What is a directed acyclic graph (DAG) in cryptocurrency

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What is a DAG

Many are already familiar with blockchain technology, where all information is gradually recorded in the distribution register in a strict chronological order. Recently, the technology of another distribution registry is gaining popularity in the crypto community, which also allows you to create decentralized cryptocurrency networks, but has a completely different asynchronous information recording system – DAG.

DAG is a directed acyclic graph that links information without cycles using topological sorting. Acyclic graph technology is often used when working with various kinds of information, searching for the most optimal route in navigation systems, or when compressing data.

There are no blocks in this technology. Each new transaction is added to a graph consisting of many transactions and is recorded simultaneously, and not sequentially. Moreover, each node is in a specific order, and the design of such a distribution data registry consists of vertices connected by edges and directed from earlier to later.

For the first time, the use of a directed acyclic graph in storing cryptocurrency data was proposed by the NXT developers. In this currency, the blockchain and the oriented graph are combined, as a result of which several blocks can be created on the network simultaneously with different information.

A little later, exclusively on the basis of DAG, new cryptocurrency ecosystems were built. Now the concept of using a graph instead of blocks is considered as one of the promising directions in the development of the cryptocurrency industry.

DAG Technology Features

There are no miners or mastrenodes in the DAG structure. Users themselves serve the network. Before you make a transaction, you must confirm at least one, and most often two previous operations.

The directed graph allowed the creation of cryptocurrencies without blockchain. In such a system, each transaction confirms that a certain sequence of operations in the system is saved without having to hash it in blocks.

In the directed graph technology, any operation just created refers to existing parent transactions, signs their hashes and includes them, forming, according to this principle, a transaction tree consisting of already confirmed and unchanged operations.

Classic blockchain vs. Directed Acyclic Graph (DAG)

It should be noted that both technologies are quite similar and allow you to create decentralized systems with a high degree of security, but on different principles. First of all, a directed graph, just like a classic blockchain, is a distribution register of data, but unlike a blockchain, information in it is not written in a strict direction.

Blockchain is a straightforward distribution journal where all information is hashed and written into blocks in a strict chronological sequence. Each new block includes information about all previous ones and only after confirmation of authenticity by miners is included in the distribution register. In this case, the new block should already include information about the just added. Such an algorithm does not allow creating blocks in parallel, and therefore significantly slows down the verification of transactions.

There are no blocks in the DAG model and transaction verification takes significantly less time. There is no need for miners, since the verification of transactions occurs in the transactions themselves, which means that transactions occur almost instantly. Thanks to this, users can send instant payments with minimal costs, even for small amounts. The absence of miners also makes cryptocurrency based on an acyclic graph even more decentralized.

The lack of blocks solves scalability problems, but a new problem appears in the DAG model – network width. After the transaction is verified, it should be associated with a relatively earlier mark in the registry log, but if new information is associated only with newer ones, then the network may become too extensive. In order to keep the network in the sizes available for verification, transactions are connected with existing, but not the most extreme transactions.

DAG-based cryptocurrencies are distinguished by the reliability of payments, since they are checked several times by different communication nodes. Partial ordering already exists between transactions, which allows you to identify problems of double spending almost instantly.

In the classic blockchain, the UTXO model is used, according to which each coin not spent on a wallet can be used only once. However, when checking transactions, situations sometimes arise that border on double spending. And then miners recognize only that transaction that has a longer chain of confirmations as genuine.

DAG-based cryptocurrencies

Although the technology is relatively new, it is already considered a viable alternative to the blockchain. To date, the directed graph has already been used to build a network of several cryptocurrencies.

IOTA

IOTA is a centralized successful cryptocurrency built without blockchain. IOTA was developed specifically for the IoT industry. In 2015, the developers conducted a successful ICO, in which they managed to attract 1,337 MTC development investments. Now IOTA is one of the top coins, one of the TOP-20 cryptocurrencies by capitalization.

At IOTA, the use of DAG led to the creation of the Tangle magazine, which looks like an acyclic graph in 3D. On the network, each new transaction confirms the two previous ones, randomly selected by the network. The use of a directed graph also allowed the creation of offline networks, which are included in the general after connecting to the Internet.

The main idea of ​​the developers is to create a cryptocurrency network that can process billions of microtransactions that will help pay for any, even minor automated processes.

Byteball

Byteball is a implemented cryptocurrency project based on acyclic graph technology. The main idea of ​​the developers was the desire to create a cryptocurrency ecosystem with smart contracts and the ability to make instant payments and to store financial data.

The project was presented in 2016 and today it has been successfully working and has released its convenient Bytes user wallet. The decentralized Byteball system provides reliable data storage and protection against falsification. You can add to the system any information that has value. For example, documents confirming ownership, bonds, shares and so on.

Cryptocurrency Bytes is not available for mining and is completely confidential. Transactions in it cannot be tracked through the distribution registry. All coins were issued as part of the initial issue. The number of coins in circulation remains constant, since when paying a commission, the coins are returned back to everyday life. An interesting feature of cryptocurrency is the initial placement of funds. The user needs to associate his Bitcoin wallet with the Byteball wallet, after which Bytes will be credited to the account.

Dagcoin (Dagcoin)

Since 2012, you can find references to the Dagcoin cryptocurrency on the Internet, which theoretically should have been implemented through a directed graph. In fact, the coin was never developed. The creators stopped developing the technical part of the coin and emphasized fundraising.

The creator of the coin is Nils Grossberg, who is known as the head of the OneCoin MLM cryptocurrency project. Today, Dagcoin is not traded on any exchange, and paying for the purchase of cryptocurrency, users receive only training materials.

In all it can be concluded that Dagcoin is a fraudulent project. Their page on GitHub is closed for a fraud warning with the note that it is a financial pyramid that is promoted by well-known scammers.

Advantages and disadvantages of DAG

Benefits:

  1. Faster verification of transactions within systems;
  2. Minimized or completely absent commissions;
  3. More scalable systems compared to the classic blockchain;
  4. Allows you to create networks with high performance and low costs;
  5. Double spending is cut off almost immediately;
  6. There is no need for mining;
  7. Transactions are verified by the users themselves.

Disadvantages:

  1. It is necessary to synchronize the blockchain every time a transaction is added;
  2. If there are few participants in the network, then the verification of transactions can be significantly delayed.

 

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