IOTA (technology)

In 2017, early IOTA token investors donated 5% of the total token supply for continued development and to endow what became later became the IOTA foundation.[1] In 2018, the IOTA Foundation was chartered as a Stiftung in Berlin, with the goal to assist in the research and development, education and standardisation of IOTA technology.[11] The IOTA foundation is a board member of International Association for Trusted Blockchain Applications (INATBA),[12] and founding member of the trusted-IoT alliance[13] and mobility open blockchain initiative (MOBI),[14] to promote blockchain and distributed ledgers in regulatory approaches, the IoT ecosystem and mobility.

Following a dispute between IOTA founders David Sønstebø and Sergey Ivancheglo, Ivancheglo resigned from the board of directors on 23 june 2019.[15][16][17] On 10 december 2020 the IOTA Foundation Board of Directors and Supervisory Board announced that the Foundation officially parted ways with David Sønstebø.[18][19]

On 8 September 2017, researchers Ethan Heilman from Boston University and Neha Nerula et al. from MIT's Digital Currency Initiative (DCI) reported on potential security flaws with IOTA's Curl-P-27 hash function.[20] The IOTA foundation received considerable backlash in their handling of the incident.[21] FT Alphaville reported legal posturing by an IOTA Founder against a security researcher for his involvement in the DCI report, as well as instances of aggressive language levelled against a Forbes contributor and other unnamed journalists covering the DCI report.[22] The Center for Blockchain Technologies at the University College London severed ties with the IOTA Foundation due to legal threats against security researchers involved in the report.[23]

On Januari 2018 more than 10 million USD worth of IOTA tokens were stolen from users that used a malicious online seed-creator, a password that protects their ownership of IOTA tokens.[24] The seed-generator scam was the largest fraud in IOTA history to date, with over 85 victims.[25] In Januari 2019, the UK and German law enforcement agencies arrested a 36-year old man from Oxford, England believed to be behind the theft.[26][27]

On 26 November 2019 a hacker discovered a vulnerability in a third party payment service integrated in the mobile and desktop wallet managed by the IOTA foundation.[28] The attacker compromised over 50 IOTA seeds, resulting in the theft of approximately 2 Million USD worth in IOTA tokens.[28] After receiving reports that hackers were stealing funds from user wallets, the IOTA Foundation shut down the coordinator on 12 February 2020.[29][30] This had the side-effect of effectively shutting down the entire IOTA cryptocurrency.[29] Users at-risk were given seven days to migrate their potentially compromised seed to a new seed, until 7 March 2020. The coordinator was restarted on 10 March 2020.[31]

The IOTA network is currently centralized, a transaction on the network is considered valid if and only if it is referenced by a milestone issued by a node operated by the IOTA foundation called the coordinator.[32] In 2019 the IOTA Foundation announced that it would like to operate the network without a coordinator in the future.[28][33] This is planned in two stages, termed Chrysalis for IOTA 1.5 and Coordicide for IOTA 2.0.[30][34] In Chrysalis the network will leave its controversial design choices such as ternary and Winternitz one-time signatures, to create an enterprise-ready blockchain solution.[30] In parallel Coordicide will be developed, to create a distributed network that no longer relies on the coordinator for consensus.[33] Early testnets of both Chrysalis and Coordicide were deployed late 2020, however the actual timeline remains unclear.[33][30][34] TNW said: "some supporters speculated the Coordicide implementation could drag on for a little while. It seems they were at least partially right."[33]

The Tangle is the moniker used to describe IOTAs directed acyclic graph (DAG) transaction settlement and data integrity layer.[1] It is structured as a string of individual transactions that are interlinked to each other and stored through a network of node participants.[35] The Tangle does not have miners validating transactions, rather, network participants are jointly responsible for transaction validation, and must confirm two transactions already submitted to the network for every one transaction they issue.[36] Transactions can therefore be issued to the network at no cost, facilitating micropayments.[36] To avoid spam, every transaction requires computational resources based on Proof of Work (PoW) algorithms, to find the answer to a simple cryptographic puzzle.[37]

IOTA supports both value and data transfers.[2] A second layer protocol provides encryption and authentication of messages, or data streams, transmitted and stored on the Tangle as zero-value transactions.[37] Each message holds a reference to the address of a follow-up message, connecting the messages in a data stream, and providing forward secrecy.[37] Authorised parties with the correct decryption key can therefore only follow a datastream from their point of entry.[37] When the owner of the data stream wants to revoke access, it can change the decryption key when publishing a new message.[37] This provides the owner granular controls over the way in which data is exchanged to authorised parties.[37]

The IOTA token is a unit of value in the IOTA network.[38] There is a fixed supply of 2,779,530,283,277,761 iota tokens in circulation on the IOTA network. IOTA tokens are stored in IOTA wallets protected by an 81-character seed, similar to a password.[39] To access and spend the tokens, IOTA provides a cryptocurrency wallet.[40] A hardware wallet can be used to keep credentials offline while facilitating transactions.[39]

IOTA requires a majority of honest actors to prevent network attacks.[1] However, as the concept of mining does not exist on the IOTA network, it is unlikely that this requirement will always be met. Therefore, consensus is currently obtained through referencing of transactions issued by a special node operated by the IOTA foundation, called the coordinator.[4] The coordinator issues zero value transactions at given time intervals, called milestones.[4] Any transaction, directly or indirectly, referenced by such a milestone is considered valid by the nodes in the network. The coordinator is an authority operated by the IOTA foundation and as such single point of failure for the IOTA network, which makes the network centralized.[5]

IOTA is traded on digital currency exchanges such as Bitfinex,[41] and listed under the MIOTA ticker symbol for the cryptocurrency. Like other digital currencies, IOTA’s token value has soared and fallen.[42][43][44]

The security of IOTA's consensus mechanism against double-spending attacks is unclear, as long as the network is immature.[35] Essentially, in the IoT, with heterogeneous devices having varying levels of low computational power, sufficiently strong computational resources will render the tangle insecure.[35] This is a problem in traditional proof-of-work blockchains as well, however, they provide a much greater degree of security through higher fault tolerance and transaction fees.[35] At the beginning, when there is a lower number of participants and incoming transactions, a central coordinator is needed to prevent an attack on the IOTA tangle.[35]

Critics have opposed role of the coordinator for being the single source of consensus in the IOTA network. Polychain Capital founder Carlson-Wee, says "IOTA is not decentralized, even though IOTA makes that claim, because it has a central "coordinator node" that the network needs to operate. If a regulator or a hacker shut down the coordinator node, the network would go down."[60] This was demonstrated during the Trinity attack incident, when the IOTA foundation shutdown the coordinator to prevent further thefts.[61][60][62] Following a discovered vulnerability in October 2017, the IOTA foundation transferred potentially compromised funds to addresses under its control, providing a process for users to later apply to the IOTA Foundation in order to reclaim their funds[63] Additionally, IOTA has seen several network outages as a result of bugs in the coordinator as well as DDoS attacks.[64][65] During the seed generator scam, a DDoS network attack was abused leaving initial thefts undetected.[66]

Last year the IOTA Foundation announced that it would like to operate the network without a coordinator in the future, but implementation of this is still in an early development phase.[61][62]

For potential efficiency reasons, IOTA's data structures uses a balanced ternary implementation; instead of bits, it uses trits (−1, 0, 1).[67] Its signature scheme is resistant against quantum computer attacks, due to its use of the Winternitz One Time Signature (WOTS) scheme.[68] Unlike traditional Winternitz, IOTA users sign the hash of a message.[67] With all existing hash designs being binary, a ternary prototype called Curl-P had been developed, instead of the well-studied alternatives that underpin other digital coins.[69] However, efficient cryptanalytic attacks on Curl-P have been devised, implying that it cannot be considered a strong cryptographic hash function.[67][70] Furthermore, due to IOTA’s choice of a one-time signature scheme, spending from an address multiple times drastically reduces the security of the funds at that address, because it exposes portions of the private key associated with the address.[68][71]

After vulnerabilities were detected in Curl-P, the hashing algorithm was changed to Kerl, which is considered safe.[69] A drop-in replacement, called Troika, was later developed but never implemented.[72][70] With Chrysalis and Coordicide, IOTA foundation plans to move to a binary implementation and change the signature scheme to Ed25519 in order to create a more enterprise-ready blockchain solution, although the timing is unclear.[73][74][75]