What is IOTA? self-analysis report

IOTA and DAG principle (IOTA[cryptography of IOT], DAG[directed acyclic graph])

Introduction

This paper aims to provide analysis of IOTA, a cryptography of Internet-of-Things (IOT) and explain principle features of “Tangle” and “DAG” for micropayment transactions.

What is IOTA?

The IOTA protocol desire to utilize a new type of distributed ledger system to enable accelerated, secure, feeless system. (P1) will provide an objective overview of “how IOTA works”, (P2) how it differs from blockchain and (P3) about the technology

IOTA protocol

IOTA deliver a scalable, decentralized, trustless, partition tolerant network that allows for feeless micropayment transactions. By doing so, internet-connected devices can make transactions with each other without any kind of human intervention.

Distinction between IOTA and blockchain

Blockchain require two distinct sources (issuers [node] & miners [validate transactions]) to generate and verify transactions on a distributed ledger. IOTA network consists of nodes that do both, as they issue and validate transactions simultaneously.

DAG/TANGLE

A transaction may be added/stored to “Tangle” by referencing and verifying two previous transactions. Primarily, to add transaction to the Tangle, nodes have to approve two previous transactions. This leads to a data structure called “directed acyclic graph (DAG)” IOTA is using DAG as a distributed ledger, as a way to move away from the restrictions of blockchain architectures. (increase in transaction fee due to scaling limitations of having each node process every transaction)

DAG structure operates a flow chart where all points are headed in one direction. You can compare a Directed Acyclic Graph (DAG) to a file directory structure where folders have subfolders that branch into other subfolders and so on. So basically, that no node in the graph can reference back to itself.
To have a transaction approved, one must verify two transactions from another issuer. Also, one needs to attach a tiny amount of POW as computations are needed for security on the network. This completely removes the need for fees to miners and thus allow network’s easy scalability. Therefore, everyone is participating in reaching a consensus and the more people are using IOTA, the faster the network becomes.

Submitting a transaction to the “Tangle” is conducted in the following manner:

1. Signing = a node first signs its transaction with its private key
2. Tip (unapproved transactions) selection = A node randomly chooses two unapproved transactions according to a specific algorithm called MCMC (Markov Chain Monte Carlo), an algorithm used to select “tips” randomly based on the size of their cumulative transaction weights.
3. Validation =
4. Proof-of-Work (PoW) = In order to validate a transaction, a node must solve a cryptography puzzle like
5. Publishing = Once all the steps are completed by the node, the transaction is published to the Tangle.

These distinctions from the drawbacks of traditional blockchain protocols were made on the ledger with the intention to overcome scalability issues, trustless, and hardware requirements of nodes.

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Reference:
2018-07-03. IOTA Report: Overview. https://medium.com/konfid-io-blockchain-reports/iota-report-decoding-the-tangle-part-1-a7705c458583
2018-08-03. Cryptocurrencies Without Blockchain? https://perfectial.com/blog/dag-vs-blockchain/