IOTA is an open-source
distributed ledger
A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is the consensus of replicated, shared, and synchronized digital data that is geographically spread (distributed) across many sites, countries, or institutio ...
and
cryptocurrency
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
designed for the
Internet of things (IoT).
It uses a
directed acyclic graph
In mathematics, particularly graph theory, and computer science, a directed acyclic graph (DAG) is a directed graph with no directed cycles. That is, it consists of vertices and edges (also called ''arcs''), with each edge directed from one ...
to store transactions on its ledger, motivated by a potentially higher scalability over
blockchain
A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, ...
based distributed ledgers.
IOTA does not use
miners
A miner is a person who extracts ore, coal, chalk, clay, or other minerals from the earth through mining. There are two senses in which the term is used. In its narrowest sense, a miner is someone who works at the rock face; cutting, blasting, ...
to validate transactions, instead, nodes that issue a new transaction on the network must approve two previous transactions.
Transactions can therefore be issued without fees, facilitating
microtransaction
Microtransactions, often abbreviated as mtx, are a business model where users can purchase virtual goods with micropayments. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. While microtransact ...
s.
The network currently achieves consensus through a coordinator node, operated by the IOTA Foundation.
As the coordinator is a single point of failure, the network is currently centralized.
IOTA has been criticized due to its unusual design, of which it is unclear whether it will work in practice.
As a result, IOTA was rewritten from the ground up for a network update called Chrysalis, or IOTA 1.5, which launched on 28 April 2021.
In this update, controversial decisions such as ternary encoding and quantum proof cryptography were left behind and replaced with established standards.
A testnet for a follow-up update called Coordicide, or IOTA 2.0, was deployed in late 2020, with the aim of releasing a distributed network that no longer relies on the coordinator for consensus in 2021.
History
The value transfer protocol IOTA, named after the smallest letter of the Greek alphabet, was created in 2015 by David Sønstebø, Dominik Schiener, Sergey Ivancheglo, and Serguei Popov.
Initial development was funded by an online public crowdsale, with the participants buying the IOTA value token with other digital currencies.
Approximately 1300
BTC were raised, corresponding to approximately US$500,000 at that time, and the total token supply was distributed pro-rata over the initial investors. The IOTA network went live in 2016.
IOTA foundation
In 2017, early IOTA token investors donated 5% of the total token supply for continued development and to endow what became later became the IOTA Foundation.
In 2018, the IOTA Foundation was chartered as a
Stiftung in Berlin, with the goal to assist in the research and development, education and standardisation of IOTA technology. The IOTA Foundation is a board member of International Association for Trusted Blockchain Applications (INATBA), and founding member of the Trusted IoT Alliance
and Mobility Open Blockchain Initiative (MOBI), to promote blockchain and distributed ledgers in regulatory approaches, the IoT ecosystem and mobility.
Following a dispute between IOTA founders David Sønstebø and Sergey Ivancheglo, Ivancheglo resigned from the board of directors on 23 June 2019. On 10 December 2020 the IOTA Foundation Board of Directors and supervisory board announced that the Foundation officially parted ways with David Sønstebø.
DCI vulnerability disclosure
On 8 September 2017, researchers Ethan Heilman from
Boston University
Boston University (BU) is a Private university, private research university in Boston, Massachusetts. The university is nonsectarian, but has a historical affiliation with the United Methodist Church. It was founded in 1839 by Methodists with ...
and Neha Nerula et al. from
MIT
The Massachusetts Institute of Technology (MIT) is a private land-grant research university in Cambridge, Massachusetts. Established in 1861, MIT has played a key role in the development of modern technology and science, and is one of the m ...
's Digital Currency Initiative (DCI) reported on potential security flaws with IOTA's former Curl-P-27 hash function.
The IOTA Foundation received considerable backlash in their handling of the incident.
FT Alphaville
FT Alphaville is a daily news and commentary service for financial market professionals created by the ''Financial Times'' in October 2006. The founding editor was Paul Murphy. He was succeeded in 2017 by Izabella Kaminska. Kaminska resigne ...
reported legal posturing by an IOTA Founder against a security researcher for his involvement in the DCI report, as well as instances of aggressive language levelled against a Forbes contributor and other unnamed journalists covering the DCI report.
The Center for Blockchain Technologies at the
University College London
, mottoeng = Let all come who by merit deserve the most reward
, established =
, type = Public research university
, endowment = £143 million (2020)
, budget = � ...
severed ties with the IOTA Foundation due to legal threats against security researchers involved in the report.
Attacks
As a speculative blockchain and cryptocurrency-related technology, IOTA has been the target of
phishing
Phishing is a type of social engineering where an attacker sends a fraudulent (e.g., spoofed, fake, or otherwise deceptive) message designed to trick a person into revealing sensitive information to the attacker or to deploy malicious softwar ...
,
scamming, and
hacking attempts, which have resulted in the thefts of user tokens and extended periods of downtime.
In January 2018, more than US$10 million worth of IOTA tokens were stolen from users that used a malicious online seed-creator, a password that protects their ownership of IOTA tokens.
The seed-generator scam was the largest fraud in IOTA history to date, with over 85 victims.
In January 2019, the UK and German law enforcement agencies arrested a 36-year-old man from Oxford, England believed to be behind the theft.
On 26 November 2019 a hacker discovered a vulnerability in a third-party payment service, provided by ''MoonPay'', integrated in the mobile and desktop wallet managed by the ''IOTA Foundation''.
The attacker compromised over 50 IOTA seeds, resulting in the theft of approximately US$2 Million worth in IOTA tokens.
After receiving reports that hackers were stealing funds from user wallets, the IOTA Foundation shut down the coordinator on 12 February 2020.
This had the side-effect of effectively shutting down the entire IOTA cryptocurrency.
Users at-risk were given seven days to migrate their potentially compromised seed to a new seed, until 7 March 2020. The coordinator was restarted on 10 March 2020.
IOTA 1.5 (Chrysalis) and IOTA 2.0 (Coordicide)
The IOTA network is currently centralized, a transaction on the network is considered valid if and only if it is referenced by a milestone issued by a node operated by the IOTA foundation called the coordinator.
In 2019 the IOTA Foundation announced that it would like to operate the network without a coordinator in the future, using a two-stage network update, termed Chrysalis for IOTA 1.5 and Coordicide for IOTA 2.0.
The Chrysalis update went live on 28 April 2021, and removed its controversial design choices such as ternary encoding and Winternitz one-time signatures, to create an enterprise-ready blockchain solution. In parallel Coordicide is currently developed, to create a distributed network that no longer relies on the coordinator for consensus.
A testnet of Coordicide was deployed late 2020, with the aim of releasing a final version in 2021.
Characteristics
The Tangle
The Tangle is the moniker used to describe IOTAs
directed acyclic graph
In mathematics, particularly graph theory, and computer science, a directed acyclic graph (DAG) is a directed graph with no directed cycles. That is, it consists of vertices and edges (also called ''arcs''), with each edge directed from one ...
(DAG) transaction settlement and data integrity layer.
It is structured as a string of individual transactions that are interlinked to each other and stored through a network of node participants.
The Tangle does not have miners validating transactions, rather, network participants are jointly responsible for transaction validation, and must confirm two transactions already submitted to the network for every one transaction they issue.
Transactions can therefore be issued to the network at no cost, facilitating micropayments.
To avoid spam, every transaction requires computational resources based on Proof of Work (PoW) algorithms, to find the answer to a simple cryptographic puzzle.
IOTA supports both value and data transfers.
A second layer protocol provides encryption and authentication of messages, or data streams, transmitted and stored on the Tangle as zero-value transactions.
Each message holds a reference to the address of a follow-up message, connecting the messages in a data stream, and providing
forward secrecy
In cryptography, forward secrecy (FS), also known as perfect forward secrecy (PFS), is a feature of specific key agreement protocols that gives assurances that session keys will not be compromised even if long-term secrets used in the session key ...
.
Authorised parties with the correct decryption key can therefore only follow a datastream from their point of entry.
When the owner of the data stream wants to revoke access, it can change the decryption key when publishing a new message.
This provides the owner granular controls over the way in which data is exchanged to authorised parties.
IOTA token
The IOTA token is a unit of value in the IOTA network.
There is a fixed supply of 2,779,530,283,277,761 IOTA tokens in circulation on the IOTA network. IOTA tokens are stored in IOTA wallets protected by an 81-character seed, similar to a password.
To access and spend the tokens, IOTA provides a cryptocurrency wallet.
A hardware wallet can be used to keep credentials offline while facilitating transactions.
Coordinator node
IOTA currently requires a majority of honest actors to prevent network attacks.
However, as the concept of mining does not exist on the IOTA network, it is unlikely that this requirement will always be met. Therefore, consensus is currently obtained through referencing of transactions issued by a special node operated by the IOTA foundation, called the coordinator.
The coordinator issues zero value transactions at given time intervals, called milestones.
Any transaction, directly or indirectly, referenced by such a milestone is considered valid by the nodes in the network. The coordinator is an authority operated by the IOTA foundation and as such single point of failure for the IOTA network, which makes the network centralized.
Markets
IOTA is traded in
mega
Mega or MEGA may refer to:
Science
* mega-, a metric prefix denoting 106
* Mega (number), a certain very large integer in Steinhaus–Moser notation
* "mega-" a prefix meaning "large" that is used in taxonomy
* Gravity assist, for ''Moon-Eart ...
IOTA units (1,000,000 IOTA) on
digital currency exchange
A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acce ...
s such as
Bitfinex
Bitfinex is a cryptocurrency exchange owned and operated by iFinex Inc registered in the British Virgin Islands. Their customers' money has been stolen or lost in several incidents, and they have been unable to secure normal banking relationshi ...
, and listed under the MIOTA
ticker symbol
A ticker symbol or stock symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. In short, ticker symbols are arrangements of symbols or characters (generally Latin letters o ...
. Like other digital currencies, IOTA's token value has soared and fallen.
Fast Probabilistic Consensus (FPC)
The crux of cryptocurrencies is to stop
double spends, the ability to spend the same money twice in two simultaneous transactions. Bitcoin's solution has been to use Proof of Work (PoW) making it a significant financial burden to have a minted block be rejected for a double spend. IOTA has designed a voting algorithm called Fast Probabilistic Consensus to form a consensus on double spends. Instead of starting from scratch, the IOTA Foundation started with Simple Majority Consensus where the first opinion update is defined by,
Where
is the opinion of node
at time
. The function
is the percent of all the nodes that have the opinion
and
is the threshold for majority, set by the implementation. After the first round, the successive opinions change at time
to the function,
Although, this model is fragile against malicious attackers which is why the IOTA Foundation decided not to use it. Instead the IOTA Foundation decided to augment the leaderless consensus mechanism called, ''Random neighbors majority consensus (RMC)'' which is similar to SMC although, the nodes in which their opinions are queries is randomized. They took RMC then augmented it to create FPC by having the threshold of majority be a random number generated from a Decentralized Random Number Generator (dRNG). For FPC, the first sound is the same,
For success rounds though,
Where
where