What is IOTA

IOTA is a cryptocurrency designed to support microtransactions and data integrity for Internet of Things equipment. The IOTA Tangle is a quantum-proof directed acyclic graph (DAG) used by IOTA. The Tangle does not charge any transaction fees, and there is no predetermined limit to the number of transactions that the network can verify per second.

A Brief History of IOTA

Co-founded by Sergey Ivancheglo, Serguei Popov, David Sønstebø, and Dominik Schiener, IOTA dates back to the Jinn project, which was presented to the public in September 2014 on an NXT forum. The project aimed to create a more efficient microprocessor for IoT devices that used trinary (rather than binary) calculation methods. To fund R&D for the hardware project, the Jinn team staged a crowd sale in September 2014, selling 100,000 JINN tokens (10% of the total) for 8,500,000 NXT, which was approximately US$250,000. JINN tokens were launched on the NXT platform and represented a portion of the Jinn company's revenues.

However, anticipating regulatory concerns with their JINN, which constituted a claim on Jinn's revenues, the Jinn team shifted their strategy. In 2015, the Jinn founders introduced IOTA on the BitcoinTalk forum, a new project. IOTA aimed to be "a new and original micro-transaction crypto-token tailored for the Internet-of-Things (IoT)”.

The firm performed a similar crowd sale for its IOTA token, a utility token used for payment on the IOTA network rather than a profit-sharing token like JINN. In its 2015 crowd sale, IOTA sold 999,999,999 tokens, generating 1,337 BTC, equal to $434,000 at the time. Jinn token holders may also participate in the IOTA crowd sale by exchanging their JINN tokens for IOTA at a set exchange rate of 0.0063 BTC per JINN. Later, they reduced the quantity to 2.78 billion IOTA. According to IOTA literature, a raise in the token supply was because 'large supply makes IOTA optimum for micro-nano transactions while still maintaining efficiency in mind'.. 5% of the funds raised during the IOTA token sale were subsequently given to the IOTA Foundation, publicly announced in October 2017.

How IOTA Works

IOTA stores transactions on its ledger using a directed acyclic graph, inspired by the promise for greater scalability over blockchain-based distributed ledgers. It does not require any miners to validate transactions; instead, nodes issuing new transactions on the network must first approve two previous transactions.

Within the IOTA network, IOTA is the native currency, with 1 NIOTA representing 1 million IOTA. Some of IOTA's use comes from peer-to-peer payments and value storage within the IOTA network. IOTA is especially well-suited for processing microtransactions because of the lack of transaction fees. Its design focus is on machine-to-machine transactions between IoT devices.

As a result, transactions may be issued without fees, facilitating microtransactions. The IOTA Foundation currently operates a coordinator node to reach a consensus. The network is presently centralised since the coordinator is a single point of failure.

What is IOTA Used for

IOTA aims to become the standard method of performing device transactions. The ledger's creators define it as a "public permissionless backbone for the Internet of Things that enables interoperability across multiple devices”.

This implies that it allows transactions between connected devices and that anybody can use it. IOTA's creators believe it overcomes many issues that plague cryptocurrencies built on traditional blockchain technology. These issues include mining centralised to a specific group, slow network speeds, and scalability. Scalability in cryptocurrencies refers to the difficulty of expanding the number of transactions handled by a blockchain without compromising other metrics. IOTA addresses these problems by reconfiguring the blockchain architecture as Tangle, a new method of organising data and confirming transactions.