Summary

Unlike other cryptocurrencies, which function off of blockchain technology, IOTA rethinks distributive ledgers. Its founders call this the “Tangle” in which the need for miners is eliminated while maintaining decentralization. The Tangle is mathematically based off of directed acyclic graphs which allows for both the elimination of miners and fees. Whereas in a blockchain a third party a third party is required to authenticate and complete a transaction, in the Tangle system when a transaction is made the issuer must help authenticate two previous and random transactions within the system, using algorithms to determine which transactions. Because the computing power required to authenticate a transaction, this authentication process can be carried out by any device. This “pay it forward” system allows IOTA to be completely free to use and enables micro transactions due to the elimination of miners. IOTA suggests that this “Tangle” system is the eminent successor to blockchain technology.

Company Foundation

Mission

Founded in 2015, IOTA seeks to allow for true interconnectedness and data transfer through their Tangle network. IOTA highlights that the problem for devices in the coming years is global data pipelines will become congested as devices in use and their data needs rise. Centralized cloud structures for data storage will be unable to meet up with data demands, which is the problem that IOTA seeks to remedy. The Tangle system decentralizes data pipelines across networks, creating decentralized points in which devices share resources in real time in the distributive network. The vision for IOTA is to build upon existing blockchain technology, making it efficient and cost effective.

Team

Iota was founded by David Sonstedo, Sergey Ivancheglo, Dominik Schiener, and Serguei Popev on June 21, 2014.

Consensus

Iota creates consensus by cross-referencing matching together issuers of a transaction and unverified transactions. To complete their transaction the issuer will have to verify two previous and random transactions. The DAG or Direct Acyclic Graph is responsible for establishing the connections between various nodes in the Tangle system.

ICO

IOTA launched their ICO on November 24, 2015, which ended on December 20, 2015 raising $434,000USD, relatively low compared to other ICO’s launched in the market.

Technical Design

Unlike Bitcoin and Ethereum, which function under the Blockchain ecosystem, IOTA operates within the Tangle system.

This has three distinct benefits:

(1) Scalability

(2) Transactions Per Minute (TPS)

(3) No Fees, the Tangle system is scalable because with more devices connected to the system it allows for faster transaction verification.

Moreover, unlike Bitcoin which has a TPS of 15, IOTA can achieve a TPS of 1000+, meaning that it is a step forward in being able to compete with companies such as Visa which handle a TPS upwards of 24,000.

How IOTA Works

Conventional chains require these bundles of transactions to be grouped, time-stamped, and then verified by miners to continue the ledger. With IOTA, because the blocks verify themselves, there is a distributed security of the ledger in relation to the amount of Proof-of-Work done per second. The POW necessary to verify the transaction is the fee rather than rewarding miners. It utilizes a proof of work algorithm where users must validate two previous transactions in order to conduct their own transaction. The nodes verifying these transactions can exercise bias, which allows them to verify any two previous transactions in any available order.

Economics

While there has been a little adoption of IOTA, companies such as Microsoft and Volkswagen have been investing in IOTA and working with the foundation to implement the Tangle system into their devices and products