This article, developed by blockchain expert and technical architect Akash Takyar, explores the future of blockchain and explains why Directed Acyclic Graph could be called Blockchain 3.0.
Blockchain is the hottest topic in the tech market nowadays, but have you imagined its future?
Experts categorized Bitcoin as the Blockchain 1.0 due to the increasing popularity. As the technology progressed, Ethereum offered the decentralized platform to applications that execute exactly as programmed and experts began to call it as Blockchain 2.0.
After the two versions of the blockchain, the market is battling to see the future of blockchain development, i.e., Blockchain 3.0, which could be Directed Acyclic Graph (DAG).
But do you know what is DAG? How DAG resolves the scalability and other issues that Blockchain 2.0 cannot solve? Let’s have in-depth knowledge about DAG.
What is DAG (Directed Acyclic Graph)
Directed Acyclic Graph is a data structure which implements the approach of topological ordering. DAG is usually correlated to problems of data processing, finding the best route in navigation, data compression, and scheduling.
Due to the Proof-of-Work consensus algorithm, Bitcoin has not been able to create the blocks simultaneously and hence, considered insufficient. All transactions occurring at the same time are stored in the same block and miners have to compete for the validation of blocks.
It takes around 10 minutes to create a single block. Creation and validation of too many blocks could take a considerable amount of time and lead to storage issues.
Directed Acyclic Graph could be the possible solution as it supports the extension of the storage by X times with X blocks, but the mining time should remain unchanged.
NXT was the first blockchain platform that came up with an idea of converting the chain-like storage into a DAG of blocks.
Before we explain the concepts used in Directed Acyclic Graph Blockchain, let’s understand how is it different from Blockchain.After we get to know what is Directed Acyclic Graph, it is the time to learn why DAG could be the future of blockchain development and what are the concepts used in these types of platforms.
Concepts Used in the DAG-based Platforms
- No Mining
- Swift Transactions
- The Width of the Network
- Supports Small Payments
- The Double-Spending Issue
No Mining: Bitcoin requires miners to validate the transactions while DAG network has no miners. It enables automated validation to make transactions secure and safer and result in faster processing. So, a user can make the instant transactions.
Swift Transactions: since it has no blocks in the network, transactions can directly get in the DAG networks. It is the reason that DAG is quite faster than any other blockchain platform operating on PoS and PoW platforms.
The Width of the Network: in a Directed Acyclic Graph Network, every transaction after getting validated requires to be linked to a new and an existing transaction on the network.
Linking to a previous transaction every time might widen the network, making it difficult to validate the transactions. Therefore, DAG prefers an existing later transaction to link to a new transaction.
The goal of a DAG network is to maintain the width of the network precise to support quick transaction validation.
Supports Small Payments: The idea behind introducing DAG technology is to make a network functional and smooth with minimum transaction fees. It can become possible for users to send micro-payments without paying heavy prices, unlike Ethereum and Bitcoin.
The Double-Spending Issue: Bitcoin uses the Unspent Transaction Output model, under which users can only have one transaction placement. More than one miner can seek the authority of validating the block by performing the hash function.
The validation of a transaction is dependent on the number of transactions supporting it. The transaction rate entering into the network is comparatively lower which can make the transactions safer and quicker.
Latency: Time of confirmation and speed of execution are not dependent on the block-size, but on the bandwidth between communicating nodes. Therefore, there is no restriction on how much the system can scale.
DAG technology has been used by many developers to upgrade the future of blockchain development. Let’s look below at the projects built on DAG which have the potential to overcome the issues of scaling or security.
Technologies Based on DAG
IOTA, the first DAG-based crypto project, aims to eliminate the concept of a miner’s fees. The platforms like Bitcoin and Ethereum require miners to approve the transactions and the fees is essential to incentivize validators for writing the history of records to the blockchain.
But IOTA assigns the duty of mining to every member of the network; every user on the network is also a transaction validator.
A user has to approve the last two transactions to get a transaction verified by IOTA. Since everyone participates to reach a consensus, the network becomes faster and scalable.
Designed initially to serve as a backbone for the Internet of Things, its features can now be utilized for other endless use cases.
Unlike blockchains used in other cryptocurrencies, NANO uses a peculiar architecture, i.e. block-lattice which resembles that of the lightning network.
Instead of keeping the history of the entire blockchain branched in side-chains, NANO is a network topology wherein every account has its own blockchain (account-chain). An account owner can only update the account-chain, enabling quick transactions.
A run-time agreement is replaced with a design-time agreement where everyone has to agree with a signature to ensure that only the owner of the account can update their own chain.
Nano reaches consensus using a balance-weighted vote on conflicting transactions. Consensus voting is triggered only in the case of malicious transactions and when nodes with higher account balances are weighed more fairly.
Byteball is another technology based on DAG which emphasizes on conditional payments and human-understandable contracts which perform actions in a creative way.
Unlike Ethereum smart contracts which are programmer-readable and complex, Byteball contracts are intended for immediate everyday use.
The data saved on Byteball’s DAG enables users to secure the data by attaching it to data units created by other users. The fees to be paid is proportional to the total resources consumed.
The native currency of Byteball is “bytes” and part of the fees is sent to the network overseers, known as witnesses. A witness has to pay an amount of 1 byte to store 1 byte of transaction data.
Based on Directed Acyclic Graph, Hashgraph uses “Gossip about Gossip” and “Virtual Voting” protocols to reach consensus fairly and securely.
Unlike other blockchain technologies, Hashgraph does not implement the proof-of-work algorithm.
The platform is designed to provide three services, i.e., distributed file-storage system, solidity smart contracts supported by EVM, and cryptocurrency for micro-transactions.
A transaction performance testing was conducted on Amazon AWS across five continents and over eight regions. The test resulted in the efficiency of Hashgraph to make more than 50,000 transactions in a second.
No doubt that the blockchain is all set to disrupt almost all sectors and industries, and Directed Acyclic Graphs could be the future of blockchain development because of its ability to solve the scaling issues by building “scalability first” blockchains.
Akash Takyar has built over 100+ digital platforms used by millions of consumers. Akash is a core member and ambassador of Hedera Hashgraph and Hyperledger. He has invented a reverse geocoding algorithm used by Uber and Twitter. Akash is a technical architect and has been a consultant to McKinsey, 3M, Simens and Hershey’s. He holds a masters degree in computer applications.