IOTA EXPLAINED: UNDERSTANDING THE CORE TECHNOLOGY

IOTA is a next-generation distributed ledger technology designed specifically for the burgeoning Internet of Things (IoT) ecosystem. Unlike traditional blockchains, which use sequential blocks to record transactions, IOTA employs a unique structure called the Tangle—a directed acyclic graph (DAG)—which enables high transaction throughput, zero fees, and scalability without a need for miners.

The core idea of IOTA is to empower machine-to-machine communication and transactions by providing a fast and scalable platform where devices can interact autonomously. This architecture is especially relevant as more smart devices become interconnected across numerous industries including manufacturing, transportation, and healthcare.

Founded in 2015 by David Sønstebø, Sergey Ivancheglo, Dominik Schiener and Sergey Popov, the IOTA Foundation—a non-profit organisation based in Germany—aims to promote and standardise IOTA's adoption and development globally.

Key Features of IOTA

• Feeless Transactions: IOTA enables data or value transfers without transaction fees, making microtransactions sustainable.
• Scalability: Increased network activity leads to better transaction speeds rather than network congestion.
• Quantum Resistance: Implementing future-proof cryptographic algorithms to withstand quantum computing threats.
• Resource Efficiency: Suitable for low-powered devices such as sensors and embedded systems, essential for IoT use cases.

Because the network doesn’t rely on miners or validators in the traditional sense, every participant in the network also contributes to its security and speed by validating two previous transactions before issuing one. This helps eliminate the bottlenecks associated with conventional blockchain protocols.

Overall, IOTA seeks to create a new data and value exchange layer that is particularly adapted to the growing demands of machine-driven ecosystems.

At the heart of IOTA lies the Tangle, a data structure that diverges significantly from conventional blockchains. Rather than organising transactions into sequential blocks, the Tangle is based on a Directed Acyclic Graph (DAG), allowing transactions to be added in parallel—producing both scalability and decentralisation enhancements.

In the Tangle, each new transaction must approve two previous transactions. This requirement serves two functions: it validates prior transactions and secures the network through user participation. The process involves:

• Tip Selection: The new transaction selects two “tips” (unconfirmed transactions) via an algorithm to approve.
• Proof of Work (PoW): A lightweight PoW is performed to validate the selected transactions, ensuring resistance to spam.
• Validation: Once approved, the transaction is broadcast to the network and becomes part of the ledger.

This design is intrinsically different from the mining-dependent consensus systems in mainstream blockchains like Bitcoin or Ethereum. As more transactions are submitted, the overall confirmation rate increases—which theoretically improves scalability. Rather than slowing down during peak times, the Tangle accelerates.

Unlike blockchains, where validators or miners determine the state of the ledger, IOTA's Tangle empowers every user to act as a contributor. This democratised model reduces latency and fosters true decentralisation, as there's no central authority or drawing power within the network ecosystem.

Coordinator and Chrysalis: Although the early Tangle was assisted by a central node called the Coordinator for protection against attacks, the IOTA Foundation has been steadily transitioning towards total decentralisation. With the Chrysalis upgrade (IOTA 1.5), implemented in 2021, significant improvements in usability, performance, and reliability were realised, setting the stage for a fully decentralised system under Coordicide.

The Tangle's unique setup makes it ideal for high-volume use cases involving tiny, frequent data or value exchanges such as those arising in sensor networks, autonomous vehicles, or smart manufacturing units.

Because each device validates past transactions before issuing new ones, the network becomes faster and stronger as it grows—transforming scalability from a hurdle into an advantage.

IOTA’s architecture opens a wide range of applications across multiple sectors. Its feeless transactions and high scalability make it suitable for micro-payments, data integrity, and secure communication in a decentralised Internet of Things. Let’s explore the most prominent use cases:

1. Smart Manufacturing

In industrial environments, machines equipped with sensors can autonomously perform diagnostics, request maintenance, and even order spare parts through machine-to-machine (M2M) payments. IOTA’s protocol facilitates this level of automation and data recording with high precision and integrity.

2. Supply Chain Transparency

IOTA aids in tracking raw materials and products across supply chains, offering end-to-end visibility. Each touchpoint—shipping, transit, storage—can be recorded on the Tangle, establishing traceability and tamper-proof documentation. This is particularly helpful in food safety, pharmaceuticals, and luxury goods sectors.

3. Mobility and Smart Cities

In smart transport systems, IOTA can enable seamless, automated toll and parking payments, vehicle diagnostics, and car-sharing mechanisms. The feeless aspect makes minute-by-minute billing practical and economically viable.

4. Energy Grids and Sustainability

Decentralised energy marketplaces can use IOTA to automate energy trading directly between producers, consumers, and storage solutions. Smart sensors can monitor energy production and consumption, adjusting flows in real-time with full transparency.

5. Identity and Access Control

Using IOTA, individuals and devices can maintain self-sovereign identities. These credentials are usable across networks to authenticate and interact securely without third-party intermediaries. This eliminates fraud and data leakage in connected environments.

6. Data Integrity and Monetisation

Because data transactions can be logged without fees, IOTA enables sensors and devices to monetise their data through marketplaces. Researchers or organisations can subscribe to verified, untampered datasets in real time—maximising value and transparency.

Additionally, strategic partnerships with organisations like Bosch, Volkswagen, and Dell, along with initiatives under the European Union's Horizon 2020 programme, have further solidified IOTA’s real-world impact. As the ecosystem matures and Coordicide removes its central coordinator, IOTA is better positioned to underpin the IoT revolution.

As we look towards a future dominated by connected devices, decentralised services, and smart automation, IOTA’s Tangle offers a forward-thinking, adaptable, and resource-efficient solution for tomorrow’s digital economy.