Cryptocurrencies without blockchain? It might sound impossible, but thanks to the DAG model, cryptocurrencies like IOTA, Nano, and Obyte are all built using DAG technology. The DAG-based framework could even lead the way toward Blockchain 3.0. So let’s take a closer look.
DAG stands for “Directed Acyclic Graph”. The system doesn’t look like a chain but (as the name suggests) more like a graph. It’s possible that the DAG model may substitute blockchains thanks to a more effective structure for storing data and processing transactions online.
So what is this model trying to address? Mostly decentralisation and scale, two of the most talked about pain points of existing blockchain technology.
The DAG model improves security and usability
The DAG model doesn’t follow the blockchain structure. So, instead of storing data in blocks, its framework uses nodes and groups of nodes that can be developed simultaneously.
Miners can’t create more than one block at a time on the original Bitcoin blockchain or Ethereum platform. This means that new transactions can’t be validated until the previous transaction is completed. The DAG model eliminates the blocks, and transactions are added directly to the blockchain.
No blocks means no mining, which means less power is required to support the network.
The DAG model is more efficient at storing data, similar to a tree structure, where more transactions can be validated at the same time. In this model, nodes are connected like the branches of a tree. A node can have more than one parent root, which means that users don’t need to wait for a transaction to be completed to start processing a new one.
According to some developers, the DAG model can improve the usability of a network by making it more scalable. That’s because with more nodes developed at the same time, transactions are processed faster than on blockchains using the PoW or PoS consensus.
With a different method of validating nodes, the consensus algorithms also change. Miners don’t have to compete to add the next block in the chain. This means that the DAG model could solve the decentralisation issue. A network powered by a DAG-based framework could also benefit from better security features.
Cryptocurrencies using the DAG model
DAG implementations are still fairly new. However, the cryptocurrency ecosystem has seen several projects using the framework successfully. Among them, the most famous are IOTA, Nano, and Obyte.
On IOTA, all users become miners since to validate a transaction, they need to verify two transactions themselves. Everybody participates in executing consensus and contributes with a small amount of power to maintain the network. This way, the network obtains a high level of decentralisation while enabling scalability.
IOTA stands for Internet of Things Applications and aims to provide near-instant transactions with zero fees for the users. It’s a cost-effective solution for micro-payments with cryptocurrencies.
Nano is another cryptocurrency and platform that works on the DAG system. It has a network of independent blockchains that are connected through nodes. The technology is called block-lattice and is a mix of the DAG-based framework and the traditional blockchain.
In Nano, every user with an individual wallet gets a blockchain and is the only one who can operate changes on it. For a transaction to be completed, both the sender and the receiver must perform an operation on the blockchain.
As Nano highlights, users particularly like the high transaction speed and zero transaction fees.
Obyte (ByteBall) is another cryptocurrency that doesn’t use the blockchain. Despite having implemented the DAG model, Byteball doesn’t provide zero-fee transactions. That’s because the network uses a validator system to double-check transactions on the blockchain.
This consensus algorithm relies on witnesses – recognised reputable users who have the role of validators. The platform also supports unreachable contracts and untraceable transactions.
The DAG model has the potential to become Blockchain 3.0 after the Bitcoin and Ethereum revolutions. However, the new framework is in its infancy, and there’s still a lot to discover in terms of the potential of this new technology.
The DAG system enables scalability, but it has its downsides for small networks, which are more vulnerable to attacks. Until DAG systems are proven and tested, traditional blockchains will remain more popular, despite their scalability issues.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.