Contributor: CoinMarketCap presents a deep dive of IOTA's technology and developments.
This primer provides an introduction to IOTA’s technology and broader field of application. It covers IOTA’s frameworks and its architectural distinction from blockchain and aims to serve as a knowledge base for anyone eager to learn more and participate.
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What Is IOTA?
IOTA is a distributed ledger technology (DLT) that features unique architecture and an open-source product suite for individuals, businesses, and institutions to use in Web3. It is built on a directed acyclic graph (DAG) called the Tangle, which can be pictured as a multi-dimensional blockchain. It enables the exchange of data and value on a decentralized platform through direct and secure transfers, executed on and immutably recorded on the network.
Together with its staging network Shimmer (https://shimmer.network), IOTA aims to offer solutions to establish a secure and permissionless infrastructure that can drive the economy of the future. It enables the development of decentralized applications (dApps) through automated trust in the form of Ethereum-compatible smart contracts, an advanced consensus algorithm, and thoughtfully balanced incentives. IOTA delivers tools for creating and managing custom Layer 2 (EVM) chains, deploying smart contracts, minting native tokens and NFTs with distinctive features, and introducing digital identities to users.
Launching in 2024, IOTA 2.0 will be a protocol upgrade that rebuilds IOTA’s architecture to deliver full decentralization. You can find more about it here.
What Is the IOTA Foundation?
Founded in 2015, the IOTA Foundation is a charitable non-profit organization headquartered in Berlin, Germany, making it one of the longest-standing crypto projects. With its global network of developers, designers, engineers and entrepreneurs, it develops the IOTA protocol and steers open-source governance to bring this technology to production maturity to be adopted by enterprises and individuals across industries and use cases.
The founders of IOTA aimed to create a technology that could scale while seeking to reduce or eliminate some of the limitations of blockchain technology, such as transaction fees and processing speeds. The IOTA Foundation now focuses on enabling "Digital autonomy for all," with an emphasis on building trust and transparency in commerce. A current initiative involves developing infrastructure to represent real-world assets in digital tokens to facilitate trading such assets. The goal is to connect the physical and digital worlds, making illiquid assets liquid and widely tradable, which could enable new economic opportunities.
In recent years, two organizations have been formed to help drive the adoption of IOTA and grow the ecosystem of partners and builders using IOTA technology. The Tangle Ecosystem Association (TEA) is a Swiss-based non-profit association that allocates grants and funding to ecosystem projects, alliances, partners, third-party integrations, and builders. The other is the IOTA Ecosystem DLT Foundation, based in Abu Dhabi, United Arab Emirates, the first DLT foundation to be registered under the regulator authorities there.
What Is Shimmer?
Shimmer (www.shimmer.network) is the staging network for the IOTA mainnet. It’s where new protocol changes undergo assessment for functionality, scalability, and security before being implemented on the IOTA mainnet. Shimmer distinguishes itself from typical test networks by having a token named SMR, actively traded on major exchanges. This feature imparts real monetary value to the network, enhancing the incentive for testing upcoming protocol changes.
At present, Shimmer operates using the Stardust protocol version, facilitating tokenization and the integration of L2 smart contract chains into L1. Moreover, Shimmer is the designated network for the Shimmer EVM, a Layer 2 solution that enables smart contract programming atop the foundational layer.
What Is a DAG and the Tangle?
DAG stands for Directed Acyclic Graph. It is a data structure consisting of multiple, interconnected blocks that can only grow forward but not reference back to itself and thereby form a circle. This is known as “acyclic”. In cryptocurrencies and DLTs, a DAG is used as a non-linear alternative to traditional, linear blockchain structures.
The Tangle is IOTA’s underlying DAG. Replicated across a decentralized network of computers, referred to as "nodes.", it’s a decentralized foundation for tracking token ownership and offers several unique features. The Tangle forms a network of blocks, with each new block linked to multiple older blocks, forming an interconnected network. In this structure, newer blocks are intricately attached to multiple older ones, resulting in a highly interconnected, efficient, and flexible structure, going beyond a singular thread used in blockchains.
Since the Tangle is a DAG, it can confirm tiny transactions much faster than conventional blockchain technology. Because there are no miners, transactions on IOTA do not have to wait to be included in newly generated blocks, nor do they require any token fees in order to be processed by the network. These factors give IOTA advantageous scaling properties. The Tangle has also one of the smallest – if not the smallest – energy footprints of any public DLT according to the most recent study.
What Products Does IOTA Offer?
IOTA has developed a range of open-source products intended for large-scale, real-world use cases that integrate with existing systems. These include solutions for supply chain tracking, digital identity, value transfer, and decentralized finance. The products allow businesses and developers to utilize attributes of Web3 technology.
IOTA Identity is an open-source framework that gives any online entity a secure and verifiable signature. This allows for the creation of networked systems that build trust between individuals, organizations, and things. IOTA Identity can be thought of as a digital passport for individuals and things, allowing the certification and verification of online identity. It can also be thought of as a regulatory control point for any networked entities that are bound by regulations such as GDPR or security clearances. In the future, rather than a byzantine and chaotic collection of usernames and passwords, IOTA Identity will act as a single source of trust for online interactions.
IOTA Smart Contracts Protocol enables smart contracts to be built on the IOTA network. Whereas conventional contracts require intermediaries to establish trust and certify that terms and conditions have been met, smart contracts execute agreements according to hard-coded rules. Parties agree to the terms of the agreement as in a traditional contract, but the execution of the smart contract is carried out within and through the network. So long as the terms and conditions of the contract are registered within the network, execution is an automatic process, whether that means payment for services rendered or the transfer of a title or deed.
L2 Chains: The IOTA Chains Framework enables anyone to deploy and anchor WASM or EVM-based Layer 2 smart contract networks to the IOTA Layer 1.
L1 Tokenization: Assets tokenized with the IOTA Digital Assets framework are first-class citizens, benefiting from the same level of security and scalability as the native IOTA token. Anyone, including smart contract chains, can create custom tokens on the IOTA network, enabling Layer 1 representations of assets that can be owned, managed, and represented within L2 smart contract chains. Assets created through the IOTA Tokenization Framework can be transferred feelessly from one IOTA Chain to the other by means of using the IOTA Tangle as a transport layer.
Firefly Wallet, the official IOTA wallet, is the secure entry point to the IOTA ecosystem, based on industry standards and a security-first approach. Other community-built wallets, such as Bloom, are also available.
How Does Consensus Work on IOTA 2.0?
In any DLT, a consensus mechanism is essential for achieving agreement among the nodes in the network regarding the set of blocks and transactions in the ledger.
IOTA’s consensus is a delegated Proof of Stake. Any node can become a validator node and join a validator committee of bounded size that “votes” on consensus. In IOTA 2.0, the validator committee regularly issues validation blocks to reduce communication overhead and minimize confirmation time.
IOTA’s consensus is built on three main mechanisms: Parallel Writing enables blocks to be added and validated in parallel by every node; On-Tangle Voting means each validator has a given voting power resulting from staking and delegation; and in case of a double spend, the transaction with the heavier Approval Weight wins.
IOTA uses a consensus mechanism that does not rely on miners, unlike most blockchain architectures. This means that large mining farms and their associated energy costs are not needed to determine approved transactions. IOTA's consensus approach is believed to require notably less electricity for basic transaction processing. While popular blockchains can utilize amounts of energy sufficient to power small nations according to some analyses, initial calculations suggest IOTA energy usage would equal only a small fraction of a cent under the same transaction load. Find out more about IOTA 2.0’s consensus on the IOTA wiki.
What Is IOTA’s Tokenomics?
IOTA’s tokenomics model revolves around two key assets: IOTA tokens and Mana. Both of these assets will be accessible through the user’s account, through which users can either stake their IOTA tokens and help validate the network or delegate them to a validator.
Accounts: Accounts will be the central component of the IOTA ledger. In IOTA 2.0, accounts will be used for holding Mana to issue blocks, staking tokens to become a validator, and claiming rewards from participating in staking. Accounts accumulate Mana from holding IOTA tokens and burn them to issue blocks on the Tangle. This means account owners can be block-issuers themselves rather than depend on another actor, exercising their digital autonomy in line with IOTA’s principle of Accessibility.
Tokens: The IOTA token is the medium to transfer value within the IOTA mainnet. However, unlike other cryptos, there are no fees to be paid through the base token, meaning that IOTA tokens are transferred to the receiver without miners or other intermediaries taking a cut. The total supply of IOTA is 4,600,000,000 IOTAs. The smallest denomination of IOTA is called "micros", with six decimal points, so the total supply amounts to 4,600,000,000,000,000 micros. On 4 October 2023, the IOTA Mainnet was upgraded to operate under the Stardust protocol. With the upgrade, a change in the supply was executed, where the initial supply of ~2,779,530,283 IOTAs (2,779,530,283,277,761 micros, to be precise) was increased to 4,600,000,000 IOTAs (4,600,000,000,000,000 micros), where the additional new supply of ~1,820,469,716 IOTAs were allocated to owners, and vested over several years.
Mana: Mana serves as a limited resource used to issue blocks on the IOTA ledger. This expendable asset is monitored within the ledger state and plays a crucial role in supporting smart contracts, DeFi applications, block creation, and various other services. It aims to be a solution for congestion control and protection from Sybil attacks - two problems cryptocurrency-based DLTs face. A Sybil attack happens when a malicious actor assumes a large number of identities to undermine the authority of the system. Congestion control refers to managing the problems arising from heavy traffic that degrades the normal functioning of a network.
Mana is designed to be a scarce resource on the IOTA network. Nodes that hold significant Mana are trusted to validate transactions based on their reputation and activity on the network. Mana accrues to accounts over time as a result of value transactions issuing through associated nodes. IOTA holders can choose either to stake their tokens to generate Mana directly or delegate their IOTA to other nodes in order to receive a share of the Mana rewards.
Staking and Delegating: Users can stake tokens from their accounts to become a validator in the protocol or delegate tokens to another validator. Staking and delegation have low entry barriers, as any token holder can create their own blocks and participate in validation. Stakers need to lock their tokens to become validators, increasing the commitment to the network's security. With liquid delegation, you can spend funds anytime without a waiting period. Staking and delegation thus support the network's security while keeping the entry barriers as low as possible.
How Can I Buy IOTA Tokens?
An immediate point of entry is one of the popular online crypto exchanges, which allow traders to exchange fiat currency for cryptocurrency.
IOTA is listed on most major currency exchanges, including:
Note that some exchanges might still be using the symbol MIOTA on their platforms, which was previously used to represent 1 IOTA or 1,000,000 (1 million) micros. Before you buy or sell IOTAs, please make sure you understand what denomination the exchange is using so you don't sell/buy under/over the current market price. As always, be sure to do your own research and invest in cryptocurrencies responsibly.
How Can I Use IOTA?
Interacting With the Network
One way to directly interact with IOTA is by setting up a node on your own computer or server. This will allow you to interact directly with the Tangle in its current state. You can find more information and community-driven projects on the IOTA blog and official GitHub repositories and in many community GitHub repositories.
Building on IOTA
For developers and projects building decentralized applications, IOTA offers two initiatives:
Touchpoint
Touchpoint is an incubator program that provides smart money, tailored expertise, and community support to teams utilizing IOTA and affiliated technologies. Areas of focus include decentralized finance, gaming, NFTs, supply chain tracking, and more. It offers a collaborative environment for builders, investors, and experts to come together and grow alongside 35+ projects.
IOTA Experience Teams (X-Teams)
The open-source X-Teams initiative involves contributors working on tasks that help evolve IOTA's network and ecosystem. Activities include software testing, documentation, development tooling, and providing input that guides overall development processes. Membership is open through an online application. More details can be found in the #experience Channel in the IOTA Discord and the IOTA Experience Teams Github Repository.
What Are Some Past, Present, and Potential Use Cases for IOTA?
Over the years, IOTA has collaborated with companies and institutions to help build real-world applications with innovative technologies. These include the European Commission, Jaguar Land Rover, Dell, EDAG, EngieLab, Object Management Group, STMicroelectronics, E-Class, Trademark Africa, TMForum, ClimateCheck, Zebra Technologies, BiiLabs, TechMahindra, Filancore, Tanglehub, Sopra Steria, Akkodis, The Linux Foundation, FiWare, and Servrox Solutions.
Current collaborations and projects include:
- The European Blockchain Service Infrastructure (EBSI) pre-procurement process: a tender to design a DLT for Europe on behalf of the European Commission
- The Trade Logistics Information Pipeline (TLIP), which uses IOTA to manage trade information across borders, has been tested among the UK, the Netherlands and the East African Community.
- EnergieKnip uses IOTA to drive energy efficiency in 50,000 homes in the Netherlands.
- DigitalMRV, a measurement, reporting, and verification solution to enable integrated reporting and sustainability markets
- IotaOrigin, a platform for international trade in conflict-free commodities and goods
- Chunk Works, decentralized data storage
- Teleconsys, fully decentralized IoT infrastructure
- Zignar, cyber-physical systems
- Loyal, loyalty bonus program service provider
As an IOTA transaction does not require token holders to pay fees, business models on a sub-cent level become viable. In the future, IOTA will be the enabling infrastructure for a vast number of different scenarios, from decentralized exchanges and smart cities to bridge networks between various cryptocurrency exchanges, as well as digital identities, automation, and data markets.
Where Can I Learn More?
IOTA has developed an active community over time across various online platforms. To engage with the IOTA Foundation and ecosystem projects, start with the official channels. (Please exercise caution and only engage with officially supported channels to avoid scammers). Join the IOTA Community on the IOTA Discord server to connect with the IOTA Foundation members and the vibrant IOTA community. On social media, follow the official IOTA Foundation and Shimmer channels on X (formerly Twitter), LinkedIn, or YouTube.
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