What does IOTA (Distributed Ledger Technology) mean?
IOTA is a distributed ledger technology (DLT) that supports contactless transactions and micropayments for the Internet of Things (IoT). IOTA, which is run by the IOTA Foundation, is intended to be a cost-effective, low-power alternative to Blockchain for machine economics.
The digital currency that supports IOTA micropayments is spelled Iota.
Techopedia Explains IOTA (Distributed Ledger Technology)
While a Blockchain Ledger connects blocks of transactions in a linear and sequential fashion, the IOTA Ledger uses a graphical database structure. Data and transactions are stored in storage objects called messages, and each message can be linked to multiple parent and child messages. The collection of all messages is called a directed acyclic graph (DAG) and is referred to by practitioners as the tangle.
Instead of paying multiple third parties (cryptominers) to verify transaction blocks like Blockchain does, IOTA requires each new transactional party to verify two previous transactions and send a proof of work (PoW) to a centralized node managed by the IOTA Foundation. The centralized node, called the coordinator, reviews the PoW and decides whether or not the transaction should be added to the database.
The result is that IOTA gives users the benefit of storing transactions on a public network as it replicates data over a distributed architecture, while giving users the benefits of a private network by making the coordinator the gatekeeper.
The role of the coordinator, however, is somewhat controversial as it has the potential to be a single point of failure (SPoF). In response to concerns that IOTA’s security is not as strong as Blockchain’s, IOTA proponents argue that the trade-off of IOTA’s lower processing load makes it a viable way to record the immense volume of autonomous interactions conducted by IoT devices.
The IOTA Foundation is currently researching ways to overcome the limitations of the coordinator, while providing the machine economy with a feelless protocol that facilitates low-processing, low-power, and low-cost exchange of value and information.