IOTA is a distributed ledger technology – DLT. DLTs let us control our private data, trade, and own assets without intermediaries and run programs nobody can meddle with.
The distributed ledger technology maintains a ledger — a tally of token ownership — between multiple nodes. That would be trivial if the same entity controlled all nodes, but in DLTs, the ledger state has to be agreed on by a collective of independent nodes. There is always a possibility that a malicious node will join the network, so any DLT needs a way to protect itself. The way that IOTA takes it makes it differ from other protocols.
IOTA runs on a Tangle, a structure where newer transactions verify older ones, and almost every other DLT runs on a blockchain instead. The blockchain must collect transactions in blocks and chain them one after another to secure its state and history. That leads to a natural bottleneck, and IOTA bypasses it altogether.
The IOTA protocol is still in research. It has two public networks: the IOTA mainnet is the stable network that manages your IOTA tokens, and Shimmer is the staging network for the latest and greatest protocol updates. When the changes are proven on Shimmer, they come to the mainnet. The next big update is Stardust. The future update that concludes the decentralization effort is called Coordicide.
The Tangle is built to hold all necessary information to keep track of token ownership. It is a directed acyclic graph (DAG) of messages, where each newer message is attached to two to eight older ones. The protocol can process these various attachments in parallel.
IOTA nodes reach a consensus on the ledger state by validating massages. Anyone can send a message for free. Currently, messages will only be considered valid if they reference a milestone. Milestones are issued by a unique network node that is called Coordinator. The Tangle and blockchains serve the same function of maintaining their ledger states, but the Tangle’s different implementation leads to unique benefits.
In a blockchain, new transactions can only be attached to a single point, a new block. This block is directly linked to the previous block so that the network can work only on one block simultaneously. You need to wait until a new block with your transaction is formed, and if there are too many transactions, some of them will be postponed until the next block or later. It is called the blockchain bottleneck effect.
IOTA offers the ability to transfer Data for free. The Data transfer is fast, immutable, unforgeable, and secure and is one of the core features of IOTA. This capability opens up many use cases that most other cryptocurrencies cannot serve in what IOTA does.
Clients, whether wallets or applications, send and receive messages (data objects) through nodes in IOTA. Nodes are the entry and exit points for these messages, and those nodes communicate with each other and the connected clients.
There are several types of messages implemented in IOTA. Some messages transfer value (the IOTA token or digital assets), while others share only pure data, and some message types can even contain both value and data. This flexible message structure enables the decentralized transport of data and value in a single message with the highest security grade and the total absence of fees. The network nodes ensure the secure distribution of all those messages in the Tangle.