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The major difference that is worth mentioning (apart from the DAG vs. Blockchain) is how IOTA achieves consensus and how transactions are made. As mentioned previously, there are no miners. What this means is that each participant in the network that wants to make a transaction has to actively participate in the consensus of the network by approving 2 past transactions. This attestation on the validity of two past transactions ensures that the whole network achieves consensus on the current state of approved transactions, and it enables a variety of unique features that are only seen in IOTA. IOTA is the missing puzzle piece for the Machine Economy to fully emerge and reach its desired potential. We envision IOTA to be the public, permissionless backbone for the Internet of Things that enables true interoperability between all devices. IOTA has a range of features that are uniquely enabled due to its architecture:

• Scalability: IOTA can achieve high transaction throughput thanks to parallelized validation of transactions with no limit as to the number of transactions that can be confirmed in a certain interval
• No Transaction Fees: IOTA has no transaction fees.
• Decentralization: IOTA has no miners. Every participant in the network that is making a transaction, actively participates in the consensus. As such, IOTA is more decentralized than any Blockchain.
• Quantum-immunity: IOTA utilized a newly designed trinary hash function called Curl, which is quantum immune (Winternitz signatures)

In the following sections, we will take a deep dive into some of the important features and principles behind IOTA.

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The exploration of Blockchain-related use case has been actively pursued by pretty much everyone in this space (corporates, startups, researchers, individuals) over the last 4 years. One of the areas that most excites us and many others is the Internet of Things. Not only has IoT a tremendous potential since it’s going to be everywhere (after all, it’s an ubiquitous computing and sensor platform), but it also has a whole range of problems where distributed ledgers could be the solution.

We’ll write an in-depth blog post on “Why IoT Needs a Ledger”, but the obvious reasons are: M2M Payments, Security of Things (including identity) and automated execution of processes.

The simple reality when it comes to Blockchain + IoT (or Blockchain and anything else), is that we’re simply not there yet. The technological limitations are apparent to everyone (including consultants) at this point. The two major problems that I want to elaborate on in this post are scalability and transaction fees.

In Bitcoin we’re already seeing the consequences of a protocol that is inherently limited, but is (intended to) being used by a wider audience. Over 200.000 transactions were unconfirmed at the time of writing. This is cumbersome for users, and means that the majority of use cases cannot be executed, simply because you will never get your transactions through. If you’re a large corporate, you don’t want to wait, pay a higher fee, or bear with the uncertainty of not getting your transactions through.

Now all of us are obviously excited about permissionless distributed ledgers and their potential especially in the corporate world, which has up until now only adopted private Blockchains for their use cases. The biggest issue next to scalability is transaction fees (they are largely intertwined). Bitcoin’s mean transaction fees have already risen above $1. The question of “Who is going to pay for it?”, arises regularly. Especially when it comes to micropayments and enabling a thriving Machine Economy, this question is no longer just a disadvantage listed on a Powerpoint presentation; but it’s a prohibitive factor that renders many of the use cases useless.

Having uncertainty about how much money you will end up receiving in a monetary transaction means that you have uncertainty if your business model even works (after all, you want to make a profit..). How much money will you end up making from selling one resource (e.g. electricity, bandwidth, computation) from one machine to another, when transactions fees are often unpredictable?

Even though we’re seeing a lot of R&D in this area, the overall conclusion is that Blockchain is not production ready, and most of the use cases that are being discussed right now cannot be executed at scale. Every technology in this space today is a Proof of Concept — even Bitcoin.

All of the founders of IOTA (David Sønstebø, Sergey Ivancheglo, Serguei Popov, Dominik Schiener), have been in the Blockchain space since 2010 to 2011. IOTA itself came out of a stealth hardware startup, which is working on a new trinary microprocessor with working title ‘Jinn’. One of the major differences of our origin stories vs. other projects is that IOTA came out of real necessity. It was not the drive of creating a fancy new DAG technology that initiated the project, but the apparent problem of transactional settlement for the Internet of Things, and the lack of existing solutions out there today.

Because we’ve been in this space for so long and have actually pioneered some of the first “Blockchain 2.0” technologies (such as the first full Proof of Stake Blockchain called Nxt, which had features such as a decentralized asset exchange, name registry and many more), we realized early on that we need to start from scratch to meet the challenging demands of the Internet of Things. With that in mind, the Tangle was born.