution to online, secure transactions: Competitors, such as the IOTA foundation (Berlin, Germany), considered these limitations when they created the Tangle, a technology to rival the blockchain that ignores the process of block and chain with a directed acyclic graph (DAG), or a collection of non-circular nodes that allow connectivity and transactions between humans and machines. To complete a transaction in the Tangle, you must verify two other previous transactions. There is no need for miners to power the network – users can help the system grow. The Tangle also processes micropayments and machine-to-machine payments, encouraging machine connectivity and removing transaction fees.

Each node will become more secure as more related transactions are made, making it more difficult for each transaction to be tampered with. The verification speed of the network becomes faster as more devices join it – this means the more devices there are using the Tangle, the more secure and scalable it becomes, a crucial advantage for cryptocurrencies vying for a position as the de facto alternative to non-digital currencies. Blockchain and the Tangle could both have potential in manufacturing applications. IOTA developed the Tangle to help manufacturers realize Industry 4.0 as the backbone of the Internet of Things (IoT). Any Internet-connected device can securely complete transactions using the Tangle. As this technology refines, all types of machines – including machine tools – will be able to complete secure transactions without human interaction.

In the future, rather than choosing one based on price or the one with the latest model, manufacturers should look to the goals of each system to determine which service will benefit them most.