IOTA refers to a distributed ledger that has been developed to record and perform transactions between devices and machines in the ecosystem of the Internet of Things (IoT). The ledger utilizes a cryptocurrency known as MIOTA in accounting for transactions within its network. IOTA’s primary innovation is Tangle, which is a network of nodes that is used to confirm transactions. IOTA boasts that Tangle is not only faster but also more efficient compared to regular blockchains utilized in cryptocurrencies.
While the market capitalization of IOTA was rather significantly down from its highs in 2017, the fortunes of this cryptocurrency exhibited signs of increasing by late 2020.
By 2020, zillions of devices were connected to the Internet. Inside this IoT ecosystem, devices are able to share data and payment information with several other devices in transactions carried out all through the day.
IOTA aims to become the standard scale of executing transactions on devices. The ledger has been described by its founders as a “public permission-less backbone for the Internet of Things that enables interoperability between multiple devices.” In layman’s language, this implies that it will allow for transactions between devices that are connected, and anyone can have access to it.
The founders of IOTA have claimed that it serves as a solution to a plethora of problems affecting cryptocurrencies that are designed on standard blockchains. Some of these challenges include scalability, low network speeds, and the centralization of mining to a specific group. Scalability, for cryptocurrencies, deals with the issue of increasing the number of transactions that can be processed by a blockchain without altering other metrics.
These challenges are largely caused as a result of a buildup of transactions on the Blockchain of Bitcoin. The backlog itself occurs owing to various reasons, ranging from small block sizes to the complexity of puzzles that must be solved by miners before they can earn their reward which is cryptocurrency. These problems are solved by IOTA by reconfiguring the architecture of the blockchain into Tangle, an innovative way of authenticating transactions and organizing data.
The History of IOTA
IOTA was co-founded by Sergey Ivancheglo, David Sønstebø, Serguei Popov, and Dominik Schiener, who joined later.
In October 2015, the project was made known to the public via a post announcing a token sale in an online bitcoin forum. The origin of IOTA can be traced to the Jinn project. The aim of that project was to build ternary hardware or affordable and energy-efficient hardware, essentially general-purpose processors, which were to be used on the Internet of Things ecosystem. In September 2014, Jinn organized a crowd sale for its tokens. An estimate of 100,000 tokens was sold during the crowd sale, resulting in the accumulation of $250,000.
The Jinn tokens however soon faced fierce criticism because they were promoted as profit-sharing tokens, which meant they might be perceived as security tokens. At that time, ICOs (Initial coin offerings) were still gaining momentum, and there existed no clarity regarding their regulatory status. Jinn, in 2015, was rebranded as IOTA, and they organized another token sale. This time around, the tokens were promoted as utility tokens. Holders of the Jinn token could trade their tokens at an equivalent rate in this new system. David Sønstebø had commented that, IOTA was “spawned” because of the Jinn project, “so it only makes sense first to introduce IOTA and then Jinn afterward,” according to him.
Concerns about IOTA have primarily revolved around its technical imperfections. Just like most cryptocurrencies, IOTA’s system is still emerging and unproven. Its network suffered a phishing attack which led to the theft of MIOTA valued at $3.94 million. Responding to incidence, the IOTA development team published a blog post detailing steps to develop a strong seed for utilizing its cryptocurrency.
The developers of IOTA should have “rolled” their crypto. Simply put, they built their encryption mechanism all over again, abandoning the SHA-256 — a widely-used hash function in Bitcoin. MIT’s Digital Currency Initiative team identified major vulnerabilities with Curl, which is the hash function of IOTA. The function generated the same output when two different inputs were presented to it. This attribute is called “collision” and implies a faulty hash function. After analyzing the vulnerability, MIT’s team said that “a bad actor could have destroyed or stolen user funds from Tangle with their technique”. The vulnerability has however been corrected by IOTA’s team.
IOTA’s claims to resolve scalability issues for blockchains via the utilization of DAGs however has some potential issues. The co-founder of Ethereum, Vitalik Buterin, has expressed skepticism on the capability of hashgraphs (DAG’s underlying data structures) to eliminate scalability issues. From his perspective, current hashgraph versions are not solving for blockchain’s dependency on processing power and computer memory. The scalability of a network that uses hashgraphs is still dependent speed and capacity of individual computers within the system.
The Future of IOTA
At the beginning of 2020, IOTA market capitalization kicked off at $446 million and went beyond $900 million as of December 19, 2020. That’s over 100% gain, despite the rocky road. IOTA’s focus on the progressive Internet of Things (IoT), as well as the continued partnership with giant organizations, also enable it to stand out from other cryptocurrencies and capture the interest of investors. The growth seems to be steady because as of September 28, 2021, the market cap for IOTA was around $3.2 billion.
The Difference Between IOTA and Bitcoin?
The solution of IOTA to the problems of Bitcoin is to abandon several topographical constraints and key concepts of a blockchain. IOTA’s cryptocurrency, MIOTA, is premised and the general agreement of transactions takes place differently, unlike a blockchain. The developers of IOTA have proposed Tangle — a new data structure (a method of organizing numeric representations within the memory of a computer).
Tangle can be described as a Decentralized Acyclic Graph (DAG), a network of nodes that is not sequential. Consequently, independent nodes can be connected to several other nodes in a Tangle. However, the connection can only be done in a specific direction, which means that it is impossible for a node to refer back to itself. A typical blockchain is a DAG as well since it is a sequential linked set. However, IOTA’s Tangle is a parallel infrastructure that enables simultaneous processing of transactions rather than sequentially. The security and efficiency of Tangle at processing transactions increases, with the attachment of more systems to it,
In Bitcoin, a collection of systems operating full nodes that hold the complete record of transactions for a ledger are necessary for consensus and confirmations. The flaw with this process is that it is computation— and energy-intensive.
In Tangle, there is no need for full node miners. Every new transaction is authenticated by referencing two previous transactions, thereby decreasing the amount of memory and time required to confirm a transaction. As a final step, a straightforward and easily solvable Proof of Work (PoW) puzzle is included in the transaction. The two chosen transactions are called tips. IOTA’s system makes use of a tip selection algorithm with “confidence” as a way to accept the transaction. If, for instance, a transaction has received approval 98 times in the past. This means that there is 98% confidence that it will be approved by a node in the future.
Similar to the “confidence” concept is a transaction’s weight. As a transaction moves through Tangle, it gathers weight. The weight of a transaction increases according to the number of approvals. After the confirmation of a transaction, it is transmitted to the whole network. Thereafter, another transaction that has not yet been confirmed can select the newly-authenticated transaction as one of the tips to authenticate itself.
This measure of authenticating a transaction brings about zero fees and reduced power consumption, making it possible for MIOTA to be utilized across a vast variety of machines and devices with varying power requirements.
While it is true that this cryptocurrency faces its personal scaling problems, and certain aspects of IOTA suffered vulnerability to hacks. The genuine purpose of IOTA was for it to launch as a hardware project whose objective was to develop low-cost general-purpose processors. It’s goal is to provide solution to the crucial performance and scalability issues with Bitcoin by using Tangle as a replacement for its blockchain.