This primer provides an introduction to IOTA’s technology and broader field of application. It covers IOTA’s frameworks and its architectural distinction from blockchains and aims to serve as a knowledge base for anyone eager to learn more and participate.
What Is IOTA?
The name IOTA denotes various elements of the IOTA Foundation’s distributed ledger technology (DLT) solutions. IOTA is a distributed ledger technology built on a proprietary directed acyclic graph (DAG) called the Tangle, which you can picture as a multi-dimensional blockchain. It allows for the exchange of information and value on a decentralized platform that enables direct and secure transfers, which are executed through and recorded immutably on the network. The base layer, referred to either as “IOTA” or “the Tangle,” allows for feeless micro-payment transactions between devices. This provides the basis for what the IOTA Foundation dubs a “machine economy” and supports multiple other use cases.
Iota is also the name of the native currency on this protocol, distinguishable from the name of the protocol by its lowercase formatting. One iota is the smallest unit of currency available for purchase. A finite number of approximately 2.7 quadrillion iotas exist. You can think of one iota as being similar to the smallest available unit of Bitcoin (BTC), one satoshi. All of the iotas in circulation were created by the very first transaction on the Tangle, called the “genesis transaction.” IOTA is non-inflationary by design, meaning that its value cannot be diluted by exponentially increasing the amount of tokens in order to, for example, reward miners or stakers for their services.
What Is the IOTA Foundation?
The IOTA Foundation is a global charitable non-profit organization that develops the IOTA protocol and steers open-source governance to bring this technology to production maturity. Headquartered in Berlin, the IOTA Foundation aims to build a standardized protocol for the Internet of Things (IoT).
The IOTA Foundation is a global network of developers, designers, engineers and entrepreneurs working to make IOTA a comprehensive and secure distributed ledger technology. The Foundation aims to transform IOTA into an enabling technology that will be adopted and customized by enterprises and individuals across industries and use cases.
As the internet evolves and more aspects of our world become digitally connected, the Foundation aims to use the IOTA protocol to enable a new form of value exchange and establish a web of trust between devices and people, as well as between the devices (“things”) themselves. This evolution of value and data exchange will optimize manufacturing, supply chains, civic engineering, transportation, finance and other industries. This new form of exchange is what we call the “machine economy.” Applications in e-commerce or for human-to-human purposes, however, can still be provided for with a fee-less cryptocurrency like IOTA.
The founding principles of the IOTA Foundation revolve around open-source and community-centered ethics. The Foundation believes the machine economy should be built on a feeless protocol, be scalable and ecologically friendly, and allow for a low-energy exchange of value and information. The IOTA Foundation’s Board of Directors includes Dominik Schiener, Dr. Serguei Popov and Dr. Navin Ramachandran. The Foundation’s E.U. Transparency Register number is 500027331119-04.
What Does IOTA Mean?
The word iota refers to the Greek letter Iota and its contemporary definition, meaning a minuscule amount of something. The name was chosen by the IOTA Foundation because the Internet of Things will consist of billions of tiny transactions and exchanges per day. Although tiny transactions are not the only thing that the Tangle can facilitate, the ability to scale from tiny machine sensors to the largest networks of civic architecture is a distinguishing feature of the IOTA ledger.
How Did IOTA Come to Be?
The IOTA Foundation was founded in 2015 to address some universally perceived shortcomings of blockchain technology. IOTA’s founders saw an opportunity for a technology that could scale to the level of enterprise and civic projects while simultaneously reducing or eliminating the fees associated with blockchain transactions.
Scalability and fee-less transactions remain the guiding principles behind most of the developments at IOTA. These principles have positioned IOTA to become a standardized network protocol for applications like the Internet of Things, in which “transactions” can involve something as small as one tiny sensor in a vehicle. In order for the IoT to scale to the level of a city or a traffic system, these millions of transactions would need to be unencumbered by the fees inherent to nearly all public blockchains currently in existence.
In terms of scalability and flexibility, IOTA’s founders also sought to improve upon existing blockchain transaction speeds. Blockchain transactions are typically limited by the speed at which miners can discover new blocks, called block timing. This precludes any applications that require near-real time settlement, such as traffic management that is secured directly on the base layer of a DLT. IOTA uses a much lighter transaction consensus model, which dramatically improves transaction speed and its finality, allowing actors to secure any transaction or data on-chain instead of having to outsource them to a second layer solution (see below for more information).
What Is MIOTA?
When purchasing iotas or analyzing market activity, it is much more common to see MIOTA listed as the unit of currency. One Miota is equal to one million iotas. (Miota means mega-iota, in the same way that a megabyte is equal to one million bytes.) Miota is used as the unit of trade to keep the numbers manageable. On most crypto exchanges, one Miota (one million iotas) is the unit that is being bought or sold.
What Is the Tangle?
The Tangle is the name of IOTA’s underlying architecture of a directed acyclic graph (DAG). It allows for a multitude of individual transactions to connect with each other, rather than collecting them into sequential blocks, as in blockchains. Visually, this overlapping network of tiny connected transactions looks like a tangled web, with a single direction, rather than a single line, as in blockchains. Hence, the name “the Tangle.”
The Tangle is IOTA’s version of a blockchain network protocol. Every new transaction is required to confirm two or more previous transactions, as opposed to miners or validators (in proof-of-stake systems) confirming aggregated blocks of new transactions in predefined intervals.
Since the Tangle is a DAG, it can potentially confirm tiny transactions much faster than conventional blockchain technology. Because there are no miners, transactions on IOTA do not have to wait to be included in newly generated blocks, nor do they require any fees in order to be processed by the network. These factors give IOTA scaling properties that allow the network to both process the transactions of large-scale businesses and, equally, transactions that are based on data from a tiny sensor within a device. The Tangle is a scalable distributed ledger technology with one of the smallest – if not the smallest – energy footprint of any public DLT.
What Is Distributed Ledger Technology?
Distributed ledger technology (DLT) is the general term for what is commonly referred to as blockchain. Blockchain is one type of DLT and IOTA’s directed acyclic graph (DAG) is another specific type of DLT.
A DLT is a database: picture a large number of Excel sheets distributed between nodes in a peer-to-peer network. Whereas most databases are centrally located, DLTs are (as the name suggests) distributed databases that share information amongst multiple nodes in a network. These nodes can be personal computers, servers, or the gigantic warehouses of computers commonly used for blockchain mining farms.
The validity check for any transaction — and the test for whether it will be recorded in the ledger – is preprogrammed in the DLT’s code. Transactions validated on a blockchain or on a DAG are automatically vetted by multiple network nodes, making them trustworthy and secure. The vast majority of nodes agree on the validity of a ledger state, providing a trustworthy record of transactions of the past and thereby enabling trustworthy transactions in the future.
This means that DLTs are more public and transparent than private databases. There is still privacy due to data encryption, yet, crucially, all involved parties are able to view all the transactions that have ever occurred on a given DLT, by design. The ledger in a DLT is immutable, meaning that the ledger state cannot be changed. This is because all of the nodes have agreed to one common record, which will be adhered to as long as the majority continues to accept it.
DLTs can be either permissioned or permissionless. In the first case, the networks are public environments in which anyone can participate; in the latter, they are non-public, invitation-only networks. As IOTA is an open-source framework, networks can be deployed in either configuration. However, the gold standard for DLT developers (and the area that still presents the highest number of unsolved challenges) is a permissionless DLT for an open, machine-to-machine economy, which could automatically target the largest possible addressable market.
How Does One Invest in or Buy IOTA Tokens?
An immediate point of entry would be one of the popular online crypto exchanges, which allow traders to exchange fiat currency for cryptocurrency. As always, be sure to do your own research and invest in cryptocurrencies carefully.
How Does One Use IOTA or DLT?
A long list of individuals and organizations are already leveraging IOTA for their purposes. At the same time, work remains to be done for IOTA to achieve true decentralization. The IOTA Foundation’s research and engineering departments are both devoting their energies to meeting this goal, in tandem with the wider public and academic community.
The potential applications for IOTA are numerous. As an IOTA transaction does not require a fee to be paid, business models on a sub-cent level become viable. In the future, most instances of the IOTA protocol will most likely be running in a system’s background, invisible to end users. IOTA will be the enabling infrastructure for a vast number of different scenarios, from smart cities to bridge networks between various cryptocurrency exchanges, as well as digital identities, automation and data markets.
The IOTA Foundation is building and enabling the technologies necessary for this future to become a reality. This demands a dizzying toolset and frameworks that would allow enterprise partners and individuals to make full use of the benefits of the Tangle.
To get involved immediately with IOTA, you might consider setting up a node on your own computer or server. This will allow you to interact directly with the Tangle in its current state. You can find a wealth of information and community-driven projects on IOTA blogs and official github repositories, as well as in many community github repositories.
Why Doesn’t IOTA Have Miners or Blocks?
IOTA’s underlying protocol, the Tangle, is not a blockchain. The consensus mechanism of the Tangle does not rely on miners to determine the set of approved transactions. A bonus of not having any miners is that IOTA does not need the huge mining farms that are used in conventional blockchain operations. In fact, IOTA is a much more environmentally friendly DLT. It uses fractions of a penny’s worth of electricity for basic network processing, whereas blockchains can require enough energy to power a small country (at the time of writing, Bitcoin uses more energy than Norway.)
Rather than mining operations that rely on power-hungry computational processing, IOTA’s transactions are confirmed every time a new transaction is conducted on the network. Until IOTA 2.0 will be deployed on the mainnet, all new transactions must confirm at least two previous transactions that have recently taken place on the network. A cryptographically-enabled computation prevents double spending, and the confirmations are transmitted to all the other nodes on the network. In this way, all the nodes participate and share the exact same view of what has been approved on the network.
There are many other possible permutations of this basic consensus protocol, but first let’s explore its mechanism in greater detail.
What Аre Tips and How Do They Enter the Tangle?
Tips are new transactions that are waiting to be confirmed and “written” into the ledger, where they will remain in perpetuity. A tip has entered the Tangle and has confirmed at least two previous transactions, but it itself has not yet been confirmed by any other transactions. Remember that one of the basic premises of any DLT is that transactions are permanent. A tip could be anything from a car tire reporting its air pressure to a company selling a tokenized piece of stock, or you buying bread at the bakery.
When another new transaction enters the network, it immediately begins searching for tips, as the confirmation of previous transactions is one of the protocol’s mandates. The process whereby new transactions search for and choose tips to confirm is called tip selection, an algorithmic process that is carried out by nodes. The tip selection algorithm favors speed and security. All the transactions that are written into IOTA’s Tangle are connected to at least two other previous transactions. Tips enable the Tangle to grow at a rapid pace and at any point in its structure. This is fundamentally different from the linear growth of a blockchain, giving the Tangle a distinct advantage in terms of network bandwidth, transaction speed, and flexibility. The Tangle currently processes around 60 transactions per second, but it has scaled to over 1000 transactions per second in the past when the network load increased. The IOTA Foundation is working on a concept of sharding that will allow scaling in logical instances of the Tangle, which will significantly expand the scaling potential of the Tangle.
In order to prevent double spending and to update the total balances of all the clients using IOTA, a series of security transactions are issued periodically by a client called the Coordinator. Other nodes make reference to the Coordinator’s transactions to confirm that all copies of the ledger remain aware of one another and that no invalid tips get selected and added to the Tangle’s ledger. This Coordinator will become redundant with the release of IOTA 2.0 – the final update of IOTA – where its function will be replaced by a different mechanism that is not reliant on any centralized component.
What Is the Coordinator?
The Coordinator is a specialized client that is owned and controlled by the IOTA Foundation. By issuing specialized transactions called milestones, the Coordinator client allows all the nodes in an IOTA network to verify the integrity of the ledger. The Coordinator achieves this security processing through a complex mechanism of transaction indexes, accepted collectively by all nodes in the network.
If There’s a Central Coordinator, Doesn’t That Mean That IOTA Isn’t Really Decentralized?
The presence of the Coordinator means that the IOTA ecosystem is not a truly decentralized network — yet. The community and team members of the IOTA Foundation are all aware of this, and it is one of the recurring criticisms of the IOTA ecosystem. At the moment, the Foundation feels that the IOTA ecosystem offers enough value to partner organizations that it should be released in its current state. Outside partners seem to widely agree, given that IOTA is one of the crypto frameworks that has the highest number of outside partners building systems and applications on its protocol.
The Coordinator was always intended to be a temporary measure, meant to help get IOTA on its feet – an onboarding mechanism, while the Foundation developers worked on other parts of the ecosystem. The IOTA Foundation has been very public about the role of the Coordinator and its status as a temporary solution, going so far as to label the biggest milestone on their horizon as “Coordicide,” which describes the day that the Foundation “kills off” the Coordinator.
What Is Coordicide?
The term Coordicide refers to the killing off of the Coordinator: the day that the IOTA Foundation will no longer rely on a centralized issuer of milestones to provide a secondary security feature and network security element.
Once Coordicide is implemented, IOTA will be a protocol that has achieved not only significant scalability and security but also decentralization. The problem of solving all of these three aspects is often referred to as the “crypto trilemma.”
For example, with Bitcoin and its parent DLT, blockchain, the two aspects of the crypto trilemma that are most fully satisfied are security, followed by decentralization. The Bitcoin network is highly secure thanks to its robust cryptographic architecture and system of miners that execute proof-of-work (PoW) computational processes in order to establish and link up new blocks in the network’s chain. However, this PoW mechanism denies Bitcoin any meaningful scalability. New transactions must wait too long and their initiators must pay fees for network inclusion. Both of these consequences limit the viability of blockchain being used in IoT, to take one example.
IOTA, on the other hand, offers top-level security thanks to its cryptographic consensus mechanism. It also offers tremendous scalability, and the consensus mechanism itself is feeless and low-energy. However, the security provided by the Coordinator, in its issuing of milestones that other nodes reference periodically, means that IOTA is not yet truly decentralized. There is a single point of failure that can potentially shut down the entire network.
With the removal of this secondary and centralized security measure via Coordicide, the IOTA protocol will reach its full maturity as a technology and become fully decentralized. Barring any major developments in the crypto world, this network evolution would make IOTA the first DLT that offers scalability, security and decentralization, without incurring any fees.
How Will Coordicide work?
Even though there are a multitude of organizations developing protocols in the crypto space, not one of them has effectively solved the crypto trilemma for permissionless DLTs. This indicates that the trilemma is a uniquely challenging mathematical problem. The Coordicide network (and its soon-to-be-public and consecutively incentivized IOTA2.0 DevNet) that IOTA will launch as part of the Coordicide effort proposes a fittingly complex solution.
In short, Coordicide replaces the Coordinator with a system of network voting, in which the various nodes reach consensus through a communicative tally of the nodes’ opinion on the state of a transaction. The system is detailed and comprehensive in its design, yet it is also elegant and intuitive, allowing for a network that improves on its functioning and security by increasing the number of honest nodes and virtuous behavior.
Coordicide will be implemented through a modular design. Coordicide comprises several different modules or architectures of code, each responsible for a different aspect of network and consensus control. There will be modules for node identity and honest participation rewards; modules that allow for nodes to communicate with each other; modules that control the rate of transactions in the network (and defend against spam attacks); and modules that add extra layers of security for thwarting attacks and conflict resolution (for example, attempted double spends).
The advantage to this approach is that, after Coordicide, modules can be updated and replaced as research pioneers new advances, eliminating the need to replace the entire network architecture. IOTA is an open-source network architecture that aims to be a standard protocol for the internet of the near future. It is critical that this architecture remains easily upgradable and adaptable for the various partners and community members that are the driving force of the Foundation.
What Is the Transactions per Second Rate of IOTA?
Prior to Coordicide, the Transactions per Second (TPS) rate remains limited by the processing power of the nodes in the Tangle. Tests performed on the Tangle show that this number is above 1000 transactions per second, and likely much more if nodes themselves are run on powerful hardware. When Coordicide and the concept of sharding are implemented, the upper bound of the network’s potential throughput will be dictated by the amount of logical shards in the network. Each shard will have its own isolated throughput properties. The scalability properties of IOTA will then facilitate the scenarios for the network architecture of the Internet of Things.
What Are Some Potential Use Cases for a Fully Mature IOTA?
To understand the need for a protocol like IOTA, one must first understand two major developments that are already underway in the evolution of the internet and networked communication. The first development of serious consequence is the so-called Internet of Things (IoT). We have already become familiar with devices like a “smart” thermostat that can connect to a mobile device, allowing the user to adjust their home’s temperature remotely. Current smart systems remain vulnerable due to their centralized structure: if the central service goes down, for example, the thermostat’s temperature can no longer be adjusted. Even worse, if the central service gets hacked, millions of homes could be manipulated, making their interiors bitterly cold or sweltering.
When it comes to data markets – envisioned as part of a global machine-to-machine economy – the vast majority of IoT devices operate within centralized administrations owned by telecommunication giants. Each enterprise runs a proprietary, siloed system, which is very rarely interoperable. This holds especially true for IoT data, which is seldom franchised to be traded.
Centralized services, infrastructures and user profiles around data markets oppose the idea of a trustworthy data trading landscape, as many data leaks and hacks already occur via centralized single points of failure. These incidents would not be realizable in the case of decentralized architectures like the Tangle. Not even the market’s leading telecommunication companies are currently able to ensure data integrity to the extent that a decentralized system would be able to.
In essence, companies that are interested in data markets and the benefits they could enjoy through interoperability and data trading still need access to a trustworthy technology that does not have a single point of failure.
An open-source web of trust on a distributed ledger thus seems to be the only workable and secure solution for a data market. In aiming to meet this need, IOTA currently has no competition – especially not if you consider vital criteria such as capacity, speed and cost.
In the future, the IoT will be an all-encompassing environment, with most electronic devices connecting to the internet in some way. These connections will be in our homes, offices, public areas and retail environments. Yet IoT will also reach deeper, connecting our cities, traffic systems, manufacturing centers and supply chains. The result will be a greater pool of tradable data with which we can optimize the productive potential of everything, thereby freeing up time and resources for people to focus on other things. Artificial intelligence, which is already making low-level decisions for us, requires data that is trustworthy on which to base its decisions. In order to build this trust, an underlying architecture is required.
DLT technologies are the most promising network architecture that could feasibly support a mature IoT and an optimized, automated future. The alternative to distributed ledgers is to continue the current model of centralized servers administering IoT services. For example, established, large companies could implement smart traffic systems via some kind of free app service that is connected with consumer automobiles. This would obviously be far from ideal. IoT is much more of a public utility than a consumer app, and the underlying network architecture needs to be open-source, scalable and feeless to be economically viable. Logging vehicle data once every 10 minutes at the rate of 1 cent per transaction would still cost $865 per year. Moreover, an accurate traffic guidance system would require a far more frequent rate of data logging than once every ten minutes.
The other important aspect of internet evolution that is already underway is the “Internet of Value”: that is, an internet protocol in which value can be freely transmitted in the same way that information is communicated today. When value is exchanged on the internet nowadays, the transaction requires an intermediary, such as a bank or broker. When you send money to someone through PayPal, for example, there is an illusion that you are sending the value directly to that person. However, PayPal is the central authority that administers and guarantees these transactions for considerable fees. In the future internet, value will be exchanged directly between people or between machines, with no centralized intermediaries.
The Internet of Value will have tremendous potential to unlock new classes of assets, allowing people all over the world to develop streams of revenue that were previously unimaginable. The underlying network for this architecture must be secure, decentralized and highly scalable in order to be an effective medium for value exchange. Considering that those new business models would be built on a free-to-use Internet of Value, the marginal costs for transacting value would be zero, meaning that those savings could be used to fund more meaningful parts of the product or service.
In either case, the IOTA Foundation is building the ecosystem that external partners can use to implement these epochal advances. The use cases are infinite, leading some to characterize these developments as a fourth industrial revolution: an era of automation, data markets and digital trust.
What Is Trinity?
Trinity was the first crypto wallet released by the IOTA Foundation. It has been phased out and replaced by Firefly.
What Is Firefly?
Firefly is the second and latest version of IOTA’s crypto wallet. The Firefly Wallet is the official entry point and home base for anyone holding IOTA tokens. The architecture behind the Firefly Wallet is modular, meaning that new modules will be made available with further advances in the ecosystem and old modules will be updated or replaced as necessary.
What Is Mana?
Mana is part of IOTA’s consensus model and provides a technical solution for congestion control and Sybil attacks – two problems any cryptocurrency-based DLT must face. A Sybil attack happens when a malicious actor assumes a large number of identities in order to undermine the authority of the system. Congestion control refers to managing the problems arising from heavy traffic that degrades the normal functioning of a network.
The Mana solution is quite complex. In short, Mana acts as a “shadow currency,” a scarce resource within the IOTA network. It can be acquired by holding IOTA tokens, processing transactions as a node, or renting it from other users. Its scarcity makes it difficult to acquire, so the security of the IOTA network is effectively based on the reputation of nodes within the network holding Mana that is generated by value transactions that are issued through them.
What Is Stronghold?
Stronghold is a security protocol that was built to protect IOTA seeds in the Firefly Wallet environment. However, like most products built by IOTA, Stronghold is open-source and its software library is available for anyone that needs to protect secrets, digital assets or personal information. Stronghold contains a peer-to-peer communication layer, allowing various apps to exchange secure information. Stronghold will also be built into the IOTA Identity framework. Its main security feature is to protect the processing and handling of cryptographic secrets in a memory-safe fashion, not unlike popular hardware wallets.
What Is Access?
IOTA Access is an open-source framework that allows enterprises, organizations and individuals to develop access control systems for the use of IoT-enabled devices. IOTA Access utilizes the power of the Tangle to provide anyone with a detailed level of control over a given smart device network.
Such a network could take many forms, from building door access systems for employees that take into account specific doors, times of day and building areas, to the controlled access of the WiFi network at a coffee shop. The framework is designed to be lightweight and secure with very low energy requirements, so that the configuration of smart devices remains as flexible as possible.
What Is IOTA Identity?
IOTA Identity is an open-source framework that gives any online entity a secure and verifiable signature. This allows for the creation of networked systems that build trust between individuals, organizations and even things (such as machines). IOTA Identity can be thought of as a digital passport for individuals and things, allowing the certification and verification of online identity for any number of use cases. It can also be thought of as a regulatory control point for any networked entities that are bound to regulatory control, such as GDPR or security clearances.
In the future, rather than a byzantine and chaotic collection of usernames and passwords, IOTA Identity will be a single source of trust for online interactions.
What Are IOTA Smart Contracts?
Smart contracts built on top of the ISCP (IOTA Smart Contracts Protocol) are agreements between two or more parties that are carried out on the IOTA network. Whereas conventional contracts require intermediaries to establish trust and certify that terms and conditions have been met, smart contracts execute agreements according to hard-coded rules. Parties agree to the terms of the agreement as in a traditional contract, but execution of the smart contract is carried out within and through the network. So long as the terms and conditions of the contract are registered within the network, execution is an automatic process, whether that means payment for services rendered or the transfer of a title or deed.
IOTA smart contracts are currently in an alpha release.
What Is Decentralized Finance (DeFi) on IOTA?
Although IOTA was originally designed to be a standard network protocol for IoT use cases, there are also several attributes of the IOTA ecosystem that make it a great protocol for DeFi applications. Chief among these attributes is IOTA’s feeless transaction architecture, meaning any smart contracts, trades, exchanges or transactions executed on the network are free to process transactions on the protocol level. Fees, when needed, are determined only by the issuer of the contract or service. Another notable feature of IOTA is the flexibility of the network – both in terms of how easily it scales and how lightweight and adaptable the protocol can be. This makes IOTA a good framework for cross-chain swaps and currency-agnostic exchanges.
What Is the Roadmap and Timeline for These Developments in IOTA?
The first version of IOTA was an experimental framework within which developers could test out concepts and develop first versions of various modules and other tools for the IOTA ecosystem. Chrysalis Phase One was the first iteration of a new and improved IOTA protocol. Since the completion of Chrysalis Phase Two on April 28, 2021, the IOTA ecosystem is enterprise-ready. It should be noted that even within these early frameworks, IOTA is one of the cryptocurrencies with the highest level of engagement from outside partners and there have been numerous patents filed that use IOTA’s technology.
The final phase of IOTA’s development, as mentioned above, is called Coordicide. With this upgrade, IOTA 2.0 will reach full maturity to become a permissionless, feeless, scalable and fully decentralized DLT. Coordicide thus represents an exciting step forward in human technology and the culmination of the IOTA Foundation’s vision and promise.
How Can I Learn More?
IOTA has one of the strongest and most active communities in the crypto space. Check out the IOTA Discord on https://discord.iota.org. For an archive of past videos from the Foundation, check out the announcements here.
For further information, visit www.iota.org.