IOTA is a distributed ledger designed to record and execute transactions between machines in the Internet of Things (IoT) ecosystem.

IOTA has a cryptocurrency called mIOTA. IOTA’s platform uses a Decentralized Acyclic Graph (DAG) instead of a blockchain used by other, similar systems. The non-profit foundation behind the platform has also inked agreements with prominent German companies, such as Bosch and Volkswagen, to extend its platform’s utility among connected devices.  


IOTA intends to become the standard mode of transacting between Internet-connected devices in the future. “We envision IOTA to be a public, permissionless backbone for the Internet of Things that enable true interoperability between all devices,” its founders write on their website.

IOTA’s cryptocurrency – mIOTA – will enable micropayment transactions between connected devices. For example, it might enable you to purchase individual grocery items from an ecommerce site using your Internet-connected fridge.

According to Gartner, the number of IoT-enabled devices is expected to multiply to 20.4 billion by 2020. Each of these devices will conduct multiple transactions with other connected devices or the Internet during the course of a day.

Through its platform and cryptocurrency, IOTA has ambitions to become a carrier for these transactions. The amount of transactions on IOTA’s network is restricted to micropayments between the devices.  

IOTA also aims to solve three problems encountered by bitcoin, the original cryptocurrency, on its network. They are: scalability, transaction fees, and network speeds. According to the development team at IOTA, their network is lighter and faster than bitcoin’s blockchain network. 

What Is IOTA's DAG? 

IOTA’s DAG is a key departure from blockchain-based systems. Such systems rely on a configuration of nodes that generate blocks connected in a chain to to mine coins. Typically, nodes in a cryptocurrency’s blockchain use Proof of Work or Proof of Stake algorithms to approve transactions. These algorithms require nodes to reach consensus to validate all transactions in their network. 

DAG removes the dependency on miners by not using a blockchain. It grows through connections between nodes and approval of transactions. Consensus is not required in IOTA’s network to approve a transaction. Instead, each incoming transaction must approve two previous transactions in order to be considered valid. In this manner, the network is self-propagating. 

The genesis transaction for IOTA was an address with a balance that contained all mIOTA, its cryptocurrency, that will ever be mined. These tokens were dispersed to other “founder” addresses. The total number of IOTAs planned to be in existence is 27 quadrillion. According to IOTA’s founders, the total number of IOTAs fits in “nicely” with the maximum allowable integer value in Javascript, a programming language. 

IOTA’s network is called Tangle and does not distinguish between conflicting transactions at the outset. As a result, all transactions – whether they are conflicting or not– are present within Tangle at the outset.

Through a system of approvals, however, transactions become orphaned and removed from the network. To approve a transaction, nodes in IOTA use past history of the transactions as the most important indicator. The system’s tip selection algorithm uses “confidence” as a measure to approve the transactions. 

For example, if a transaction has been approved 97 times in the past, then there is 97% confidence that it will be approved by a node. Related to this concept is the transaction’s weight. As it moves through IOTA’s network, a transaction’s weight increases with the number of approvals.

Another factor that cleans up Tangle is node activity. For example, “lazy nodes,” or nodes that do not approve or propagate transactions, are dropped by their neighbors.

Certain elements of IOTA are common with bitcoin’s system. A node can only issue a transaction after solving a cryptographic puzzle. In addition, the network’s security is derived from the strength of its numbers. Hence, the more the number of nodes within IOTA’s tangle, the more secure it is against attacks. This is similar to bitcoin’s network, where increased numbers of miners translates to increased security.  

Problems With IOTA 

As with most other cryptocurrency platforms, IOTA’s technology is still under development. Two problems have emerged with its platform so far. The first one was a vulnerability in the hash function used by IOTA to encrypt transactions.

According to a team at MIT’s Digital Currency Lab, IOTA’s platform has function Curl produce the same output when it was given two different inputs. This property is known as Collision and denotes a broken hash function.

“Using our techniques, a bad actor could have destroyed users’ funds, or possibly, stolen user funds,” the team wrote. The IOTA team has since corrected their code. 

The second problem that IOTA encountered was a recent phishing attack. The hack resulted in the theft of cryptocurrency worth $3.94 million from users of the platform. In response to the attack, the IOTA development team wrote a blog post outlining steps to generate a strong seed for using its cryptocurrency. (See also: How To Keep Your IOTA Cryptocurrency, MIOTA, Safe.)