Directed Acyclic Graph (DAG)

Written by Max Hinchman

Introduction

Directed Acyclic Graph, or DAG, is another distributed ledger technology that records data that differs from a blockchain. In a blockchain distributed ledger, the nodes in the network are responsible for validating transactions and the records of the transactions are held by every node. This structure creates inefficiencies and scaling issues that are not seen in DAG because the network does not have blocks of transactions or miners. The DAG distributed ledger uses new transactions to validate previous transactions. Each transaction in a DAG distributed ledger is linked to at least one other transaction. Each transaction in a DAG is directed towards later transactions and the connected transactions are represented by a mesh like graph.

DAGs are intended to scale as they grow since more transactions that are posted, create more transactions able to validate. They also does not have a network of miners so there is no need to for expensive fees to compensate the mining network. For this reason, many DAGs is targeting the internet of things and other use cases involving micro transactions.

A well known DAG ledger is IOTA (MIOTA) Tangle ledger. The tangle ledger algorithm randomly selects transactions for verification in order to avoid network members from verifying their own transactions. The tangle ledger also requires each new transaction to verify two older transactions.

DAG’s main problem is in low transaction volume situations, it is particularly vulnerable to attacks. DAG projects have developed solutions like witness nodes or pre selected validators but this brings about issues with centralization.

Suggested Reading

What is DAG Distributed Ledger Technology? by Max Thake

Explaining Directed Acylic Graph (DAG), The Real Blockchain 3.0 by Sherman Lee

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