DEFINITION of 'Tangle (Cryptocurrency)'

Tangle is the transaction storing and processing mechanism of IOTA, a cryptocurrency network that was developed to enable fee-less micro-transactions for the growing ecosystem of Internet of Things (IoT) devices.

BREAKING DOWN 'Tangle (Cryptocurrency)'

One noticeable disadvantage of blockchain-based cryptocurrencies like bitcoin is the concept of a transaction fee that is levied for all transactions occurring on the network irrespective of the transaction value. Unfortunately, the working mechanism of blockchain based cryptocurrencies inherently requires the transaction fees to be levied, as that serves as the incentive for block creators (miners), and those who validate and approve the various transactions. This set of participants is necessary to keep the blockchain active, agile and functional.

Tangle is Described as the Successor of Blockchain

As the number of small-sized “micropayments”, like those involving small fractional amounts, is expected to increase significantly in the near future, these transaction costs will make the use of blockchain-based cryptocurrency impractical for such small payments. High transaction costs have already lead to the problems of Bitcoin Dust, where fractional amounts of bitcoins are lying idle as they cannot be transacted due to high cryptocurrency miner fees.

Enter IOTA, which is a distributed public ledger that uses a specific data structure called the Tangle, a directed acyclic graph (DAG) structure, to store the transactions occurring on the public ledger. It does not incorporate blockchain technology, thereby attempting to address the issue of transaction costs by using the Tangle storage system.

The working mechanism of Tangle requires a new transaction to approve the previous two transactions. Essentially, Tangle forces a transaction issuing-participant, or node, to contribute towards the agility and security of the network by making him/her approve earlier two pending transactions. The nodes also ensure that there are no duplicate transactions leading to double spending, and there are no conflicts among the various transactions as per the Tangle transaction history.

In case of conflicts, the nodes are expected to ideally reject a transaction. The nodes are free to approve all kinds of transactions, and may approve faulty ones as well. In case a new transaction is issued by a node that approves an erroneous transaction, it will not be approved by other nodes, thereby maintaining network integrity. Due to this mechanism of additional approvals, the genuine transactions are approved by the system with a higher level of confidence.

Technically, the following workflow occurs on Tangle. To issue a transaction, a node chooses two other transactions to approve based on a predefined algorithm. In case the two transactions are conflicting, they are rejected by the node. In case the two transactions are non-conflicting they are approved by the node. For a node to issue a legitimate transaction, it is required to solve a cryptographic puzzle similar to the implementation of the Bitcoin blockchain. It achieves so by finding a nonce value whose hash is concatenated with data from the approved transactions in a particular form. It is different from the Bitcoin protocol, where the hash is required to have at least a specified number of leading zeros.

This workflow ensures that the resource- and energy-intensive mining fee is eliminated from the transaction. It makes IOTA a fee-less system suitable for micropayments, including automated payments between trusted parties – like payment of small amount parking fee by the car driver to parking space operator.

In the whitepaper, Tangle is described as the successor of blockchain - “The tangle naturally succeeds the blockchain as its next evolutionary step, and offers features that are required to establish a machine-to-machine micropayment system. (For more, see What is IOTA?)

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