Home Blockchain Breaking the Chain – The Directed Acyclic Graph (“DAG”) Challenges Blockchain Dominance

Breaking the Chain – The Directed Acyclic Graph (“DAG”) Challenges Blockchain Dominance

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Breaking the Chain – The Directed Acyclic Graph (“DAG”) Challenges Blockchain Dominance

The FinTech Industry has undoubtedly seen an incredible rise in recent years. New technologies come with a lot of industry-specific jargon and phrases, which can make certain aspects of the industry difficult to understand. See phrases like “blockchain” and “Distributed Ledger Technology” (DLT) can put you off if you have no idea what they are.

Perhaps one of the biggest mistakes made here is that blockchain and DLT are considered synonymous. But that’s not quite the case; in reality, blockchain is DLT, but not all DLTs are blockchains. Let’s explain this further.

A chip from the old block

Blockchain came to our screens through Bitcoin, an early player in the DLT market. Bitcoin announced the blockchain as the basis of its operation. In his now legendary article, Satoshi Nakamoto explained how Bitcoin would completely change aspects of financial services by using a public distributed digital ledger to record, via a series of blocks, a chain of transactions each confirmed by participants called “miners”.

This was the real beginning of blockchain in 2008. Since then, other notable players such as Ethereum, Monero and many more have also used the blockchain framework to implement their business models. As such, the term “blockchain” has become a household name. Blockchain, however, is just one technology operating within the framework of DLT.

Since it started working, the blockchain model has encountered increasing difficulties. Two of the biggest challenges facing the blockchain are its inability to simultaneously handle a large volume of transactions and its high transaction fees. Opportunities were considered and competition arose. The result? This has led to the rise of another player in this technology. It is known as a directed acyclic graph, or “DAG”.

DAG vs. Blockchain

The DAG is, like the blockchain, made up of a network with a number of different nodes confirming transactions. Each new transaction submitted requires the confirmation of at least two previous transactions before being successfully registered on the network.

As more transactions are submitted, more transactions are confirmed and entered, resulting in a distributed network of double-confirmed transactions.

Unlike the blockchain model, however, DAG does not require miners to authenticate its transactions. By having two “parent transactions” confirm the validity of a subsequent transaction, human intervention becomes unnecessary, which significantly speeds up the process: not requiring confirmation from miners means that transactions are completed almost instantly.

Also, if there are no miners, there are no miner fees, keeping actual transaction fees to a minimum. It should also be noted that this low cost structure opens up another important feature; DAG’s ability to process micro-transactions.

Examples of directed acyclic graphs

IOTA is one of the most prominent examples of Directed Acyclic Graph, incorporating the framework through the use of its own aptly named “Tangle” protocol.

Hashgraph is another contemporary entity that uses DAG. Its protocol, “Gossip”, differs slightly from that of IOTA. The Gossip protocol is just as talkative as its name suggests; each node in the network transfers the information it has to the other nodes in the network. It is from this chain of ongoing confirmations that the distributed ledger is then created.

DAG proves to be a suitable challenger for the blockchain as it ventures to fix identified flaws in the blockchain. Of course, we expect other challengers to follow, and it may still be too early to tell if DAG will prevail, but it’s certainly one to watch. In such a fast-paced and innovative industry, new ideas and new executives will strive to lead the charge. Could DAG rise to the top, or will blockchain continue to lead the way?

Only time will tell.

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