Introduction and History
IOTA is a cryptocurrency designed to be tailored to the ‘Internet Of Things’ (IOT). IOT describes the idea that applications, appliances, houses, vehicles, and other objects can communicate and interact with each other over the internet. Given the number of devices and the nature of the transactions between such objects, IOTA was thus intended to enable rapid, fee-free microtransactions. In contrast to other cryptocurrencies, IOTA does not work on a blockchain principle but rather on a different technology based on a graph of transactions (directed acrylic graph or “The Tangle”). IOTA launched with a crowd-funded issuance of coins in December 2015, raising 1337 BTC. IOTA is governed by the IOTA Foundation, a non-profit organisation in Berlin, Germany.
In contrast to blockchain-based cryptocurrencies, every device which sends a transaction must first confirm two other existing unconfirmed randomly chosen transactions. This results in a web of transactions which mutually confirm each other. The proof of work algorithm is carried out by the device and has been designed so that it can be executed on machines with low computational power. Thus, there is no separate mining process since the nodes confirm transactions and hence there is no possibility of mining being concentrated with particular organisations or in geographical regions. Since nodes are necessary to confirm transactions, the speed of all transactions increases with IOTA as more users become involved. Since there are no miners, IOTA is truly decentralised since there is no requirement for a cluster of miners to complete the transaction chains. An advantage that is intended by the transaction structure of IOTA is the ability to make very small payments.
At present, consensus on which transactions are valid is determined by the coordinator, which is controlled by the IOTA foundation, and issues null-value milestone transactions, with the function that transactions which reference these milestones are valid and others are not. Thus, IOTA is not a decentralised cryptocurrency. In the future it is planned that consensus is achieved by counting all tip transactions and measuring how many reference a given transaction. This ratio would then be the confidence level of the network in that transaction.
The transaction signature encryption method of IOTA is designed to be resistant to attacks using quantum computers. Unusually, IOTA is also designed for ternary hardware, using a number system with -1, 0 and 1, rather than the binary system using 0 and 1 of all but the most exotic IT equipment. This imposes an extra computational cost when running ternary operations on binary systems. (Hackernoon, Sept 2017)
Availability and Wallets
All IOTA tokens were created on initialisation in December 2015, numbering 2,779,530,283,277,761. IOTA coins can be purchased at major cryptocurrency exchanges such as Bitfinex. The IOTA foundation provides a wallet for sending, receiving and storing IOTA, but significant problems have been reported with its use. (Medium, Feb. 2018)
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- Gal, Alon (2018, Feb 28) The Tangle
- Consensus on the Tangle
- Brekken, Andreas (2018, Feb 9) IOTA: Cannot be used for IoT. Loss of funds may occur.
- Johnson, Nick (2017, Sept 26) Why I find Iota deeply alarming