IOTA ’s blockless blockchain was designed specifically to handle machine-to-machine micro-payments. Will it become the IoT’s distributed ledger of choice?

Just when you think it’s safe to start casually dropping the word “blockchain” at social gatherings (on the assumption that you know more about it than most people), you discover that odd eccentric neighbor who counters with “Well, yes, blockchain is good. But what about Tangle?”

Tangle? Ethereum, Ripple, Hyperledger, Quorum—you know all those digital ledger platforms. But, Tangle?

Tangle, a little research reveals, is the data structure behind a new and novel micro-transaction cryptotoken optimized for the Internet-of-Things (IoT) called, appropriately enough, “IOTA.’ Unlike more complex and heavy blockchains like those used by Bitcoin, IOTA creators-- David Sønstebø, Sergey Ivancheglo, Serguei Popov and Dominik Schiener--realized that in order to scale to the size of the Internet-of-Things ecosystem with tens of billions of devices connected to each other, they needed an infrastructure that was very lightweight and efficient, while still retaining the core principle ideas of the distributed consensus blockchain.

The first public hint of IOTA came on October 21, 2015, IOTA co-founder Sergey Ivancheglo, posting anonymously as “Come-From-Beyond”, wrote this on Blockchain Forum:

The number of connected devices that will permeate our modern landscape in the coming decade is estimated to be 50 billion(!) Each of these are designed to make the world a better and more seamless place for us. Tied to this fantastic promise are of course a ton of obstacles to be overcome, of which one major one is micro-transactions. These connected IoT devices must be able to automatically pay miniscule amounts to one another in a frictionless manner without having to compromise on product design by introducing additional hardware. This is why IOTA was conceived.

The most innovative feature of IOTA is the Tangle, a decentralized, peer-to-peer network that relies on a Distributed Acyclic Graph (DAG) to create a distributed ledger instead of “blocks.” It requires no mining or external consensus process. This allows secure data transfers to happen directly between digital devices, without transaction fees, in a self-regulating manner.

While it was developed as a solution to scalability issues faced in IoT, the underlying protocol is agnostic and can be applied in any other use-cases that utilize micro-transactions. There is a nice explanation of how it works here. If you want to get into the deeper weeds, you can read Serguei Popov’s 2018 Whitepaper here.

Here is a summary how IOTA proponents say Tangle is superior to traditional blockchains:

Scalability for High Throughput: The Directed Acyclic Graph (DAG) provides a more de-centralized solution. Parallelized transaction validation means IOTA tangle can handle a larger number of transactions than any of the competing blockchain technology. It opens the door for true machine-to-machine transactions. Imagine IoT devices paying each other for services provided in a large and complex network. They don't have to get bogged down by the digital ledger consensus process.

The Directed Acyclic Graph (DAG) provides a more de-centralized solution. Parallelized transaction validation means IOTA tangle can handle a larger number of transactions than any of the competing blockchain technology. It opens the door for true machine-to-machine transactions. Imagine IoT devices paying each other for services provided in a large and complex network. They don't have to get bogged down by the digital ledger consensus process. Compatible with IoT Footprints: The IOTA Tangle is designed with IoT device limitations in mind. As these devices will actively participate in the validation of the network transactions, it’s important that IoT devices are able to handle the IOTA client.

The IOTA Tangle is designed with IoT device limitations in mind. As these devices will actively participate in the validation of the network transactions, it’s important that IoT devices are able to handle the IOTA client. Zero Transaction Fees : Tangle eliminates the need for external validators or miners. It lets the users of the network take up the computation for transaction validations. This means zero transaction fees for small value exchanges. As a result, IoT-based ecosystems can afford to initiate huge volumes of nano- and micro-transactions. They don't have to worry about unpredictable or high fees.

: Tangle eliminates the need for external validators or miners. It lets the users of the network take up the computation for transaction validations. This means zero transaction fees for small value exchanges. As a result, IoT-based ecosystems can afford to initiate huge volumes of nano- and micro-transactions. They don't have to worry about unpredictable or high fees. Partition-Tolerant: IOTA Tangle architecture enables multiple tangles to exist in disconnected clusters. In a blockchain, network participants have to consistently synchronize. The disconnected cluster environment enables Tangle to make offline transactions. It is more in line with how IoT devices behave in a real-world environment.

IOTA Tangle architecture enables multiple tangles to exist in disconnected clusters. In a blockchain, network participants have to consistently synchronize. The disconnected cluster environment enables Tangle to make offline transactions. It is more in line with how IoT devices behave in a real-world environment. Security: Blockchains dependency on cryptography can become a problem soon with the introduction of Quantum computers. Hackers will be able to launch brute force attacks against blockchain-based applications.

So, what are some use cases?

On April 18, ElaadNL, the knowledge and innovation center in the field of Smart Charging infrastructure for grid operators in the Netherlands, released the first charging station in the world where charging and paying can be done with IOTA, in a machine-to-machine way. The charger is part of the new ElaadNL test site which contains all types of charging stations that are used in the public area in the Netherlands. This includes a fast charger, a charging island, a battery, two charging lanterns and the IOTA charger. Onoph Caron, managing director of ElaadNL, said:

This charger shows the ability of using real machine to machine communications and micropayments, with the use of IOTA as a secure layer for these payments and data. ElaadNL researches all kinds of innovative and smart technologies with regard to charging electric cars. DLT-technology might become a widespread thing in the near future. Now we can explore and research its possibilities on our testing ground in Arnhem.

Another promising development for IOTA is that Fujitsu, the largest Japanese information and communication technology (ICT) company is using IOTA technology in its Intelliedge software to observe and improve automated factory production lines. This special functionality permits identifying every component in the factory as well as a whole, which means all the individual components and the end product can be monitored throughout the supply chain and production process.

Rolf Werner, CEO of Fujitu’s Central European enterprise, said that unlocking IOTA’s full benefits could lead to recognition as the new global automation standard. Werner, who recently joined the IOTA Foundation Board, said:

The possibilities of decentralized and secured applications based on IOTA Tangle as a Distributed Ledger Technology are immense. They go far beyond machine-to-machine payments and include, for example, tamper-proof monitoring of the supply chain and secure identity management, just to name a few.

My Take

As of now, IOTA is not in production-ready stage, but its roadmap to industry deployment is catalyzed by pilots with a number of top global companies. The IOTA Foundation is working to develop a global IoT standard with the industry via numerous joint projects in smart mobility, smart energy, smart buildings, smart farming, global trade and supply chains.

The open-source IOTA Tangle protocol seems to have solved the scale limitation of conventional blockchain, uses far less energy, enhances data security, integrity and privacy for machine-to-machine (M2M) communication. And there are no fees. In addition, where value transfer is needed to support a business model or data monetization, IOTA provides an optional real time zero-fee transaction feature.

In the interest of staying lightweight and flexible, IOTA doesn’t handle smart contracts but is working with smart contract platforms to optimize IOTA’s role to act as an oracle (due to intrinstic data transfer properties of the IOTA ledger).

All in all, IOTA is a platform to watch and probably just the pioneering leader of blockless blockchain technology.