IOTA is an open, feeless, and scalable distributed ledger designed to support frictionless data and value transfer. It is used to record and execute transactions between devices and machines in the Internet of Things (IoT) ecosystem. Iota is thought to mean Internet of Things Application, but it is actually named after the 9th Greek letter (iota), which also means the lowest amount possible.
Iota uses a directed acyclic graph called the Tangle instead of a blockchain to operate. It also has a native token called IOTA/MIOTA.
The co-founders of IOTA are Sergey Ivancheglo, Serguei Popov, David Sonstebo, and Dominik Sciener. They announced the project in October 2015 through an initial token sale announcement on an online bitcoin forum. It was a spinoff of the Jinn project, a project that aimed to develop low-cost and energy-efficient hardware for use in the IoT ecosystem. A public online crowd sale funded the initial development of the IOTA project. Around $500,000 was raised, and the total IOTA token supply was distributed over initial investors. However, 5% of the supply was used to fund the development of IOTA through the IOTA Foundation. The IOTA network went live in 2016.
IOTA uses the Tangle to operate its transactions. It is a directed acyclic graph system that uses nodes and edges. A node is where information is stored, and each node can link from two to eight other nodes through edges. An edge is where two nodes link together. Nodes that are unconfirmed are called the Tips of the Tangle.
A new transaction is added to the Tangle by attaching it to two tips. This new transaction becomes a new node that is now a Tip of the Tangle and the two tips are now verified. In order to verify a transaction or a node, there needs to be at least two nodes together.
The weight of a node proves its trustworthiness. The higher the weight of the node is, the more proof-of-work it has. Older nodes have larger cumulative weights because they have more nodes that have directly and indirectly verified the transactions stored in the older nodes.
Unlike the blockchain, the Tangle increases its scalability with more transactions. Because one node only needs two edges to verify it, more transactions verify more nodes quickly. Some say that IOTA’s Tangle can also verify 1,000 transactions per second.
Tangle also has lightweight storage. Unlike blockchains that need to have the complete copy of the network to add a transaction to the chain, Tangle only needs a part of the network to add a new node of transaction since it only needs at least two other nodes to be verified.
The Tangle does not have miners that check, verify, and approve the transaction. The nodes in the Tangle have similar functions with miners. The lack of miners eliminates the need for transaction fees. Tangle also has a congestion control algorithm that it uses to prevent spam and hackers into the network. This congestion control algorithm is the first non-proof-of-work, DAG-based congestion control algorithm used in cryptocurrency. A coordinator checks all the data and approves transactions. This coordinator is provided by the IOTA Foundation. The coordinator is a contentious role, making the IOTA more centralized.
The MIOTA/IOTA is a tool for value transfer among humans and machines. It can be part of any transaction in the IOTA system. But due to the free transaction process in the Tangle, the token does not have much use. The IOTA Foundation is developing more uses for the token, however. There are 2.7 quadrillions tokens in supply.
Developments in Tangle
The IOTA Foundation has recently launched the staking function for the IOTA token, hoping that more people would be willing to invest in the token. The Foundation also eliminated the coordinator in 2020. Coordicide update will replaced the coordinator. This Coordicide update is said to enable the full decentralization of IOTA for both value and data transfer while also improve the performance of the network.
The Foundation is also testing the second layer of IOTA. This second layer, called the Off Tangle, is an EVM-supported network that will enable the use of smart contracts, dApps, and even NFTs. There are many other developments in store for the IOTA. Many of these developments address the problems and issues present in the current network. With its declining value, these updates and developments may prove to be lucrative endeavors.