Understanding Directed Acyclic Graph (DAG)
A Directed Acyclic Graph (DAG) is a data structure composed of vertices and edges that offers an alternative approach to recording transactions compared to traditional blockchains.
Unlike blockchains, DAGs do not consist of blocks but rather record transactions as vertices stacked on top of one another.
Transactions are submitted to the DAG by nodes, similar to how transactions are added to a blockchain. To submit a transaction, a node must complete a Proof-of-Work task.
How Transactions are Verified and Accepted
In a DAG, each new transaction must reference previous transactions to be accepted onto the network, similar to how blocks in a blockchain reference previous blocks.
When a transaction is referenced by another transaction, it becomes confirmed.
For a transaction to receive confirmation, it must be referenced by subsequent transactions, creating a chain of confirmations.
An algorithm determines the tip on which a new transaction will be built. Tips with more confirmations have a higher likelihood of being selected for the building.
Advantages of DAGs
DAGs offer several perceived advantages.
Transaction speeds are high because processing is not limited by block creation.
Additionally, there are no transaction fees since there are no miners involved.
The absence of mining also contributes to significant environmental benefits.
Limited Decentralization
However, DAGs also have significant drawbacks.
One of the most important is that they are not fully decentralized, unlike traditional blockchains.
Moreover, the use of DAGs in cryptocurrency settings is still in its early stages.
These factors make DAGs primarily suitable for launching a network rather than as a foundation for building a stable and long-lasting network.