IOTA – A Cryptocurrency Without a Blockchain

As blockchains grow, they become increasingly difficult to scale. IOTA is designed to solve this problem. IOTA does not achieve consensus through a blockchain, instead, IOTA’s protocol is based around a directed acyclic graph (DAG). Engineers will typically refer to this method of consensus as a ‘tangle.’ Essentially a tangle is a data storage system in which individual items are linked to one another. Directed means that the link between these items are always directional. Acyclic means one cannot create loops within the structure of the tangle.

A single transaction within the tangle is called a ‘site’. A site is similar to a block on a blockchain because it contains all the basic information about the transaction (sender, receiver, amount transferred). Each site is connected with at least two other transactions. These connections are called ‘edges’. Edges are the instruments which validate the transactions. If a site does not contain two or more edges it is considered unconfirmed. Sites with less than two edges are called ‘tips of the tangle.’ In order for a new transaction to be added, a new site will have to merge with a tip of the tangle site. The underlying IOTA algorithm selects two ‘tips’ at random so each actions do not conflict with one another.

When two tips are merged, a new transaction is created on the tangle which verifies two transactions as a result. This design makes IOTA incredibly scalable because when one transaction is added to the tangle, two others are simultaneously confirmed. Therefore, IOTA actually gets faster as more transactions are processed in the network.

IOTA attempts to solve two blockchain problems – scalability and mining. Scalability is highly correlated with storage. A typical blockchain requires a full copy of the chain before new transactions can be added. Currently, a copy of the bitcoin chain is about 150 GB in storage size. Storing this vast amount of data is somewhat inefficient considering it will only continue to accumulate over time. IOTA’s tangle does not require a full copy of the chain to add transactions so the tangle is not dependent on an ever-increasing amount of data. As a result, IOTA’s technology becomes much more forward-thinking.

One disadvantage of the tangle is that the micro-transactions included are unable to execute smart contracts. This is due to the fact that IOTA does not recognize the transaction order. IOTA also promises to be fee-less but this is not a certainty. There are no miners on IOTA. Instead, IOTA is designed so that every user contributes equal computational power which is presumably cheaper than traditional mining. This could lead to problems with IOTA because there is no incentive for individuals to host master nodes to grow and secure the network.

The tangle technology behind IOTA will be a rival to off-chain scaling solutions such as the lightning network. Although there are advantages and disadvantages to the tangle, IOTA is attempting to solve some of the most critical issues within the future development of cryptocurrency. Hopefully, tangle technology will become a technique for alternative scaling solutions.

Sources and Additional Tangle Information:

http://iotatoken.com/IOTA_Whitepaper.pdf

https://www.youtube.com/watch?v=CZxH1V_zoug&ab_channel=SimplyExplained-Savjee

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make objective decisions. This article is intended to educate readers about the technology behind IOTA. The author does not hold positions in any of the cryptocurrencies mentioned in the article.