IOTA is a distributed ledger technology (DLT) that supports feeless transactions and micropayments for the Internet of Things (IoT). IOTA, which is managed by the IOTA Foundation, is intended to be a cost-effective, low-energy alternative to Blockchain for the machine economy.
The digital currency that supports IOTA micropayments is spelled Iota.
While a Blockchain ledger links blocks of transactions together in a linear, sequential manner, IOTA’s ledger uses a graph database structure. Data and transactions are stored in storage objects called messages, and each message can be linked to multiple parent and child messages. The collection of all messages is called a directed acyclic graph (DAG) and is referred to by practitioners as the Tangle.
Instead of paying multiple third parties (cryptominers) to verify transaction blocks like Blockchain does, IOTA asks each new transacting party to verify two previous transactions and send proof of work (PoW) to a centralized node run by the IOTA Foundation. The centralized node, which is called the Coordinator, reviews the PoW and decides whether or not the transaction should be added to the database.
The result is that IOTA provides users with the advantage of storing transactions on a public network because it replicates data across a distributed architecture, while also giving users the advantages of a private network by making the Coordinator the gatekeeper.
The role of the Coordinator, however, is somewhat controversial because it has the potential to be a single point of failure (SPoF). In response to concerns that IOTA’s security is not as strong as Blockchain’s, proponents of IOTA maintain the tradeoff of IOTA's lower processing overhead makes it a viable way to log the immense volume of autonomous interactions conducted by IoT devices.
The IOTA Foundation is currently researching ways to overcome the Coordinator's limitations, while still providing the machine economy with a feeless protocol that facilitates the low-processing, low-energy and low-cost exchange of both value and information.
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