What is Directed Acyclic Graph (DAG) in crypto?
DAG - Directed Acyclic Graphs - are a data structuring method. In crypto this means transactions are recorded on top of one another, as opposed to in a chain like with typical blockchains.
DAG and blockchain are both types of Distributed Ledger Technology (DLT), which underpins most digital assets.
The DAG approach to data is similar to a blockchain in that Directed Acyclic Graphs are composed of a network with numerous different nodes confirming transactions. Each new transaction that's submitted requires the confirmation of at least two earlier transactions before it is successfully recorded onto the network.
As more transactions are submitted, more transactions are confirmed and entered, resulting in a distributed web of doubly-confirmed transactions. This is great for both throughput and security.
However, Directed Acyclic Graphs are different to blockchains in a couple of important ways.
Directed Acyclic Graphs vs Blockchains
Thanks to the two parent transactions that confirm the validity of a transaction, DAGs do not require miners to authenticate transactions. By removing this element of human intervention, the process is accelerated considerably.
With no need to have minors validating transactions and blocks of data, the transaction throughput is close to instant.
In addition, because there are no miners, there are also no mining fees. This helps keep actual transaction fees and gas fees to an absolute minimum. And with this low-fee structure it opens up DAG to another important feature.
The structure of Directed Acyclic Graphs makes it the perfect way to process micro transactions - something which has thwarted many layer 1 blockchains and impeded cryptocurrency's wider adoption since Bitcoin's inception in 2008.
Directed Acyclic Graphs in data structure
It's useful to consider Directed Acyclic Graphs outside of crypto to fully grasp how they work and their potential both within and outside of digital currencies.
Think of a DAG like a representation of a series of activities. The order of the activities is depicted by a graph. You can see from the image above that this graph is visually presented as a series of circles - each circle represents an activity.
These activity circles are connected by lines, which represent the flow of activity moving from one activity to another.
Each activity circle is known as a 'vertex'
Each line is called an 'edge'.
'Directed' means that each edge has a defined direction, so each edge necessarily represents a single directional flow from one vertex to another.
'Acyclic' means that there are no loops or 'cycles', in the graph. So for any given vertex, if you follow an edge that connects that vertex to another, there is no path in the graph to get back to the initial vertex.
Both these forms of Distributed Ledger Technology have pros and cons. Blockchain has dominated the crypto space for the last decade and a half, but DAG is proving to be a worthy challenger to blockchain's title, because it presents potential solutions to the flaws inherent in using blockchain technology for cryptocurrency and as the basis of a universal payment system.
~ Zac Colbert, The Crypto Journo
📌 Follow, like and share for more alpha content, crypto breakdowns and blockchain explainers!