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A directed acyclic graph (DAG) is a data modeling structure, like blockchain, used to connect different pieces of information in the crypto industry. However, unlike blockchains, which store data on blocks, DAG stores information on “vertices and edges.”
Similar to a blockchain, transactions are serially recorded on top of one another and are submitted via nodes.
To get a better understanding of DAG, think of this: while a blockchain system takes the form of a chain, the DAG system takes the form of a tree with interconnected nodes as its branches. The DAG data storage system is currently seen in the cryptocurrency industry as a potential substitute for blockchain in the future because of the efficiency they bring to data storage and online transaction processing.
DAG is also believed to be a potential solution to most of the decentralization challenges plaguing the crypto industry. With DAG, the competition to solve new blocks and add to the chain ends, retiring the Proof-of-Work validation model. With this solution would come faster transaction processing speeds and an overall uplift in transaction efficiency. A crypto network becomes ultra-scalable through improved usability by the DAG solution.
Here’s How DAG Works
As stressed earlier, DAG presents the opportunity for a more efficient data storage method in the crypto industry. Referring to the tree and branches analogy, because each node can access more than one originating root, the DAG system allows for more transactions to be validated simultaneously, as users do not need to wait to finish a transaction before starting another. They can all run simultaneously.
Transactions on DAG are built on top of one another and not lumped into blocks, with each vertex representing a transaction. Also, mining is no longer required to confirm transactions.
The issue of double-spend is counterbalanced with nodes confirming older transactions by tracking the transaction back to the first (parent) DAG transaction.
How can DAG Improve Cryptocurrency Transactions?
The DAG system aims to solve two weaknesses in blockchain technology: decentralization and scalability. As a byproduct, the system aims to improve security and usability as well.
For example, miners on PoW blockchains like Bitcoin or Ethereum can only create one block at a time. This means that a new transaction can only be validated after the previous one is completed. The DAG system stamps out these blocks and adds transactions directly to the blockchain.
Pros of Directed Acyclic Graph
- Works remarkably well with micro-transactions and high volumes of transactions, which are common in the crypto space.
- It eliminates the need to purchase and operate expensive mining equipment as it eliminates the need for miners.
- Transaction fees are slashed significantly due to the efficiency and scalability DAG provides.
- DAG has lower energy requirements making it significantly more eco-friendly than other blockchain systems.
Cons of Directed Acyclic Graph
- DAG is more susceptible to attack due to its low transaction volume.
- The technology is still in its formative stages, meaning it has yet to penetrate key levels in the ecosystem and acquire mass adoption.
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