Blockchains vs. DAGs
Did you know that Ethereum is a "Blockchain", while some cryptocurrencies like Fantom, Hedera, or AlephZero are what is called "DAGs" or "Directed Acyclic Graphs"? π€
If you're an investor in $FTM, $HBAR, $AZERO, or $IOTA
THIS THREAD IS FOR YOU π§΅
This is an extremely technical topic, but we will break it down for you!
The basic function of cryptocurrencies is to store transactions on a decentralized database.
We call such a database a distributed ledger technology or DLTs.
There are different types of DLTs
Traditionally, cryptocurrencies run on a DLT called a Blockchain.
i.e., blockchain is a distributed ledger technology or DLT.
Here, transactions are stored in a linear chain of blocks
These blocks are both unalterable (A.K.A immutable) and in chronological order
Each block contains a set number of transactions, and each block is cryptographically linked to the previous block(s) using a unique code known as a hash to prevent tampering.
Hope I didn't lose you there! π
In summary, "Blockchain" is a type DLT or Distributed Ledger Technology which are used as a decentralized database to store crypto transactions.
Though Blockchains are extremely secure and a proven DLT, it suffers from an array of problems π
Since blockchains have a linear "one after another" structure, as we mentioned, it is exposed to what is known as "Blockchain Trilemma."
"Blockchain Trilemma" refers to the inability or difficulty in building a blockchain that is simultaneously:
1) Decentralised
2) Scalable
3) Secure
without compromising on any individual factor
e.g., ETH is highly Decentralized and Secure but can only process ~30 transactions per second (TPS)
- meaning it is not scalable and transaction fees are high as users must effectively 'compete' for space in each block
This is where a new DLT called Directed Acyclic Graph, or DAG, comes to play!
It aims to solve the "Blockchain Trilemma"
Remember this image?
This is a Blockchain where blocks are linear in a "one after another" fashion.
Each block contains a set no. of transactions
Now this is a Directed Acyclic Graph or DAG.
Projects such as $IOTA, $FTM, $HBAR, and $AZERO have decided to ditch blockchain technology altogether and use different variations of DAGs.
In DAGs there are no blocks.
The circles you see (graph vertex) are individual transactions directly linked.
Let me explain with an example π
4 people (A,B,C,D) are in a room. 'A' needs to send a message to 'D'.
In a blockchain, the message is passed along a chain, i.e., AβBβCβD.
In a DAG, it is shortened to AβD, speeding up the process for the 2 main participants- and D will inform B and C of the message later.
So, DAGs are NOT linear and are directed because it follows a topological order, i.e., the sequence can only move from earlier to later
In a DAG, all users are both issuers (i.e., they make/send transactions) AND validators.
This is in contrast to Proof-of-stake Blockchains like Cosmos $ATOM which has separate "Validators" in the network to verify the transactions.
Btw, here's a super simple thread we wrote on Cosmos!
Do give it a read if you've invested in $ATOM or any other Cosmos chains like $LUNA, $KUJI, $AKT and much more!
twitter.com/sahicoin/status/1555124830034223106?s=20&t=2wQtz1d8tGpeqDxJvTm9DQ
Coming back...
NOTE: No network user can validate their own transaction
While users both transact and validate transactions, they cannot validate their own transactions.
That's the acyclic part of DAG - there is never a circular arrow back to the same node (vertex)
Because of this structure, DAGs are extremely scalable (10,000+ Transactions per second or TPS, theoretically 1M+ TPS), lightweight, and have zero or negligible transaction fees.
Now the important part π
The extent to which a DAG is "Decentralized" and "Secure" depends heavily on the no. of transactions currently happening.
A REDUCTION in the volume of transactions leaves DAGs VULNERABLE to attack.
More the merrier!
To mitigate this risk, DAG projects include centralized features (e.g., central coordinators or pre-selected validators).
Therefore, DAGs have not solved the trilemma either - at least not yet.
It's also important to remember that DAGs are new, unproven technology.
The future remains unclear
The 'perfect' DLT is yet to emerge (if it ever does)
Blockchains and DAGs will likely co-exist, serving distinct purposes - or a totally new DLT may arise.
In any case, these are exciting times, and we're early to see the technology evolve!