IOTA (MIOTA) is a distributed ledger designed to record and execute transactions between machines and devices in the Internet of Things (IoT) ecosystem. The ledger uses a cryptocurrency called MIOTA to account for transactions in its network. IOTA’s key innovation is Tangle, a system of nodes used for confirming transactions. IOTA claims that Tangle is faster and more efficient than typical blockchains used in cryptocurrencies.

The IOTA Foundation, the nonprofit foundation responsible for the ledger, has inked agreements with prominent companies, such as Bosch and Volkswagen, to extend the platform’s utility among connected devices.

Understanding IOTA

Billions of devices were connected to the Internet by 2020. Within this Internet of Things (IoT) ecosystem, devices can exchange data and payment information with multiple other devices in transactions conducted throughout the day.

IOTA intends to become the standard mode of conducting transactions on devices. Its founders have described the ledger as a “public permission-less backbone for the Internet of Things that enables interoperability between multiple devices.” In simple terms, this means that it will enable transactions between connected devices, and anyone will be able to access it.

IOTA’s founders claim that it solves multiple problems plaguing cryptocurrencies that are developed on standard blockchains. These problems include the centralization of mining to a specific group, low network speeds, and scalability. For cryptocurrencies, scalability refers to the problem of increasing the number of transactions processed by a blockchain without affecting other metrics.

Those problems are primarily caused due to a backlog of transactions on Bitcoin’s blockchain. The backlog itself is due to a variety of reasons, from small block sizes to the difficulty of puzzles that miners must solve to earn the cryptocurrency as a reward. IOTA solves these problems by reconfiguring the blockchain architecture into Tangle, a new way of organizing data and confirming transactions.

Concerns About IOTA

Criticism of IOTA has mainly centered around its technical flaws. As with most cryptocurrencies, IOTA’s system is nascent and unproven. A phishing attack on its network resulted in the theft of MIOTA worth $3.94 million. In response to the attack, the IOTA development team wrote a blog post outlining steps to generate a strong seed for using its cryptocurrency.

IOTA’s developers are supposed to have “rolled” their crypto. In other words, they created their encryption method from scratch, forgoing the widely-used SHA-256 hash function used in Bitcoin. The team at MIT’s Digital Currency Initiative found serious vulnerabilities with IOTA’s hash function, which is called Curl. The function produced the same output when it was given two different inputs. This property is known as collision and denotes a broken hash function. In their analysis of the vulnerability, the MIT team stated that a bad actor could have destroyed or stolen user funds from Tangle with their technique. IOTA’s team has corrected the vulnerability.

There are potential issues with IOTA’s claims to eliminate scalability problems for blockchains through the use of DAGs. Vitalik Buterin, the co-founder of Ethereum, has cast doubt on the ability of hashgraphs (the underlying data structures for DAG) to solve scalability issues. As he explains it, current versions of hashgraphs do not solve for a blockchain’s dependency on computer memory and processing power. The scalability of a system using hashgraphs still depends on the capacity and speed of individual computers within its network.

As of 2020, IOTA’s network used a central server known as a Coordinator to ensure transaction security. This practice has diluted its claims of being a decentralized system since the introduction of a Coordinator has resulted in the introduction of a single point of failure. It has also slowed down the network’s speed because parallel processing does not occur in a Coordinator-based system. However, the IOTA Foundation had a plan called “The Coordicide” to remove the Coordinator in the future.

Future of IOTA

Although IOTA’s market capitalization was still down substantially from its 2017 highs, this cryptocurrency’s fortunes showed signs of improving by late 2020. It started 2020 with a market capitalization of $446 million and was above $900 million as of Dec. 19, 2020. That’s a gain of over 100%, but it was a rocky road. IOTA’s continued partnership with large corporations and focus on the growing Internet of Things (IoT) also help to set it apart from other cryptocurrencies and generate investor interest. It seems to be working because as of Sept. 28, 2021, IOTA’s market cap is around $3.2 billion.

Source: https://www.investopedia.com/terms/i/iota.asp