In this paper we analyze the mathematical foundations of IOTA, a cryptocurrency for the Internet-of-Things (IoT) industry. The main feature of this novel cryptocurrency is the tangle, a directed acyclic graph (DAG) for storing transactions. The tangle naturally succeeds the blockchain as its next evolutionary step, and offers features that are required to establish a machineto-machine micropayment system. An essential contribution of this paper is a family of Markov Chain Monte Carlo (MCMC) algorithms. These algorithms select attachment sites on the tangle for a transaction that has just arrived.
Introduction and description of the system
The rise and success of Bitcoin during the last six years proved that blockchain technology has real-world value. However, this technology also has a number of drawbacks that prevent it from being used as a generic platform for cryptocurrencies across the globe. One notable drawback is the concept of a transaction fee for transactions of any value. The importance of micropayments will increase in the rapidly developing IoT industry, and paying a fee that is larger than the amount of value being transferred is not logical. Furthermore, it is not easy to get rid of fees in the blockchain infrastructure since they serve as an incentive for the creators of blocks. This leads to another issue with existing cryptocurrency technology, namely the heterogeneous nature of the system. There are two distinct types of participants in the system, those who issue transactions, and those who approve transactions. The design of this system creates unavoidable discrimination of some participants, which in turn creates conflicts that make all elements spend resources on conflict resolution. The aforementioned issues justify a search for solutions essentially different from blockchain technology, the basis for Bitcoin and many other cryptocurrencies.