What it means
Most well-known cryptocurrencies use a blockchain, which collects transactions into blocks that are added one after another to a shared record. Miners or validators compete or are chosen to add each block, and they are paid fees for doing so.
The Tangle takes a different approach by using a structure called a directed acyclic graph, which is a web of transactions in which each one points back to earlier ones and never loops. In the original design, a person sending a payment also has to confirm two earlier transactions, checking that they are valid.
This means everyone who uses the network helps to validate it, and there is no separate group of miners. The more people send payments, the more confirmations happen, in theory making the network faster as it grows.
The designers aimed the Tangle at the so-called internet of things, in which sensors, vehicles and machines pay one another small amounts for data or services. In such a setting, a fee of even a few cents would make tiny payments pointless.
A design with no mining fees could suit payments of fractions of a cent. There are real trade-offs.
A network that depends on users confirming each other is weak when activity is low, because there are not enough new transactions to confirm older ones. Early versions relied on a central safeguard operated by the project's developers to protect the network, which critics said conflicted with decentralisation.
Finance teams should treat the Tangle as a design of interest and not a settled business tool. Digital asset technology changes quickly, and the design has been revised over time.
Any business considering such a network should look at its current status, legal treatment and accounting rules before relying on it. It also helps to separate the technology from the token.
A ledger design can be interesting even if the price of its token is volatile, and a finance team should assess each on its own merits. Accounting for the tokens, for example whether they count as inventory, an intangible asset or something else, depends on the rules where the business operates.
In practice
Real-world examples.
Example
A smart electricity meter company wants household devices to pay for small amounts of power from neighbours. A feeless ledger would let each meter settle payments worth a few cents without losing money to charges. The company tests the idea in a small pilot and compares the processing cost per payment with its existing payment provider.
Example
A logistics firm explores letting delivery vehicles pay automatically for parking and charging as they travel. The finance team notes that a fee-free network could cut the cost of thousands of small payments each day. It also notes that the accounting treatment of the digital tokens is still unclear.
Example
A technology fund analyst compares the Tangle with a blockchain when valuing a start-up. She asks how the network is secured, who controls it and what happens if activity drops. The answers shape her view of the investment risk, since a network that depends on a small group of operators behaves differently from one that is truly open.
Case study
Seen in the real world.
Voltaway Mobility is an illustrative, fictional company that runs 2,000 electric vehicle charging points. Customers currently pay by card, and each payment costs the company 30 cents plus a percentage, which makes small top-ups unprofitable.
The finance director studied an alternative based on a web-style ledger similar to the Tangle, where machines could pay each other directly without per-payment charges. A trial with 50 charging points showed lower processing costs, but also revealed that the network slowed at times when few other transactions were being made.
The illustrative conclusion was cautious. Voltaway kept card payments for customers and ran the new ledger only for machine-to-machine settlement of small amounts, with a review every six months.
Watch out
Common mistakes.
- Calling the Tangle a blockchain, when it uses a different structure in which transactions confirm one another without blocks.
- Assuming that a fee-free design is cost-free, since there are still costs of development, security and compliance.
- Treating the design as proven, when the approach is newer than the blockchain and has had to be revised as developers learnt from experience.
Questions
People also ask.
What is the Tangle used for?
It was designed for IOTA, a network aimed at payments and data transfers between connected devices.
Does the Tangle have miners?
In its original design it does not, because users who send transactions also confirm earlier ones.
Is the Tangle safer than a blockchain?
Not necessarily, as each design has different strengths, and the Tangle's security depends on enough activity and on how the network is protected.
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