The Difference Between a Blockchain and DAG (Directed Acyclic Graph)
After years of development and overcoming numerous challenges, the tech world has witnessed the emergence of the most revolutionary piece of technology of the decade: Blockchain technology. It's been hailed as a breakthrough in establishing online digital trust and is seen as a potential game-changer for the future of money.
However, just when blockchain seemed unrivaled, a new technology emerged, challenging its supremacy: DAG, or Directed Acyclic Graphs. Often perceived as 'blockchains on steroids,' DAGs offer a different approach to solving similar problems.
In this post, we'll explore the evolution of blockchain technology, delve into the advancements of DAGs, and highlight the key differences between these two groundbreaking technologies.
1. Evolution of blockchain technology
1.1 Bitcoin and the Genesis of Blockchain
Blockchain technology emerged with Bitcoin in January 2009, introduced by an individual or group under the pseudonym Satoshi Nakamoto. The primary goal was to create a decentralized digital currency that didn't rely on a central authority.
Think of Bitcoin as the first successful "digital gold rush." Just like gold, Bitcoin was rare (limited supply) and required "mining" (solving complex mathematical problems). The blockchain was the public ledger or record book, noting down who found which piece of digital gold.
This ledger was special because it wasn't kept by one person or company; instead, everyone in the Bitcoin community had a copy, making it very hard to cheat or steal.
While revolutionary, Bitcoin's blockchain was primarily designed for financial transactions. It didn't offer much flexibility beyond this. The coding language used in Bitcoin is limited for security reasons, which restricts complex financial agreements or applications. Whether this was intentional or simply a lack of knowledge at the time of creation is an ongoing debate.
1.2 Ethereum and Smart Contracts
Developers and innovators saw the potential of blockchain technology beyond just handling digital transactions. They envisioned a platform where more complex applications could be built and run on a blockchain. It’s human nature to always look for more possibilities. This is where Ethereum took the spotlight.
Ethereum evolved from Bitcoin as a response to Bitcoin's limitations.
Ethereum introduced the concept of smart contracts, expanding the use of blockchain beyond just a ledger for transactions. This allowed for more complex agreements and operations to be executed automatically on the blockchain.
This evolution marked a significant shift in blockchain technology, moving from a single-use case (digital currency) to a multi-purpose technology that could potentially transform various sectors beyond finance.
You could compare it to a vending machine. You put in the right amount of money, select your snack, and the machine gives it to you without needing a shopkeeper. This removal of the middle-man (the shopkeeper) is what makes smart contracts a key innovation in the blockchain evolution.
Ethereum, despite being a groundbreaking platform in the blockchain space, does have several limitations:
1 Scalability
Transaction Throughput: Ethereum traditionally has had a lower transaction throughput compared to centralized systems. The network can process only a limited number of transactions per second (TPS), which leads to bottlenecks during high usage periods.
Network Congestion: High demand can congest the network, leading to slower transaction times and higher fees. This has been a significant issue, especially during periods of high demand for Ethereum-based applications.
2 High Gas Fees
Cost of Transactions: Transactions on Ethereum require a fee, known as "gas." Gas fees can become prohibitively high during times of network congestion. This makes it costly for users to perform transactions or interact with decentralized applications (dApps), especially for smaller transactions.
Variable Fees: The gas fees are variable and can fluctuate based on network demand, making it challenging to predict transaction costs.
3. Network Upgrade Challenges
Transition to Ethereum 2.0: Ethereum has been in the process of upgrading to Ethereum 2.0, a new version aimed at addressing scalability and energy efficiency. However, this transition is complex and takes time, posing challenges in coordination and implementation.
4. Energy Consumption (Pre-Ethereum 2.0)
Proof of Work (PoW): Initially, Ethereum used the same consensus mechanism as Bitcoin, known as Proof of Work, which is energy-intensive. This has raised environmental concerns, similar to those associated with Bitcoin mining.
This all changed on December 1, 2020 when the Ethereum 2.0 upgrade introduces what's called the Beacon Chain. The Beacon Chain marks the shift to Proof Of Stake (PoS), enabling users to stake (lock away) their Ethereum and become validators.
5. Smart Contract Vulnerabilities
Security Risks: The flexibility of Ethereum's smart contracts is a double-edged sword. It allows for a wide range of applications but also introduces security risks. Smart contracts are immutable once deployed, and any bugs or vulnerabilities in the code can be exploited, sometimes leading to significant financial losses.
6. Interoperability: connecting different systems together
Integration with Other Blockchains: While Ethereum is a robust platform, it initially had limited interoperability with other blockchain networks. This can be a limitation for applications that require cross-chain interactions.
7. User Experience
Complexity for Users: Interacting with Ethereum-based applications can be complex and daunting for average users. The need for understanding wallet management, gas fees, and smart contract interactions poses a barrier to widespread adoption.
Despite these limitations, Ethereum remains a leading platform for decentralized applications, largely due to its pioneering role in introducing smart contracts and a vibrant developer community. Whether it will remain the a leader for the foreseeable future is questionable as other blockchains emerged, each proposing various solutions to improve scalability, energy efficiency, and transaction speed.
1.3 Scalability and New Blockchains
Think of the early days of the internet when there were only a few websites, and then suddenly, there was an explosion of new sites for everything you could imagine. One of the reasons for this mass adoption was the ease of creating a website. With website builders like Wordpress or Squarespace you no longer needed to know how to code to create your own website.
Similarly, after Bitcoin and Ethereum showed the world what blockchain could do, many new cryptocurrencies popped up, each trying to improve or change the formula in some way, like being faster, more energy-efficient, or offering different features.
One such formula change was the implementation of Directed Acyclic Graph technology, also known as DAG.
2. Evolution of DAG (Directed Acyclic Graph)
The concept of DAGs isn't new and has been a part of computer science for decades. However, its application in distributed ledger technology is more recent.
Think of DAGs like a family tree. In a family tree, you can trace your lineage back through your parents, grandparents, and so on, but you can't go in circles – there's a clear direction from ancestors to descendants. Similarly, in the early theoretical foundations of DAGs, they were used in various fields like data processing and scheduling tasks, where you need to move forward without looping back.
IOTA introduced Tangle in 2015, a DAG-based protocol, to address scalability and transaction fee issues in blockchain. Tangle was designed specifically for the Internet of Things (IoT), focusing on micro-transactions and data integrity.
Following IOTA, other projects like Nano and Hedera Hashgraph adopted DAG, each with unique tweaks and improvements, focusing on various use cases like finance, IoT, and more.
More recently we’ve explored the advancements in DAG technology from Constellation. They wen’t a couple of steps further than anything we’ve seen in the space. Very interesting to read more about DAGs potential and future.
3. The Main Problem Blockchain and DAG Try to Solve
Before we talk about the key differences between these two groundbreaking technologies we have to understand the problem they are trying to solve.
Both blockchain and DAG technologies aim to create decentralized, secure, and tamper-proof systems for recording transactions and data. They seek to eliminate the need for central authorities or intermediaries, thereby reducing potential points of failure and increasing trust and transparency in transactions. The main goal is to create a system of verifiable data. Data we can trust, without having to trust or know the person or system on the other side of that data.
4. DAG vs Blockchain Technology
Understanding the differences between blockchain and DAG (Directed Acyclic Graph) technology is crucial in the rapidly evolving world of distributed ledger technologies. Each has unique characteristics, strengths, and limitations, making them suitable for different applications and use cases.
By highlighting these differences, we can better appreciate how each technology can be optimally utilized and understand the potential future directions of the blockchain and distributed ledger technology landscape. Let's delve into these differences.
4.1 Structural Differences
Blockchain: Imagine a train, where each carriage (block) is linked to the previous one in a single line. Each block contains a set of transactions and is connected in a linear, chronological order. This structure ensures the integrity and chronological order of transactions.
DAG: In contrast, think of DAG like a spider web. Instead of a single chain of blocks, transactions are interwoven like a web, with each new transaction linking to multiple previous transactions. This allows for multiple chains of transactions to coexist and interconnect, which can lead to more efficient processing.
4.2 Scalability and Speed
Blockchain: The train (blockchain) can only move as fast as its slowest carriage. The linear structure means that as more transactions are added, it can become slower and more congested, especially if each block has a size or speed limit.
DAG: The spider web (DAG), on the other hand, can expand in multiple directions simultaneously. This means that as more transactions are added, the network can actually become faster, as there are more paths for validating transactions.
4.3 Consensus Mechanism
Blockchain: Typically uses Proof of Work (PoW) or Proof of Stake (PoS) mechanisms. These can be resource-intensive (like a train requiring a lot of fuel) and sometimes slower, as they require a certain amount of consensus to add a new block to the chain.
DAG: Often employs a different approach, where each new transaction helps to confirm previous ones. This can be less resource-intensive and faster (like quickly adding new strands to a web without needing the whole web's agreement).
4.4 Transaction Fees
Blockchain: Can have higher transaction fees, especially in networks like Bitcoin. This is like paying a ticket price for each carriage added to the train.
DAG: Often has lower or no transaction fees, as the process of adding and validating transactions is more streamlined and less resource-intensive.
5. The conclusion
After reading this the final question is obviously: which is better? Most of the answers on the web will say that the one that is better is dependent on the specific use case. We don’t agree with that but you are free to form your own opinion. We believe that if one can do what the other can do, but the other can’t do what the one does, than the one that can do both is obviously better.
When you purely focus on the problem that needs to be solved by these systems, DAG technology is far better at solving those problems than blockchain technology. As with many other things, the first iteration of a technology almost never remains the best forever.
Times are always changing. Evolve or cease to exist.
