IOTA Cryptocurrency: Tangle, Rebased, and IoT Payments

IOTA cryptocurrency uses the Tangle, a directed acyclic graph (DAG), to process 50,000+ transactions per second with minimal fees. The May 2025 Rebased upgrade added MoveVM smart contracts, Mysticeti consensus, and removed the centralized Coordinator node.

Introduction

IOTA is a distributed ledger technology (DLT) designed for Internet of Things (IoT) and Web3 applications. It uses the Tangle, a directed acyclic graph (DAG), not a traditional blockchain. The IOTA Foundation, a non-profit organization based in Germany, manages protocol development and enterprise partnerships.

The Tangle has a multi-dimensional structure, not a linear chain of blocks. In blockchain, miners validate transactions and group them into sequential blocks; in the Tangle, each transaction validates two previous transactions. This structure removes separate miners and supports feeless microtransactions between IoT devices.

The May 5, 2025 IOTA Rebased mainnet launch introduced full decentralization with 50,000+ transactions per second (TPS) capacity. Rebased removed the centralized Coordinator node, integrated MoveVM for Layer 1 smart contracts, and added Mysticeti delegated proof-of-stake (dPoS) consensus with up to 150 permissionless validators. Transaction finality now occurs in under one second and supports IoT and Web3 use cases.

What is IOTA and how does the Tangle work?

IOTA is an open-source distributed ledger technology (DLT) built on a directed acyclic graph (DAG) called the Tangle. IOTA targets Internet of Things (IoT) ecosystems and Web3 applications. The IOTA Foundation, a non-profit organization based in Germany, manages protocol development and enterprise cooperation. The Berlin Foundation Supervisory Authority recognized the foundation in November 2017 as Germany's first cryptocurrency foundation.

The Tangle is a directed graph where each transaction node connects to two previous transactions through edges. Blockchain creates a sequential chain of blocks, but the Tangle connects transactions in a mesh. In blockchain, miners validate transactions and write them into blocks; in the Tangle, each user validates earlier transactions while submitting a new transaction. The design removes separate validator classes and removes classic miner fees.

Each IOTA transaction approves two previous unconfirmed transactions through a small proof-of-work (PoW) calculation. This proof-of-work is lightweight and targets spam control, not global security as in Bitcoin mining. As transaction count increases, the number of approvals for earlier transactions grows, and the network reaches confirmation faster. The Tangle supports parallel transaction processing, not sequential block creation, and fits high-volume, low-value microtransactions between IoT devices.

The IOTA Foundation maintains node software, technical documentation, and reference implementations. The foundation cooperates with enterprises such as Bosch, Volkswagen, Jaguar Land Rover, and institutions within the European Union. The foundation distributes the software as open source, so developers integrate IOTA components without license fees.

Source: IOTA Foundation, Investopedia, OKX Web3

What changed with the IOTA Rebased upgrade?

On May 5, 2025, IOTA launched the Rebased mainnet after a Genesis Ceremony. IOTA Rebased replaced the legacy unspent transaction output (UTXO) ledger with an object-based ledger powered by the Move Virtual Machine (MoveVM). The upgrade removed the centralized Coordinator node, which had acted as a single point of failure, and introduced a decentralized validator set with up to 150 nodes.

The Rebased protocol uses the Mysticeti consensus mechanism, derived from research around the Sui network. Mysticeti processes more than 50,000 transactions per second (TPS) and confirms transactions in under 500 milliseconds. MoveVM support makes IOTA one of the few Layer 1 (L1) networks with Move-based smart contracts. IOTA also exposes Ethereum Virtual Machine (EVM) support through an integrated Layer 2 chain.

The upgrade added delegated proof-of-stake (dPoS) as the consensus and security model. IOTA token holders stake tokens to become validators or delegate stake to existing validators and receive rewards. Each validator candidate must gather at least 2 million IOTA in stake before joining the active validator set. The new model links token ownership, validator rewards, and network security.

Source: IOTA Foundation Rebased documentation, Binance Square, IOTA technical papers

How do IOTA tokenomics and fees work?

MIOTA, often written as IOTA token, is the native cryptocurrency of the IOTA network. The Stardust protocol upgrade in October 2023 increased total token supply from about 2.78 billion to 4.6 billion IOTA. The network allocated the additional 1.82 billion IOTA to existing holders through vesting schedules. The smallest unit of account is a "micro," with six decimal places.

After the May 2025 Rebased upgrade, IOTA switched to a dynamic issuance model without a fixed maximum supply. The protocol mints 767,000 new IOTA per epoch, and each epoch is roughly 24 hours. The new tokens fund validator and delegator staking rewards and correspond to an initial annual inflation rate of about 6%. Stakers who operate validators or delegate to validators receive about 10–15% APY in IOTA.

Rebased introduced minimal transaction fees that average about 0.005 IOTA per transaction. The protocol burns these fees after execution. This design adds deflationary pressure that offsets the inflation from new token issuance. The combination of minting and burning aims to keep long-term supply growth under control while paying validators.

Data current as of December 2025

What products and features does IOTA offer?

IOTA Identity is an open-source framework for secure digital signatures and credentials for people, organizations, and devices. It works as a digital passport for online entities and supports certification and verification flows. IOTA Identity follows a self-sovereign identity (SSI) model where a user or device owner controls credentials, rather than a central authority. In October 2025, IOTA Identity added hybrid post-quantum cryptography based on Module-Lattice-Based Digital Signature Algorithm (ML-DSA).

The IOTA Smart Contracts Protocol lets developers deploy decentralized applications (dApps) with on-chain logic. After Rebased, IOTA uses two smart contract environments. MoveVM runs on Layer 1 and uses the Move programming language with parallelizable execution. An EVM-compatible Layer 2 network supports Solidity-based smart contracts and familiar Ethereum tooling. IOTA is one of the early networks with both MoveVM on L1 and EVM on L2.

The IOTA Digital Assets framework handles tokenization on Layer 1. Developers issue custom tokens that share the same security and throughput as the IOTA token. The IOTA Trust Framework contains modules for identity, hierarchy, notarization, gas station, and tokenization. These modules support applications such as product tracking, real-world asset (RWA) tokenization, and cross-sector data verification.

Firefly Wallet is the official IOTA wallet for desktop and mobile. Firefly supports token storage, staking, and participation in the IOTA ecosystem. The IOTA Gas Station system, launched in June 2025, lets application operators fund transaction fees for their users. Operators configure gas station rules that define which transactions receive fee sponsorship. This setup removes the need for new users to acquire IOTA before sending their first transactions.

How is IOTA used in real-world projects and partnerships?

IOTA targets Internet of Things (IoT) environments with many low-power devices that send frequent payments or data updates. In machine-to-machine (M2M) payments, devices such as cars pay for energy, tolls, or parking through the Tangle. ElaadNL, a Dutch grid operator, ran smart electric vehicle charging stations connected to IOTA using ISO 15118 communication standards. The fee model makes high-frequency, low-value payments economically viable.

IOTA also appears in supply chain tracking systems. Companies record product events, such as origin, shipping, and storage, as immutable entries on the Tangle. In energy markets, IOTA supports peer-to-peer electricity trades between producers and consumers. Energinet, the Danish transmission system operator, tested IOTA-based exchanges for heat pump and electric vehicle loads during periods with high renewable output. In smart city pilots, city operators attach sensors and identity systems to IOTA-based backends. Taipei worked with the IOTA Foundation to test Tangle-based authentication in municipal services.

Several projects use IOTA in trade and logistics. The Trade Logistics Information Pipeline (TLIP) records trade events for shipments such as flower exports from Nairobi to the Netherlands. TLIP writes each step, from customs clearance to air cargo handling, as Tangle transactions. Kenyan government agencies such as Kenya Revenue Authority, KenTrade, and Kenya Agriculture and Food Authority connect their internal systems to TLIP for document issuance and tracking.

Bosch has tested IOTA for data marketplaces and sensor data collection, including with the Bosch XDK sensor kit. Volkswagen has piloted IOTA for tamper-resistant vehicle data and software update records. The European Commission has included IOTA in European Blockchain Service Infrastructure (EBSI) procurement steps and research projects.

How does IOTA compare to traditional blockchains?

IOTA uses a fee model that targets about 0.005 IOTA per transaction, with all fees burned. Traditional blockchains such as Bitcoin and Ethereum collect variable transaction fees in their native tokens and pay them to miners or validators, based on network demand. In IOTA, the fee level supports large numbers of microtransactions where individual payments carry very low value. IoT device fleets can send thousands of daily payments without large fee overhead.

The Tangle uses parallel transaction processing, while most blockchains use sequential block creation. On the Tangle, each new transaction validates two earlier transactions. Higher transaction volume leads to faster confirmation of earlier transactions. After Rebased, IOTA reports throughput above 50,000 TPS with sub-second finality under benchmark conditions. Bitcoin processes about seven TPS, and Ethereum mainnet handles around 25–30 TPS without rollups.

IOTA does not use proof-of-work mining for security. Bitcoin and some other networks rely on energy-intensive proof-of-work (PoW), which consumes large amounts of electrical power. IOTA nodes perform minimal proof-of-work for spam prevention, so node energy use stays low. Validators stake IOTA instead of running mining hardware. This model reduces the energy footprint and fits devices such as sensors and embedded controllers that have limited power budgets.

What challenges and limitations does IOTA face?

Earlier IOTA versions relied on a central Coordinator node to issue milestones that confirmed transactions. Critics viewed the Coordinator as a central point of control and failure. Rebased removed the Coordinator and introduced Mysticeti delegated proof of stake with up to 150 validators. The network now depends on distributed stake and validator behavior, not on a single coordinating entity. The move from fully feeless transactions to minimal fees changed the original design assumptions.

IOTA competes with established networks such as Ethereum and Solana for smart contract developers and liquidity. Developers who already build on other networks may not migrate unless IOTA tools and liquidity reach comparable levels. Directed acyclic graph (DAG) networks such as IOTA also face network latency constraints. Nodes send and receive data across wide-area networks, so transaction propagation speed limits tip selection and confirmation speed. The IOTA team and external researchers continue to adjust tip selection algorithms and node implementations to improve performance.

Regulatory treatment of digital assets and identity systems differs between jurisdictions. IOTA-based identity, tokenization, and data-sharing projects must align with national data protection, financial, and trade rules. Uncertainty around future rules for staking, token classification, and identity registries affects enterprise planning. The foundation monitors regulatory updates in major regions such as the European Union and the United States and adapts tooling and documentation.

Frequently asked questions (FAQ)