Cryptocurrency, smart contracts, and blockchain technologies revolutionized the way people see finance. Now, directed acyclic graphs (DAGs) offer a promising new path for distributed ledger technologies. It's unlikely that DAG will replace blockchain anytime soon. Even so, it's an exciting alternative for businesses and other users that need predictable fees and fast transaction speeds.
Understanding the difference between DAG vs blockchain is essential for keeping up with the evolving distributed ledger landscape.
How does blockchain work?
Blockchain is a distributed ledger technology that can record and store data in a publicly-viewable, immutable chain. Among their many functions, traditional blockchain networks enable users to send tokens from one wallet to another. In most cases, each new transaction is validated by global network nodes that record transactions. The nodes confirm the transaction is valid by comparing the information against the transaction history.
Blockchains use two primary consensus algorithms to approve and validate transactions. Some networks use a proof-of-stake (POS) consensus that lets network members lock their funds (which is their stake) to "double-check" the confirmed transaction before adding a new block. Some networks use a proof-of-work (POW) consensus mechanism, resulting in higher fees and energy usage.
The chunks of immutable data stored in the blockchain database are known as blocks. Blocks contain information about numerous existing transactions and can be viewed by anyone at any time. Transactions with higher fees are usually prioritized over those with lower fees if the blockchain uses the POW consensus mechanism.
Blockchain is often used for decentralized finance, but the technology has countless applications. For example, it can be used to track physical goods in each phase of the supply chain. Additionally, blockchains that support smart contracts have numerous medical use cases, such as insurance claim processing and patient data storage.
How are directed acyclic graphs used in a distributed ledger?
Traditional graphs consist of edges, or lines, connecting pairs of vertices with no defined direction. Directed acyclic graphs have vertices (which are the nodes) and edges that never form closed loops. DAGs require topological sorting that ensures nodes are visited only after prior dependencies have occurred. Still, many DAG-based ledgers can develop nodes simultaneously, resulting in fast transaction throughput and predictable fees.
Like blockchain, DAG ledgers can support smart contracts, enhancing their usefulness for many industries. DAGs also have publicly-viewable, immutable transactions and are applicable to numerous industries.
DAG vs blockchain
To accurately compare DAG and blockchain, you must examine each technology's functionality, strengths, and weaknesses. The two methods are similar in many ways, but key differences set them apart.
Reaching consensus
DAG-based ledger nodes reach consensus significantly faster than blockchain networks. For example, Hedera uses a gossip protocol that transmits data at lightning-fast speeds. When a node receives new information, it immediately shares it with another node. The two nodes each choose another node randomly and transmit the newly learned information. The four nodes then choose four new nodes and share the information. This process continues with the number of nodes exponentially growing each time.
On the other hand, blockchains create one new block at a time, regardless of whether they use POW or POS. Still, it's important to note that POS blockchains are typically faster than those using the POW consensus mechanism.
Transaction speed
Blockchain transaction validation requires the creation of a new block, and since they can create only one block at a time, speed is often lacking. DAG-based ledgers' remarkable consensus mechanism results in a faster transaction speed. Since DAGs' nodes are developed simultaneously, transaction speeds are almost always faster than blockchain transactions.
Transaction costs
DAGs are often cheaper to use than blockchains. For example, a Hedera transaction with one signature costs around $0.0001, although these fees are subject to change. The same trade on the Ethereum network could cost around $0.90 on the low end. The low fees associated with DAG-based ledgers make them a more sensible option for large corporations or anyone that does a high volume of transactions.
Degree of decentralization
Blockchains are often easier to decentralize than DAGs. Hedera's hashgraph consensus mechanism relies on a committee of up to 39 nodes. It is run by a Global Governing Council of up to 39 well-known corporations. Compared to Ethereum's roughly 4,500 active nodes, it could be argued that Hedera is less decentralized. Still, according to Coin Telegraph , around half of the active Ethereum nodes rely on Amazon Web Services. Similarly, most new transactions on the Bitcoin network are validated by a few robust mining pools, so it isn't as decentralized as one might think.
Scalability
Because DAGs can process more transactions per second with lower energy and fee requirements, they are often seen as more scalable than blockchain. DAG-based ledgers are specifically more scalable than typical blockchain networks, as they don't rely on mining or a steep increase in the number of active nodes. An increase in daily transactions can have an adverse effect on POW ledgers. Alternatively, DAG ledgers can easily handle increased transaction volume.
Popularity
As it stands, blockchain is still the most commonly used technology for digital ledgers. Hedera, IOTA, Nano, and a few other ledgers are currently the only projects using acyclic graph technology. Still, we may see that change over time. DAGs are seen by many as an ideal replacement for blockchain, thanks to their enhanced data structure, increased throughput, ease of use, speed, and low fee structure.
Energy use
DAG-based ledgers like Hedera use significantly less energy than all POW and many POS blockchains. To put it into perspective, a single Hedera transaction consumes around 0.0001 kWh, which is about 605,000 times less energy per transaction than Ethereum required before switching to POS. Like Algorand, the Hedera Contract Service is carbon negative. On the other hand, popular POW chains like Bitcoin use around 250-950 kWh per transaction. Even POS blockchains like Tezos consume around 0.04145 kwh per transaction.
According to Ethereum co-founder Vitalik Buterin, Ethereum's switch to POS cut global energy usage by around 0.2%. If all blockchain systems were to switch to a DAG protocol, the energy savings would be even more monumental.
A step forward
DAG-based distributed ledgers are a promising step forward for digital currencies. Hedera is one of the leading DAG ledgers and has numerous real-world applications. The gossip protocol is capable of quickly passing information through multiple nodes simultaneously. Plus, users pay fees that are low and predictable. Additionally, Hedera is managed by many of the world's leading corporations, such as Boeing, Dentons, DLA Piper, Google, and IBM.
For those looking to dip their toes into DAG-based ledgers, you'll be happy to know theHedera Smart Contract Service is compatible with Ethereum Virtual Machine and uses Solidity, one of the most popular Web3 programming languages. The Hedera network is already used for medical, transportation, NFT, and numerous other applications.
As a seasoned expert in the field of distributed ledger technologies, I've been closely following the evolution of blockchain, cryptocurrency, smart contracts, and the emerging advancements in the form of directed acyclic graphs (DAGs). My experience extends beyond theoretical knowledge, encompassing practical applications and an in-depth understanding of the underlying technologies.
Blockchain Technology: Blockchain, the pioneer in distributed ledger technology, functions as an immutable, publicly-viewable chain of blocks, each containing information about multiple transactions. It employs consensus algorithms, such as proof-of-stake (POS) and proof-of-work (POW), to validate transactions. Blockchain is widely used for decentralized finance, supply chain tracking, and supports smart contracts, expanding its applicability to various industries.
Smart Contracts: Smart contracts, integral to blockchain technology, are self-executing contracts with the terms directly written into code. They automate and enforce contract execution, facilitating various applications such as insurance claim processing and patient data storage in the medical field.
Cryptocurrency: Cryptocurrency, a digital or virtual form of currency, operates on blockchain networks. It enables secure and transparent peer-to-peer transactions, with tokens often sent from one wallet to another within the blockchain.
Directed Acyclic Graphs (DAGs): Directed acyclic graphs (DAGs) represent a novel approach to distributed ledger technologies. Unlike traditional blockchain structures, DAGs feature vertices (nodes) and edges without closed loops. This unique structure allows for simultaneous development of nodes, leading to faster transaction throughput and predictable fees.
DAG vs Blockchain: Comparing DAG and blockchain reveals distinctive features:
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Consensus Mechanism:
- DAG-based ledgers achieve consensus faster than traditional blockchains. For instance, Hedera employs a gossip protocol for rapid data transmission.
- Blockchain networks, regardless of POS or POW, create one block at a time, impacting transaction speed.
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Transaction Speed:
- DAGs demonstrate faster transaction speeds as nodes are developed simultaneously, contrary to blockchain's sequential block creation.
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Transaction Costs:
- DAGs typically incur lower fees than blockchains. For instance, Hedera transactions may cost significantly less than equivalent transactions on Ethereum.
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Degree of Decentralization:
- Blockchains are often considered easier to decentralize than DAGs. The degree of decentralization varies, with examples like Ethereum having a larger number of active nodes compared to some DAG networks.
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Scalability:
- DAGs are perceived as more scalable due to their ability to handle increased transaction volume without relying on mining or a substantial increase in active nodes.
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Popularity:
- Blockchain remains the dominant technology, with only a few projects, including Hedera, utilizing DAG technology. However, DAGs are increasingly seen as a viable replacement for blockchain.
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Energy Use:
- DAG-based ledgers, like Hedera, consume significantly less energy per transaction compared to POW and many POS blockchains, contributing to a more sustainable approach.
In conclusion, directed acyclic graphs offer a promising step forward in the realm of distributed ledgers, providing advantages in speed, cost efficiency, and sustainability. Platforms like Hedera, with its practical applications and support from major corporations, exemplify the potential of DAGs in reshaping the digital currency landscape.
