IOTA is a new type of digital cryptocurrency designed to solve machine-to-machine (M2M) transaction problems. By enabling feeless payments between machines, it outlines the blueprint for the future machine economy. IOTA offers efficient, secure, lightweight, real-time microtransactions without any fees. Its an open-source, decentralized cryptocurrency specifically designed for the Internet of Things (IoT), enabling real-time microtransactions and easy scalability. IOTA goes beyond blockchain technology. It’s the first cryptocurrency for the entire ecosystem based on non-blockchain technology. While IOTA might be considered another altcoin, in reality, it transcends being just another altcoin as it extends beyond blockchain technology. IOTA is based on Tangle, not blockchain.

1. Technical Application

IOTAs distributed ledger, known as the Tangle, is based on a data structure called Directed Acyclic Graph (DAG). Every transaction in the IOTA network requires the sender to perform a small amount of proof-of-work to validate two previous transactions. The premise is that as more transactions occur, the IOTA network can scale faster because multiple validations can happen simultaneously.

Due to its early stage of development, IOTA relies on a "Coordinator" supported by the IOTA Foundation to ensure the network is not susceptible to certain attacks. The Coordinator acts as a checker for every valid transaction. In the past, issues with Coordinator downtime led to the official IOTA wallet being unusable for periods, drawing criticism over centralization. The IOTA team plans to phase out the Coordinator in the future.

In August 2017, a team from MIT published an article detailing their investigation into IOTA. They pointed out that the IOTA team had developed their own cryptographic hash function which had a critical flaw: different inputs could produce the same output, something that should never happen.

2. How Is IOTAs Tangle Different From Blockchain?

Comparing IOTA (or more specifically, Tangle) to blockchain reveals significant differences, as they are entirely independent architectures built upon similar principles.

1. IOTA Data Structure
The Tangle is based on a Directed Acyclic Graph (DAG) rather than a continuous chain architecture with blocks added periodically. Through the DAG, IOTA achieves high transaction throughput (via parallel validation) and eliminates transaction fees. As the Tangle grows, more participants will initiate transactions, making the system increasingly secure and faster, with shorter confirmation times and faster completion of transactions.

2. IOTA Consensus Mechanism Innovation
Blockchain consensus is achieved through a very strict mechanism where adding the next block involves competition and rewards or transaction fees. This separation of consensus and transaction generation is handled by a small portion of the network, often with high barriers to entry (like Bitcoin), leading to further centralization. In the IOTA system, every participant in the network can conduct transactions and actively participate in consensus. More specifically, you directly approve two transactions (a main and a branch transaction) and indirectly approve other transactions in the sub-tangle. This allows for concurrent validation, keeping the network fully decentralized without miners passing trust and without paying transaction fees.

3. IOTA Has No Transaction Fees
This is achieved through IOTAs unique consensus method. Typically, to have a transaction validated and included in the next block, a fee is required. However, there are no miners or validators in the IOTA system (to do this work, thus no fees are needed). IOTAs consensus is completely decentralized, allowing each network member to initiate transactions and confirm past transactions directly or indirectly. Due to the inherent nature of this consensus (transaction finality selection and computational requirements), no fees are paid.

3. Differences and Similarities Between IOTA and Bitcoin

Bitcoin transactions are processed by miners in sequential groups called blocks. The number of transactions that can be processed within a block is limited, leading to intense debate about how to scale Bitcoin.

The IOTA team aims to eliminate the need for blocks and achieve more equitable scaling. Unlike Bitcoin and most other blockchains, there are no “miners” in IOTA responsible for verifying network transactions. Instead, every transaction using IOTA requires the sender to perform some computer operations to provide proof-of-work for two previous transactions. This explains why transactions with IOTA carry no fees; it incentivizes contributing to the security of the network.

Because there are no fees, IOTA can support extremely small transactions known as "nano-transactions." Given Bitcoin’s current occasional network congestion and relatively high transaction fees (over $40 at the time of writing), frequent small transactions become impractical. The IOTA team believes prioritizing ease for small transactions facilitates interactions among connected devices.

In December 2015, IOTA was launched through a crowdfunding campaign that raised over $500,000 worth of Bitcoin (equivalent to 1,337 bitcoins). Since the IOTA team did not reserve any tokens for themselves before the fundraiser, the IOTA community decided to support the ongoing development of the IOTA project through donations, establishing the non-profit "IOTA Foundation" in Germany. Five percent of the tokens were donated to the foundation to promote the development, research, and education of relevant technologies to advance IOTA.

4. What Are the Primary Uses of IOTA?

Currently, IOTA excels at two things: settlement of transactions (especially micropayments) and data integrity. Most use cases derived from these capabilities are meaningful and, in many cases, only possible with IOTA.

IOTA primarily focuses on the Internet of Things, enabling machines to pay for resources, services, or permissions. Use cases including smart cities, smart grids, infrastructure, supply chains, and more are achievable with IOTA. In this blog post, you’ll continue to uncover more use cases for IOTA. You can choose guidance for your favorite programming language, or even write your own programming language.

The total supply of IOTA is (3^33-1)/2 or 2,779,530,283,277,761. All IOTA was created in the initial block, with a fixed total, no mining required, making IOTA non-inflationary.

To simplify, IOTA uses the SI system (International System of Units) for measurement.

The primary functions of IOTA (currently) are feeless micropayments and secure data transfer and data anchoring. With these capabilities, plus IOTAs scalability and partition tolerance, we can distill numerous use cases that can only be realized through IOTA.

The primary focus is clearly the Internet of Things, especially in areas like smart cities, infrastructure, smart grids, supply chains, transportation, and mobility. Additionally, IOTA can serve as the backbone for any peer-to-peer transaction settlement, such as online payments or remittances.

Related Links:
https://www.iota.org/
https://iota.org/IOTA_Whitepaper.pdf