Directed Acyclic Graph: What it is and how it works?

Directed Acyclic Graph (DAG) is a popular data structure in blockchain technology, completely different from the way traditional blockchain systems such as Bitcoin or Ethereum work.

Instead of using a chain of blocks, DAG allows transactions to be processed in parallel and with more flexibility. Please continue to follow AZcoin article to learn more about how Directed Acyclic Graph works and applications in the blockchain field.

What is Directed Acyclic Graph?

Directed Acyclic Graph (DAG) is the abbreviation for Directed Acyclic Graph, translated into Vietnamese as Acyclic Directed Graph. DAG is a model or data structure commonly used in the field of cryptocurrency.

This is a form of directed graph, where the vertices (nodes) are connected to each other by directed edges and there is no cycle, meaning there is no path back to itself.

Mechanism of action of directed acyclic Graph

To understand how DAG operates, let's consider an example of a blockchain application using DAG - IOTA. In IOTA, each transaction is confirmed by referencing two previous transactions within the network. This creates a p2p verification tool without blocks. Each transaction becomes a new node in the graph, connected to two previously confirmed nodes. Simultaneously, confirming a transaction implies verifying it and storing its information on the graph.

However, to ensure data integrity, DAG must adhere to certain rules. Firstly, transactions must be confirmed by at least two preceding nodes. Secondly, no two transactions can simultaneously confirm another transaction. Lastly, a transaction can only be confirmed by a single transaction.

With this operating mechanism, DAG enables transactions to be processed in parallel, thereby speeding up processing times and reducing costs.

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Advantages and disadvantages of Directed Acyclic Graph

Here are the advantages and disadvantages of DAG:

Advantages

🍒 Scalability: DAGs are more scalable than traditional blockchains. The reason is because it has no block limit or fixed confirmation time. Thanks to this, DAG can process many transactions simultaneously without experiencing network congestion.

🍒 Efficiency: Using DAG can result in significant energy savings compared to blockchain. Because there is no need for mining, DAG eliminates the problem of costly computational resources.

🍒 Transaction speed: Thanks to parallel processing, DAG can deliver faster transaction speeds than blockchain. Users do not need to wait for long confirmation times for the transaction to be completed.

🍒 Decentralization: DAG is inherently highly decentralized, with no central node controlling the network. This enhances security and censorship resistance.

🍒 Ease of use: Compared to blockchain, DAG is considered to have a simpler structure and is easier to use for developers.

Disadvantages

🐻 Newness: DAG technology is relatively new and has not been widely tested in practice. Therefore, there are still many potential risks and have not been fully tested.

🐻 Risk of attacks: Due to its high decentralization, DAGs may be more vulnerable to attacks than blockchains. It becomes easier to carry out spam or Sybil attacks.

🐻 Potential centralization: Some DAG protocols may have certain centralization elements, affecting the complete decentralization of the network.

🐻 Difficulty in deployment: Deploying applications on the DAG platform can be difficult due to the complexity of the technology and lack of development resources.

Application of DAG in the crypto market

Currently, blockchain systems are still evolving and require innovation to address their limitations. DAG presents itself as a promising solution for this. Here are some applications of DAG in the crypto market:

IOTA

IOTA is a cryptocurrency that utilizes DAG and is designed to support IoT transactions. It can handle thousands of transactions per second and has no transaction fees. IOTA has garnered attention from major companies like Microsoft, Bosch and Volkswagen.

Nano

Nano, formerly known as RaiBlocks, is another cryptocurrency using DAG. It is designed to process approximately 7000 transactions per second with zero transaction fees. Nano is currently integrated into major exchanges such as Binance and KuCoin.

Byteball

Byteball is a DAG-based peer-to-peer payment system. It incorporates smart contracts and token creation features, allowing for fast and easy transactions. Additionally, Byteball transactions are secured by multi-signature cryptography, enhancing system security.

These examples illustrate how DAG enhances transaction speed, reduces costs and supports innovative applications in the cryptocurrency ecosystem, particularly in areas like IoT and decentralized payments.

Difference between DAG and Blockchain

Blockchain and Directed Acyclic Graph (DAG) are two different data structures in blockchain technology:

⚡ Blockchain: Uses a linear chain structure, grouping transactions into blocks and linking them in chronological order. It is used in systems like Bitcoin and Ethereum.

⚡ DAG: Has no concept of blocks or chains; each transaction is a node in a graph and can link to multiple other transactions, allowing for parallel processing and flexibility. Applied in projects like IOTA and Nano.

In summary, DAG typically offers faster transaction processing and lower costs compared to blockchain, but it also faces challenges related to security and network synchronization.

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Conclusion

Above is an overview of Directed Acyclic Graph (DAG) and how it works in blockchain technology. Hopefully this introduction has helped you better understand the differences between DAGs and traditional blockchain systems.