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Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
- You could lose all the money you invest.
- The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.
- The cryptoasset market is generally unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.
- You should not expect to be protected if something goes wrong.
- The Financial Services Compensation Scheme (FSCS) doesn’t protect this type of investment because it’s not a ‘specified investment’ under the UK regulatory regime – in other words, this type of investment isn’t recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS investment protection checker here.
- Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
- You may not be able to sell your investment when you want to.
- There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.
- Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.
- Cryptoasset investments can be complex.
- Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.
- You should do your own research before investing. If something sounds too good to be true, it probably is.
- Don’t put all your eggs in one basket.
- Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.
- A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
If you are interested in learning more about how to protect yourself, visit the FCA’s website here
For further information about cryptoassets, visit the FCA’s website here
Table of Contents
Forbes Advisor has provided this content for educational reasons only and not to help you decide whether or not to invest in cryptocurrency. Should you decide to invest in cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.
What Is IOTA?
IOTA is a smart contract platform designed to handle payments and other transactions between physical devices that are connected to the internet. MIOTA is a cryptocurrency token used by the IOTA platform to facilitate transactions.
Even if you haven’t heard of the Internet of Things (IoT), chances are you already have IoT devices in your home, car or office. These can include the sensors in your car that indicate tyre pressure is low, or your internet television, smart refrigerator, or Nest thermostat.
As the name suggests, IoT devices are connected to the internet, typically via Wi-Fi or a mobile network. But despite their ubiquity, facilitating transactions and payments among IoT devices is challenging. IOTA is a ledger designed to power microtransactions among IoT devices.
“We actually see the IOTA token as the connective tissue between the human economy and the machine economy, creating interoperability between the two,” notes Dan Simerman, head of financial relations on IOTA Foundation.
Another way to describe IOTA is as a network that helps investors and companies monetise data feeds from the IoT. MIOTA is the crypto token used to facilitate transactions on the IOTA network, and is also utilized as a reward for network participants and supporters.
How Does IOTA Work?
Unlike other cryptocurrencies such as Bitcoin, IOTA is built on a distributed ledger technology that’s somewhat different from blockchain. IOTA uses a proprietary technology called the Tangle, which is a consensus algorithm that requires users to validate two transactions in order to complete their own IOTA transactions.
Technically speaking, Tangle is a direct acyclic graph (DAG) consensus algorithm. With this method, there are no miners or validators, no blocks and no transaction fees. This allows the crypto to “overcome cost and scalability issues of blockchain,” according to the IOTA website.
The DAG structure was designed to eliminate the scalability issues and costs related to blockchain by enabling no-fee payments, lower computing costs and the ability to connect to IoT devices.
IOTA’s structure is appealing for use in the IoT economy because it removes the friction of high transaction costs, which would require human monitoring and intervention—precisely what the IoT was designed to avoid.
This “smart contracts” platform is currently in the process of redesigning its ledger technology and its protocol for consensus. IOTA’s 2.0 version is fully decentralised.
IOTA Advantages
- No transaction fees. With IOTA, there’s no need to pay for gas (like with Ethereum) or reward miners (like with Bitcoin) to complete transactions. Lacking miners or validators, IOTA is a fee-free data and value transfer protocol.
- Faster transactions. Conventional blockchains often experience bottlenecks due to the time it takes to create new blocks. The Bitcoin blockchain can handle roughly five transactions per second (TPS), although this may vary at times. For Ethereum, it’s typically around 15 TPS. For IOTA, it’s possible for its network to handle up to around 1,000 TPS.
- Energy efficient. IOTA is designed to accommodate devices such as sensors that operate in a low-energy environment. Even IoT devices with minimal computing power, like toasters, can write data to IOTA’s Tangle.
- Adaptable to different use cases. Large corporations may adapt IOTA for individual use cases. With IOTA Access, an open-source framework that allows access to control systems, a car owner can allow someone access to their vehicle remotely, for instance.
- Decentralisation roadmap. IOTA’s 2.0 version is fully decentralised.
IOTA Disadvantages
- Security vulnerabilities. In February 2020, hackers stole more than £1.1 million worth of MIOTA. It’s reported that the hackers appeared to have targeted a few high-net worth accounts, and IOTA’s founder David Sønstebø agreed to repay the victims of the hack with the network’s tokens. IOTA’s new and improved 2.0 version is aimed at improving security issues.
- Capacity for growth. The IOTA system is still in its infancy. Like many cryptos, success hinges on wider adoption of the network with increased numbers of participants.
How to Buy IOTA
It’s key to understand that IOTA is the overall platform, while MIOTA is the crypto token that powers the IOTA system. Listed under the ticker MIOTA, IOTA’s crypto coin is available on a range of cryptocurrency exchanges such as eToro.
Here’s how to buy IOTA, step by step:
1. Registering for an account and getting verified
Investors who don’t already have an account on their crypto exchange of choice will need to register and enter some basic information, then verify their identity to help prevent fraud. Most platforms require users to upload photo ID for verification.
2. Setting up a crypto wallet
Once verified, you’re ready to purchase or trade cryptocurrencies. While one can store the public and private keys necessary to trade them on the exchange, this may leave them vulnerable to loss or theft.
Setting up a crypto wallet is a more secure way to store keys and keep them safe. There are many wallet options available, and they come in different forms. The IOTA Foundation, for example, offers a wallet it calls Firefly.
3. Depositing cryptocurrency
Logging in to an exchange account and depositing cryptocurrency should take just a few minutes.
4. Buying tokens
If one were ready to buy, they would simply find the pair that matches their cryptocurrency—IOTA/BTC, when buying with Bitcoin, for instance—and input the amount of IOTA they wanted.
Should investors consider buying IOTA?
While IOTA and the explosion of IoT technology look promising, there are no guarantees it will have as bright a future as current predictions might lead you to believe. Many unpredictable external events could influence IOTA’s direction, from an enormous cryptocurrency sell-off to a recession and subsequent market crash.
It’s important to recognise that fear of missing out can cloud an investor’s judgment. Cryptocurrency is a volatile investment, so keep in mind that investors could and do lose money.
But for those passionate about IoT technology and understand the underlying risks, IOTA may be an option worth looking at for a small portion of a crypto portfolio. Consider consulting a financial professional before investing.
Cryptocurrency is unregulated in the UK. The UK regulator, the Financial Conduct Authority, has repeatedly warned investors that they risk losing all their money if they buy cryptocurrency, with no possibility of compensation.
