IOTA (MIOTA) is a cryptocurrency known as the secure communication and payment medium for the Internet of Things (IoT). Instead of a classic blockchain, the system uses the so-called Tangle, which offers some advantages in terms of scalability and speed. IOTA is being developed in collaboration with consortia and companies, which places a strong emphasis on economic viability.
IOTA was introduced in 2016 after a short design phase. It is a system that is primarily to enable transactions between devices in the Internet of Things. From the beginning, there was great interest in IOTA, especially from the private sector. Thus, the development of the system takes place in close collaboration with industry associations and companies (such as Bosch or Fujitsu) who are hoping for a cryptographically secure infrastructure of transactions between devices of the Internet of Things.
How does IOTA work?
The most striking feature of IOTA’s design is the fact that no blockchain, such as Bitcoin, is used, but another, albeit related structure. This is called a directed acyclic graph (DAG) and can be simplified as follows: A set of nodes is connected by paths, this is a graph. Each of these paths has a clearly defined direction, so it can be understood as an “arrow”. So it’s a directed graph. If you can never find a way out of arrows that returns to its starting point, the graph is acyclic, so it has no cyclic paths running in a circle. Directed acyclic graphs are a generalization of the chain structure of a blockchain, so each blockchain is a very simple, chain-like DAG.
In the case of IOTA, this graph is called Tangle. But the key point is that Tangle’s nodes are not nodes in the network or blocks of a blockchain, but individual transactions. The functionality that is inherited from other systems by the blockchain comes here to the tangle of mutual transaction certifications. To do this, a user must authenticate at least two other transactions. If a transaction collects a minimum of credentials in this manner, it is considered verified and can be executed. In cryptographic terms, hash functions continue to form the basis for the authentication process.
A detailed explanation of the Tangle can be found in the following IOTA blog article:
The Tangle: an illustrated introduction
Advantages and goals of IOTA
IOTA is still at the beginning of its development, but at least in theory, the design of the system brings significant benefits. The tangle is arbitrarily scalable and can, theoretically at least, execute any number of transactions simultaneously. In fact, it is theoretically that the system gets faster and faster with an increasing number of users. For people, this speed increase may not be directly observable, but in the intended scope of the Internet of Things, it should make itself felt by low latency in the communication of terminals with each other.
IOTA wants to become, so to speak, the “oil” of the machine and data economy.
Example: the automotive industry
According to IOTA’s vision, the car may in future have its own wallet and will automatically pay for infrastructure such as
- Parking (per second)
- Refueling (per kilowatt-hour, per liter)
The developers of IOTA are very cautious when it comes to IOTA as an investment. In fact, the focus seems to be primarily on the development of an industry standard for the Internet of Things transactions. Due to its strong focus on a specific industry or application, IOTA could also be compared to Ripple.