IOTA is a distributed ledger designed to record and execute transactions between machines and devices in the Internet of Things (IoT) ecosystem.
The ledger uses a cryptocurrency called MIOTA, to account for transactions on its network. IOTA’s main innovation is Tangle, a system of nodes used to confirm transactions. IOTA claims that Tangle is faster and more efficient than the regular blockchain used in cryptocurrencies.
The IOTA Foundation, the non-profit foundation in charge of the ledger, has signed agreements with leading companies, such as Bosch and Volkswagen, to expand the utility of the platform among connected devices.
Billions of devices are connected to the Internet by 2020. In this Internet of Things (IoT) ecosystem, devices can exchange data and payment information with multiple other devices in transactions made throughout the day.
IOTA intends to be the standard mode of conducting transactions on devices. Its founders describe the ledger as “the public no-permission backbone for the Internet of Things enabling interoperability between multiple devices.”
In simple terms, this means that it will allow transactions between connected devices, and anyone will be able to access them.
The founders of IOTA claim that it solves many of the problems plaguing cryptocurrencies developed on standard blockchains. These problems include mining centralization to specific groups, low network speed, and scalability. For cryptocurrencies, scalability refers to the issue of increasing the number of transactions processed by the blockchain without affecting other metrics.
Those problems are mainly due to the storage of transactions on the Bitcoin blockchain. The backlog itself is caused by a variety of reasons, from the small block size to the difficulty of the puzzles miners have to solve in order to earn cryptocurrency as a reward.
IOTA solved this problem by reconfiguring the blockchain architecture into Tangle, a new way to organize data and confirm transactions.
The history
Sergey Ivancheglo, Serguei Popov, David Sønsteb, and Dominik Schiener, who later joined, co-founded IOTA.
The project was announced in October 2015 via a post announcing the token sale on an online Bitcoin forum.
IOTA’s roots go back to the Jin project. The project aims to develop ternary hardware or low-cost and energy-efficient hardware, especially general-purpose processors, for use in the IoT ecosystem. Jin held a crowd sale for its tokens in September 2014. Approximately 100,000 tokens were sold during the crowd sale, with a total collection of $250,000.
The Jin token soon became hot water as it was marketed as a revenue-sharing token, which could be seen as a security token. Initial coin offerings (ICOs) were still gaining traction at the time, and there was no clarity on their regulatory status. In 2015, Jin was renamed to IOTA, and another token sale was held.
The token is being marketed as a utility token this time. Jin token holders can exchange their tokens for the equivalent in the new system. According to David Sønstebø, IOTA was “born” because of the Jin project, “so it makes sense first to introduce IOTA and then Jin after,” he said.
Genesis transaction for IOTA is an address with a balance containing all MIOTA, its cryptocurrency, that will ever be mined. But reports state that snapshots of genesis transactions have not been found online.
These tokens are spread to other “founder” addresses. The total number of MIOTAs planned to exist is 27 quadrillion. According to IOTA’s founders, the MIOTA totals match “well” to the maximum allowed integer values in JavaScript, the programming language. Within three months of its debut in the cryptocurrency market, MIOTA reached a peak valuation of $14.5 billion during the 2016-2017 Bulls market. However, its value later fell along with most other cryptocurrencies.
Differentiator with Bitcoin
IOTA’s solution to the Bitcoin problem is to remove some key concepts and topographical limitations from the blockchain.
MIOTA, the IOTA cryptocurrency, has been pre-primed and transaction consensus occurs differently compared to blockchain. IOTA developers have proposed a new data structure (a way to organize numerical representations in computer memory) known as Tangle.
Tangle is a Decentralized Acyclic Graph (DAG), an unordered system of nodes. Thus, each node can be connected to several other nodes in a Tangle.
But they are connected only in certain directions, which means that a node cannot refer back to itself.
The standard blockchain is also a DAG because it is a sequential linked chain. But Tangle IOTA is a parallel system where transactions can be processed concurrently, not sequentially. As more systems are attached to it, Tangle becomes more secure and efficient in processing transactions.
In Bitcoin, a group of systems running full nodes containing the entire transaction history for the ledger is required for confirmation and consensus. This process requires energy and is computationally intensive.
Full node miner is not required in Tangle. Each new transaction is confirmed by referencing the two previous transactions, reducing the amount of time and memory required to verify transactions.
Easy-to-solve Proof of Work (PoW) puzzles that are instantly added to transactions as a final step. The two selected deals are referred to as tips. The IOTA system uses a tip selection algorithm with “confidence” as a measure for approving transactions. Suppose a transaction has been approved 97 times in the past. Then, there is 97% confidence that a node will approve it in the future.
Related to the concept of “confidence” is the weight of the transaction. As it moves through Tangle, a transaction collects weight. The transaction weight increases with the number of approvals. Once the transaction is confirmed, it is broadcast to the entire network.
Then, unconfirmed transactions can choose the newly confirmed transaction as one of the tips to confirm yourself.
This transaction confirmation method results in no fees and low power consumption, enabling MIOTA to be used across a wide range of devices and machines with different power requirements.
