IOTA: Distributed Ledger Technology, Minus the Blockchain

A commendable conundrum: DAGs could be a viable alternative to blockchain’s higher transaction costs and slower speeds, which is a praiseworthy paradox. Some argue, however, that if the blockchain is lost, decentralization will be lost as well.


IOTA is a decentralized ledger technology (DLT) platform that runs on MIOTA, its native cryptocurrency. The primary goal of the IOTA network is to accelerate the Internet of Things (IoT) revolution. Instead of using a blockchain, it bases its DLT-based network on a Directed Acyclic Graph (DAG).

Free transactions, no sophisticated Proof-of-Work (PoW) mining architecture, and greater transaction-per-second (TPS) capabilities are all advantages of employing a DAG structure.

Some blockchain specialists, however, believe that DAGs like IOTA are insufficiently decentralized, inconclusively proven at scale, and lack some of the solid security features that blockchains can provide.


The IOTA Crypto Network’s Inception 

The Internet of Things (IoT) is a phrase used to describe a network of interconnected smart gadgets. In principle, it can create a massive network that connects everything from locks, lights, and home appliances to cars, cities, and energy grids.

In practice, however, this level of connectivity necessitates a network that is less expensive, faster, and more secure than many present systems can provide.

Blockchains, for example, are extremely secure, but transaction fees and the difficulty of obtaining the required predicted transactions per second (TPS) may necessitate a different strategy. One such solution is IOTA’s Directed Acyclic Graph (DAG) structure.

The IOTA cryptocurrency network went operational in 2016 after being conceived in 2015 and funded through an Initial Coin Offering (ICO).

IOTA is the largest DAG by market valuation in the crypto ecosystem as of 2020, having been one of the first crypto projects to use a DAG instead of a blockchain as its distributed ledger. MIOTA, IOTA’s native coin, is consistently rated in the top 50 crypto coins.

MIOTA aids the network’s accounting, fee payment, and smart contract set up systems. IOTA seeks to provide an enterprise-level solution for the Internet of Things (IoT) future that many envision on the horizon, as evidenced by its name — an acronym for Internet of Things Application.

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Pros of the IOTA Crypto Protocol: DAG Speed, Scalability, and More

Instead of connecting blocks of transactions to form a blockchain, IOTA connects transactions individually. IOTA does this by asking the transacting party to approve two prior transactions and complete a tiny Proof-of-Work (PoW) function.

This “do it yourself” technique is arguably faster, simpler, and more direct than Bitcoin’s original blockchain-based PoW structure (where multiple third parties on the network perform much more intensive PoW functions to help verify a transaction).

Newer transactions on the IOTA cryptocurrency platform are linked to earlier transactions in a similar way that fresh blocks are chained to the end of a blockchain.

Their connection architectures, on the other hand, have different sequences. In general, blockchains are linked in a linear fashion, with transaction 1 connecting to transaction 2, transaction 2 connecting to transaction 3, and so on.

A DAG, on the other hand, is structured like a web, with one transaction having several parent transactions and multiple child transactions connected to it.

On the IOTA network, users perform simple, easy-to-solve PoW mining operations on their own transactions and validate other transactions that are linked to theirs.

By adding their transaction hashes in your own transaction, the two-parent transactions are accepted. When opposed to a linear blockchain system, each one transaction in a DAG could be validated by numerous other transactors at any given time, lowering the possible waiting time.

In other words, there isn’t a committed group of miners with a financial motive to safeguard the network; instead, it’s a barter system.

Instead of hiring a babysitter, a group of parents linked up with other parents in the same area to take turns babysitting a bunch of each other’s children.

Parents would be compelled to treat each other’s children as if they were their own, knowing that their own children will soon be in the care of the other parent. This type of model is extremely useful in the digital era when dealing with a large number of little data points.

IoT becomes more feasible and practical because of IOTA’s fee-free data and value transfer. You don’t want to be charged a transaction fee each time your smart coffee maker sends data over the internet.

Because you don’t have to wait for blocks to be confirmed, transactions are instantaneous. Most notably, DAGs may be far better at scaling their output in terms of transactions per second (TPS). You may have heard about Ethereum and Bitcoin’s maximum TPS ceilings, which cause delays and expensive transaction costs.

While Bitcoin and Ethereum are both very secure, they simply cannot process the thousands of TPS that IOTA’s DAG can. Many popular blockchains can’t even handle 50 TPS, much less thousands.

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IOTA’s (DAG) Downsides

IOTA is yet to be battle-tested at scale to see if it can attain the claimed high throughput levels. It’s possible that IOTA and other DAG IoT projects will take longer to mature and prove themselves in the market. More crucially, several experts claim that IOTA currently lacks decentralization, which is a critical element of most blockchains.

Tangle is the name of IOTA’s DAG protocol. Tangle contains nodes that validate transactions, similar to Bitcoin, but unlike Bitcoin, it also has a Coordinator. The Coordinator is a centralized node on the IOTA DAG that approves all transactions.

It’s a single point of failure that’s currently required to protect the IOTA crypto network and prevent MIOTA from being twice spent. Many in the crypto community regard this as a severe flaw. Someone with criminal intent, for example, could hypothetically control the entire network and influence it for harmful ends if they targeted the Coordinator.

While IOTA has a plan in place to do rid of the coordinator, detractors argue that they’ve been working on the matter for years with no progress. In addition, IOTA currently faces competition from alternative DAG ledgers, such as Nano and Hedera Hashgraph, which have different architectural qualities that some like.

IOTA Cryptocurrency Hacks and Downtime

IOTA has not been immune to network attacks, and as a result, has experienced network outages in some circumstances.

A vulnerability was discovered in September 2017 that allows for falsified transaction signatures in some cases. Another problem was identified the following month, exposing a chunk of private key addresses. In December 2019, the network went down for 24 hours, preventing users from processing transactions.

In January 2020, the most damaging IOTA hack occurred. Hackers gained access to the IOTA crypto wallet (known as Trinity) and stole more than two million dollars in MIOTA.

To prevent further losses, IOTA used the aforementioned Coordinator to turn off the network for nearly a month. Trinity wallet users were also asked to use a seed migration tool to relocate their funds prior to the network being restarted.

IOTA feared that if it didn’t take this precaution, the hacker would have more opportunities to exploit the network once it went live again.

Uptime is especially important for an IoT system, whose value is based on its ability to consistently convey on-time data to and from all locations at all times. This necessity for uptime is even more critical for services that intend to function on a global scale at an enterprise level.

In comparison, Google only experiences a few hours of outage each year, not weeks like IOTA did in 2020.

Although one of the creators offered compensation to customers who had lost money, the incident was blamed for a 40% decline in IOTA’s value at the time. Thankfully, the Coordinator-enabled shutdown stopped any further thefts. Critics contend that, at this moment, IOTA is little more than an expensive database thanks to the Coordinator.

IOTA’s ability to function without the Coordinator node and migrate to a network with a more durable decentralized system will be determined over time.

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IOTA Crypto Protocol: A Foundation for the Future IoT?

Despite the risks, many people believe IOTA — or a DAG counterpart — will play an important role in aiding the growing IoT industry. The United States government has also shown interest in utilizing IoT. It has set aside L-band radio airwaves for 5G and the Internet of Things.

Along with a secure network, these frequencies are another infrastructural component that will allow the IoT ecosystem to grow in the coming years.

Is IOTA’s Roadmap Achievable?

IOTA and other distributed ledger DAGs, according to critics, are promising but not yet technologically better to blockchains. While many people think about IOTA and other DAGs in terms of IoT, they may also be used for data storage, communication, microtransactions, smart contracts, and other things.

IOTA is free, fast, and has promising scalability potential, yet some doubt the network’s stability, citing past security flaws; others argue that it must embrace decentralization before being taken seriously.

Proponents, on the other hand, claim that IOTA’s roadmap is one of the most transparent in the cryptocurrency world. IOTA has also improved its development and implemented tighter security mechanisms and testing. Others say IOTA is a big project that aspires to create a permissionless, autonomous, decentralized, and fee-free ledger network to help with IoT adoption across a wide range of businesses.

While other projects have attempted and failed to combine the greatest features of blockchains with DAGs, IOTA or another project might take DAG open-source distributed ledgers to the next level and compete with blockchains for market share in the distributed ledger technology (DLT) arena.

While some people are unconcerned about IOTA, others consider it and other DAGs as a step forward from blockchain-based distributed ledgers.