IOTA is a public distributed ledger that stores transactions in a directed acyclic graph[3] (DAG) structure, called a Tangle.[4] The Tangle is used in place of the blockchain structure commonly used by other cryptocurrencies, such as Bitcoin.[5]

IOTA is a cryptocurrency designed specifically for the Internet of Things (IoT)[6] that can be used for the secure sale and sharing of data streams.[7].

The Iota white paper was written by Serguei Popov and published December 28, 2017.[3]

General Background

Why IOTA?

While blockchain tech has real-world value, it doesn’t come without its drawbacks. One such drawback is the transaction fee. According to the IOTA whitepaper [3]​:

The importance of micropayments will increase in the rapidly developing IoT industry, and paying a fee that is larger than the amount of value being transferred is not logical.

This is where IOTA comes into play. It was designed from the ground up to have absolutely no transaction fees. This solution was made possible with Tangle technology.

The network is able to achieve consensus with no transaction fees with the use of Tangle technology. The Tangle is the coined term for IOTA’s DAG (Directed Acyclic Graph) on which the network is based. Instead of being packaged into blocks and chained one after another, IOTA’s transactions are connected in a big tangled web.

Rather than having mining farms mine whole blocks, each user verifies the past two transactions with a tiny amount of work before he or she can send their own transaction. In this way, the cost of each transaction is the cost of electricity it took your node to verify the past transactions rather than a fee set by a network of miners.

Furthermore, since Tangle technology doesn’t have blocks, one doesn’t need to wait for verifications. Transactions are mined in parallel, and as a result happen instantly. This is precisely why Tangle-based cryptocurrencies are able to achieve the highest TPS (transactions per second) rates among all blockchain-based currencies.

IOTA’S Network Resilience

Another advantage of using Tangle technology is that the network becomes more resilient to quantum computing and also to the infamous 51% attacks you may have heard about (which is actually a 34% attack).

34% attack-resistant

It was believed that if an attacker had access to 51% of Bitcoin’s network power, he or she could take over the cryptocurrency. However, it was later found out that 34% was enough. Essentially what is required to take over a blockchain-based network is a certain percentage of the total hashing power. Because of IOTA’s network topology, there are three things that are required in order to perform such an attack:

  1. A percentage of the network hash rate
  2. Having a full view of the network
  3. Being paired with a certain percentage of nodes

The first variable is self-explanatory. A full view of the network is required in order to propagate the rogue hashing power effectively throughout the network. Finally, that hashing power must be paired with a sufficiently high percentage of nodes in order to actually propagate the attack successfully. If the attack isn’t performed fast enough, the network will easily see the anomaly and ignore the threat.

While there is a slim chance that an attacker may gain enough hash power and be paired with a large enough amount of nodes, the network topology is kept private because connections between nodes are private. Thus, it would be extremely unlikely that such an attack would successfully take place.

Quantum-Resistant

Another advantage to IOTA’s network is its quantum resilience. Because of its use of Winternitz hash-based signatures instead of elliptic curve cryptography, it’s able to resist quantum-based computing which will inevitably come in the future. Current research suggests that hash-based functions are secure against quantum computing, which was one of the reasons IOTA decided to go that route. [7]​ 

Although IOTA doesn’t require mining, transactions are still securely stored by computer “nodes” using a cryptographic algorithm called SHA-3 Proof of Work (PoW). This operates similar to Bitcoin’s SHA-256 PoW algorithm to create a chain of transaction records that are stored on full network nodes. How these nodes will be rewarded for their services is not yet clear, since they don’t actually receive any of IOTA’s tokens (called MIOTA) for their work. This has resulted in some debate about how IOTA will solve this lack of incentive to run a node.

Early in IOTA’s development it actually used a hashing algorithm called Curl which was custom-built by the IOTA development team. Curl was replaced, however, after an MIT team found a potential vulnerability in the algorithm. 

This sparked a huge controversy in which the IOTA development team was widely criticized for handling the situation poorly, and for over-reaching when they tried to create their own algorithm. Many argued that a cryptographic algorithm must be widely available and tested for years prior to being released to verify the algorithm’s security. 

Microsoft partnership scandal

In November 2017, IOTA was said to have a partnership with Microsoft.[8] The organization was later derided when it clarified no formal partnership existed.[9]

Bosch Investment

In December 2017, Bosch announced it has purchased a significant number of IOTA tokens to support creation of new business models for the Internet of Things.[10][11]

ITIC

In January 2018, IOTA announced a partnership with the International Transportation Innovation Center (ITIC) to build a global alliance of smart mobility testbeds.[12][13][14] This comes as ITIC validates a Proof of Concept for dynamic electric vehicle charging showcased by NetObjex Inc in Smart Metering solution using the IOTA decentralized network and cryptocurrency back in October 2017. [15]

Sweden

Sweden Riksbank, Sweden's central bank, in September 2017 announced that it is investigating the use of digital currencies dubbed the E-krona project.[16][17]

The use of banknotes and coins is declining in society. At the same time, virtual currencies and payment methods are undergoing rapid technological development. The Riksbank has therefore started a project aimed at examining whether the krona needs to be issued in an electronic form, an "e-krona". It has not yet been decided whether the Riksbank will issue an e-krona.

Among the 33 proposals submitted to Riksbank, which includes top tier companies such as Accenture, IBM, MIT Media Lab, Ericsson, r3, SEB, only 19 organisations were invited to a dialogue with Riksbank. The IOTA Foundation was among one of the 19 organisations invited to the dialogue.[18]

The inquiry is expected to be finalized in late 2019.