IOTA (IOTA) a network and cryptocurrency project based on DAG technology and which aims to be the bridge that unites all the IoT devices in the world under a high speed, scalability and security network. 

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DAG / Tangle

Ehe IOTA project together with its cryptocurrency, is one of the projects that seeks to bring DLT technology to a totally new field: the Internet of Things (IoT). To achieve this, IOTA has developed a unique technology that seeks to develop the full DLT potential for these devices that little by little begin to have a greater relevance in our daily lives.

So we have IOTA, it is a DLT protocol that, together with a cryptocurrency, seeks to develop highly scalable solutions that allow IoT devices to be interconnected in a secure and decentralized network. Of course, this vision does not give up other utilities of cryptocurrencies, such as financial transactions, but its focus is more focused on other things.

But what does it mean that IOTA is DLT and not a blockchain such as Bitcoin? What is revolutionary about IOTA? What is your future?

IOTA, the birth of a DLT for the Internet of Thing

The IOTA project begins as an effort to David Sønstebø, Dominik Schiener, Sergey Ivanchegloand Sergei Popov, which sought to solve several of the problems that the blockchain has presented since its inception. The joint work of this team allowed that on April 3, 2016, the first whitepaper of the project was released. In saying whitepaper, was presented to Tangle, the network that would form IOTA along with a series of powerful news.

Initial development was funded by a ICO, and the participants bought the token of IOTA with other cryptocurrencies. In this way, approximately 1300 BTC were raised, which corresponds to approximately $ 500.000 USD at the time, and the total supply of tokens was distributed proportionally among the initial investors.

Since then, IOTA has started a long development journey to try to be what it promised: a highly scalable, secure and IoT-friendly network. In all this, Tangle has a vital position for this development, and for that reason we will explain what this curious construction is and the great technology that hides behind it.

A blockchain for the IoT

The objective of IOTA as we have commented it is; design a high-speed and scalable DLT that allows IoT devices to be interconnected in a P2P network that allows their decentralized interaction. A fact that would allow the construction of a dynamic network of transactions and microtransactions between these devices and the world, almost in real time. In this way, IoT devices will be able to transfer funds, keep records and send messages to each other, without the need for a centralized system.

This scenario in IOTA is completely doable. And all this thanks to the fact that the network does not need miners, because instead, the consensus is built by all the devices working asynchronously and security is guaranteed by a large network. But how shocking can this actually be?

Well, IoT technology has been with us for several years now, and since its appearance it has not stopped growing. Perhaps you have not realized that growth because it is in things that perhaps you do not even imagine fit in that space. For example, your debit card or smartphone with NFC is considered an IoT device. The same thing happens with that refrigerator, oven, coffee maker, television, IP camera or any other “smart” device with an Internet connection. All of them are part of the growing market for IoT devices, which is expected to reach more than 125 billion devices by 2030, and a market value of 1,5 trillion dollars.

Numbers that seem to be a dream, but that will come true with the total incursion of the IoT in industries and businesses (in the so-called Industry 4.0), and in homes, taking spaces in each of the devices that we use in our daily lives .

IoT and its projections worldwide

With this perspective it is understandable, because IOTA is a network with a broad future ahead. His commitment to interconnect the IoT world in a huge decentralized network, will end up generating a unique decentralized system that will certainly have immense value in the not-so-distant future. The best thing is that the IOTA bet is already usable, and they have demonstrated not only its capacity, but the infinite possibilities of it.

But how do you plan to achieve this? What technology does the IOTA project have that would make it possible to build a network so large and powerful as to serve such a high number of devices globally? Well, we will examine that below.

As it does? The technology that makes IOTA work

Surely now you have been surprised with the fact that IOTA is not a blockchain as we are used to seeing in the crypto world. Rather, it is something else entirely, it is a DLT (Distributed Book Technology) that works under a DAG. But what do all these technicalities mean? To find out the answer, let's start deconstructing IOTA and then know how it works.

What is Tangle?

The birth of IOTA gives rise to Tangle, a protocol that moves away from the concept of blockchain to embrace a new and little-known technology, the DAG or Directed Acyclic Graphs. This curious construction allows IOTA to be built on a new network scheme that is radically different from the blockchain.

If you don't know a DAG is a graph (or graph) where we can locate different nodes (known as vertices) that are related to each other by strings. These strings are directed, that is, they have only one specific address. But the most important thing about DAGs is that if you start to travel from point A, you will be able to travel the entire graph until you reach point B, without repeating the same path and, most importantly, without going back to point A.

Simply put, a DAG can be organized in such a way that its operation is equivalent to the blockchain. That is, moving in one direction only and without the ability to go back to make changes or alterations in the data. Surprising isn't it? We can see then that a DAG works like a blockchain, only in a somewhat unique way.

Example of a DAG

But in addition to this, DAGs offer several advantages and Tangle takes advantage of them. For example, in IOTA thanks to Tangle and its construction on a DAG, there are no blocks. So that essential unit of information compaction that we see on the blockchain is completely gone in IOTA.

Without blocks, there is no chain of blocks and this already tells us how completely different IOTA works. The changes do not end there, by discarding the blocks, the miners and their role in the network is unnecessary. So we have Tangle create a structure in which there are no blocks or miners. So you ask, how does the network work? How do you do to process and validate the transactions and that this is safe?

The answer is very simple, Tangle uses the DAG, to turn it into an improved version of the blockchain. This structure (the DAG) allows Tangle to build two new concepts:

  1. The sites which are nothing more than transactions represented in the DAG.
  2. And nodes, which are the issuers and validators of those transactions.

In this way, the sites are part of the graph that forms the Tangle (part of the DAG), which contains one or more transactions that are related to each other. While the nodes, it is the IOTA users who are eligible to issue transactions, and at the same time, validate two previous transactions on the network.

This means that as IOTA users, we have the ability to issue and validate two transactions that we can relate to our own. So that later, another node can validate ours by making the validation chain continue. This asynchronous operation enables fast transaction validation, but best of all, no miners are required. Thus, Tangle and its DAG, allow to build a secure, fast and highly scalable network.

A scalable network with a view to total decentralization

Many blockchain projects have long sought solutions to the problem of scalability. Most of those solutions have led them to create hybrid structures that fuse the best of decentralization and centralization. But this represents another problem, centralized parts mean a level of control that can be risky for the network. For example, if a part of this centralized structure falls, the impact on the network can be strong enough to hinder its normal operation.

Example of projects that have decided to create systems like these are Dash o Crown, Where masternodes they function as a centralized unit capable of validating transactions immediately. Yes, with this you gain in scalability, but you renounce security and decentralization.

At IOTA, the story is not very different at the moment. The network has a figure called Coordinator, which is a centralizing force that enables IOTA to have a high level of scalability, when paired with a DAG. The responsibility of the Coordinator is; monitor that network transactions are performed correctly and that nodes do not cheat. Simply put, he is a vigilante and as such his performances are limited. For example, a Coordinator cannot alter the DAG or a transaction, but instead, indicates to the rest of the network that a certain transaction or action is invalid, and thus, the rest of the network avoids it.

This at the security level is a huge risk. For example, a Coordinator could be hacked so that illegal transactions go unnoticed, and that is a serious problem. The other thing is that the Coordinator also imposes a limit on scalability, since a centralized unit will always have limited computational potential.

Coordicide, transform IOTA into a completely decentralized network

Given the above situation, the IOTA development community seeks to create another milestone: eliminate the Coordinator and be a completely decentralized network, where all its parts are equal. If achieved, it would be the first network to achieve it, a milestone to be respected by the entire crypto community.

To understand this, let's remember that in IOTA what they have actually done is share responsibility for generating and validating transactions between all parts of the network. In this way, all the nodes of the network have the same responsibility in maintaining the operation of the network. This unlike networks like Bitcoin, where there are full nodes, seed nodes, miners, and users with their wallets.

But, the fact of eliminating the figure of the Coordinator, will take IOTA to another important development point. A point where the entire network can serve as a driving force for scaling. At IOTA they have called this; he in Coordici o Coordicide, which is the elimination of any centralized structure that may exist in IOTA.

With this they seek that all IOTA nodes have the ability to ensure at all times that the network works correctly, that nobody performs dishonest actions, and that the computational effort of all adds to the scalability of the network. You can imagine it like this: a single wind turbine may not provide enough electricity to the city where you live, but a million of them will surely cover the demand and give much more. The best thing is that the work of the wind turbines can be self-managed and thus adjust the electricity production to the needs of the city at any time.

This makes one thing clear: IOTA seeks to create a network with the ability to perform tasks in a parallel, asynchronous, decentralized and secure manner. If successful, IOTA will indeed be able to offer unprecedented scalability. However, all this is still just under construction, but you can read the Coordicide whitepaper at this link.

But how scalable is IOTA actually? Well, in 2017, they did a stress test with 250 nodes, and as a result IOTA was able to handle 112 transactions per second. The IOTA network today is much bigger than that, and could handle under certain ideal conditions, up to 7500 transactions per second. If you want to know more, there is an excellent explanation of this case in this link.

The IOTA consensus protocol, the key to its operation

The consensus protocols They are an essential part in the operation of blockchain technology, and the same is repeated in IOTA and its Tangle protocol. The IOTA consensus protocol is completely different from what is seen in Bitcoin or similar blockchains.

As there is no distinction between miners and users, it means that all nodes on the network can participate in the consensus. In other words, an IOTA node has a completely different role than an IOTA node. bitcoin miner. IOTA nodes only perform basic operations that do not require a lot of computational power (eg storing the ledger, validating transactions). But in addition, users can configure a node with minimal cost and actively participate in the consensus of the network, thereby strengthening the security of the network.

Defining a consensus layer, which describes how nodes agree which transactions are trustworthy, is at the core of IOTA. In the current IOTA implementation, nodes trust transactions that are referenced and approved by milestones, issued by the Coordinator. These approved transactions are already part of the DAG and once there they begin their path to irreversibility.

This simple scheme is what generates consensus on the IOTA network. Basically, a transaction in IOTA is approved by having two transactions that approve the veracity of it. But the more transactions are added and they validate transactions related to the first one, the more consensus there will be that the initial transaction is valid.

This string at the end what it represents is a series of vertices in the DAG that pass a certain vertex. A clearer example can be seen in the following image:

DAG in IOTA and the relationship between confirmed transactions

The vertices marked in red (green and orange), have chains of vertices that pass the same with different depths. In the case of the green vertex, we see that there are 7 vertices that approve said transaction. While in orange vertex, we only have two. In short, the green vertex has a much higher consensus than the orange one, and is therefore the vertex with greater confidence in this example.

This simple system running continuously is what builds the consensus at IOTA.

IOTA Features

Now, the project also has a series of unique characteristics, among which we can mention:

  1. In IOTA there are no transaction fees, that means that each transaction is free. But how do they avoid spam? Well, they just let it go, spam in IOTA, unlike in Bitcoin, helps to strengthen the network because it helps to quickly approve valid transactions on the network.
  2. The network has an absence of intermediaries. There is no entity that manages the payments and no miner that confirms the transactions.
  3. It has great scalability. From a theoretical and technical point of view, the scalability of a DAG is much better than that of a blockchain. This is so because in a chain of blocks the blocks act as a bottleneck, causing that, when the blocks are filled, a queue of transactions is formed that will have to pay an increasing commission to the miners to include their transactions in the next block. In IOTA, as there are no blocks, all transactions are incorporated into the network, thus achieving lower latency and better scalability.
  4. Tolerance to partitioning. Unlike systems based on the blockchain, where a fragmentation of the network causes the appearance of another chain incompatible with the original (hard fork); in IOTA the fragmentation of the network is possible, allowing a part of the network to be separated from the main one and later rejoin it.
  5. It offers a good level of decentralization, although at the moment it is clouded by the existence of the Coordinator.
  6. Resistance to quantum attacks. The cryptography used by IOTA includes Winternitz signatures that make the network immune to attacks by quantum computers.
  7. Ternary system. The logic used by IOTA is based on the balanced ternary system {-1, 0, 1}, instead of the binary system {0, 1}. A choice that is justified in that ternary systems can be much more energy efficient, this being a fundamental consideration for IoT devices.

IOTA Foundation, the organization that protects the project

The organization that brings together all people and institutions interested in development is the IOTA Foundation. This is a non-profit organization located in Germany that coordinates and finances the development of the technology and the IOTA ecosystem. The IOTA Foundation was the first German non-profit association to be financed exclusively with cryptocurrencies. In November 2017, the foundation had at its disposal a fund of $ 100 million to carry out this task.

The Foundation collaborates with organizations (governments, companies and NGOs) to accelerate the development and adoption of IOTA as an open source project. In addition, it is, together with the developer community, the main person in charge of the research and development of the protocol.

The most important bodies of the Foundation are:

  1. Board of Directors, which is in charge of the direction of the Foundation and of establishing the priorities in the development of IOTA. It is made up of Ralf Rottmann, David Sønstebø, Dominik Schiener, Serguei Popov and Sergey Ivancehglo.
  2. Supervisory Board, which is made up of industry experts who provide external oversight of the Foundation and advice to the Board of Directors. It is made up of Johann Jungwirth (Chief Digital Officer (CDO) of the Volkswagen group), Richard Soley (CEO of OMG and Executive Director of the Cloud Standards Council and the Industrial Internet Consortium) and Rolf Werner (Director of Fujitsu Central Europe ).

Security issues in IOTA and other criticisms

Despite the enormous advancement and technology that IOTA has achieved, the project has been embroiled in several serious security issues. This has led to a great deal of criticism about the project's ability to provide real security to its users.

They break your hash function

One of the first errors discovered was announced on September 8, 2017, by researchers Ethan Heilman of Boston University and Neha Nerula of MIT's Digital Currency Initiative (DCI). The problem in this case was in the Curl-P-27 hash function from IOTA, more specifically the researchers managed to break the collision resistance of the function. In this way, signature forgeries could be generated in IOTA. In response, IOTA dropped Curl-P-27 in favor of Kerl, a trinary adaptation of SHA-3 on August 7, 2017.

However, the IOTA developers and the IOTA Foundation received an avalanche of criticism due to the derogatory and rude way in which the developers treated reporters and researchers who covered the event in different media. In fact, the Center for Blockchain Technologies at the University College of London (UCL) severed ties with the IOTA Foundation in late April 2018, due to legal threats against the security researchers involved in the report.

On the other hand, former MIT media lab director Joi Ito raised flags over the IOTA management team saying that IOTA's Sergey Ivancheglo gave "Two contradictory explanations" for the security error. While Multicoin Capital co-founder Kyle Samani wrote that IOTA has "One of the worst management teams in crypto".

13th M attacks and recovers

After switching to the Kerl algorithm, another vulnerability called the 13 or M attack was discovered, a bug that put the IOTA tokens of certain users at risk by partially revealing a part of the private key generated for specific addresses. This would have made it easier for malicious attackers to hack the rest of the private keys for those addresses and thus steal the tokens.

The IOTA Foundation patched this vulnerability by requiring that if a hash message to be signed includes a 13, the user must alter the message until there are no 13 in the digest. As an additional remediation step, IOTA developers transferred potentially compromised funds to addresses under their control, providing a process for users to then apply to the IOTA Foundation to claim their funds.

Seed generator scam

A third mistake came to light in January 2018, when more than $ 10 million worth of IOTA tokens were stolen from users using an online seed creator. The seed generator scam was the largest fraud in IOTA history to date, with several hundred people affected.

A year later, in January 2019, UK and German law enforcement agencies arrested a 36-year-old man from Oxford, England. Matthias Krekeler, from the State Criminal Police in Hesse, said that the arrest was only possible thanks to the "sophisticated collaboration of international authorities", and that the investigation had been assisted by "members of the IOTA community".

Trinity wallet attack incident

On November 26, 2019, a hacker discovered a vulnerability in Trinity, a desktop and mobile wallet managed by the IOTA foundation. The attacker compromised more than 50 IOTA seeds, resulting in the theft of approximately $ 2 million worth of IOTA tokens.

The attack vector was opened by integrating a third-party payment service, called MoonPay. The attacker managed to intercept DNS queries with a compromised Cloudflare API key and managed to implement their own malicious version instead of the third-party code. On February 10, 2020, MoonPay noticed the hack, resolved the vulnerability in its API, but did not disclose the hack to the community.

With the attack route gone, the hacker began cleaning funds from the 50 compromised seeds on February 11, 2020. After receiving reports that hackers were stealing funds from users' wallets, the IOTA Foundation closed the coordinator, a node in the IOTA network that places the final seal of approval on any IOTA monetary transaction, on February 12, 2020.

The never-before-seen move was intended to prevent hackers from executing further thefts, but it also had the side effect of effectively shutting down the entire IOTA cryptocurrency. In effect, IOTA stopped working for 11 days in a row, being the only crypto attack that has taken a cryptocurrency offline. Network activity restarted on March 10, 2020.

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