Directed Acyclic Graph could be considered the future of blockchain technology (blockchain 3.0).
Those of you who have been in the Crypto game probably have a decent understanding of blockchain technology, and it is the first and – at the moment – the most used type of technology in the industry.
However (at the risk of you reading this in the voice of Lawrence Fishburne), what if I told you there is more to crypto technology than The Hallowed Blockchain?
Furthermore, what if I told you that Morpheus never actually said those words in The Matrix? Fascinating huh?
False movie references aside, There are more ways than one to create a secure distributed ledger.
One of the most recent and promising ways of doing this is using a Directed Acyclic Graph or DAG.
Wait… What? Acyclic… What?
What The Heck is a Directed Acyclic Graph?
If you’re not in the know, that’s an entirely natural reaction!
Before we delve into the specifics, I want to give you a basic idea of a typical blockchain.
All a block turns out to be is a “package” or blocks of transactions with a “passkey” in the front and back.
The key in the back matches the key in the front of the block behind it. The key in the front of that block matches the key in the back of the block ahead of it, making a nice, pretty little “chain” of blocks that turns out to be VERY cryptographically secure and complicated to falsify and can be copied and verified by a bunch of different computers in a network all over the world.
That said, the blocks follow in line, one after the other, without anybody cutting into the line like that nasty kid named Johnny Milsap from the 3rd grade who would ALWAYS get in front of you and take the last chocolate milk.
A Directed Acyclic Graph is different. Instead of using the traditional block structure, which typically produces only one block at a time, a Directed Acyclic Graph has transactions verified between nodes, which can proceed forward in the ledger.
Over time, instead of looking like a chain (with branches and such), it resembles more of a “web” or, well… “graph.” In math, a graph is a set of nodes, or “vertices,” with connections between them.
For example, a directed graph that cycles back on itself would look something like this:
This is what’s specifically called a directed cyclic graph. You could imagine three players standing in a triangle and throwing a ball at one another in a particular direction.
Also, you could look at it like three players in a board game where the turns cycle around in one direction, always reaching where it started.
Having tutored math for several years, I know the very mention of the word will likely make many folks’ eyes glaze over.
Bear with me; we are nearly there. I have explained what a directed cyclic graph is, and that seems pretty straightforward, right?
Now consider a directed graph that has no cycles. The graph moves “forward” as more nodes are added, and you could say, go from one previous node to a more recent one with no issues.
However, you cannot “loop” back to a previous node.
An intuitive way to visualize this is a downhill river. The water flows in one direction, and additional smaller streams might come into contact with it down the line and add its downhill flow to this river. As it goes on, the flow gets more extensive and more robust.
Okay, so Now I Know What a Directed Acyclic Graph is. Why The Heck Do I Care?
In traditional blockchains and their associated protocols, transactions are often verified by “looping back” on the previous transactions.
Miners verify the transactions in the Proof of Work (PoW) system like Bitcoin.
This leads to an increase in transaction times as the chain continues, which also increases in size over time.
In a Directed Acyclic Graph, previous transactions are verified by others before it.
DAG protocols only require you to verify two transactions from the nodes around you to save time and prevent a “double spending” problem, where someone could potentially apply the amount of money they have to the ledger twice! That would be not good.
Here’s the mind-blowing part about DAG: since every node is essentially its own “miner,” so to speak, it verifies transactions swiftly and, as a result, completely avoids the traditional fees associated with verification.
This makes a cryptocurrency based on a Directed Acyclic Graph capable of being fee-less!
Imagine sending money anywhere at any time quickly, efficiently, and without having to pay money to do it.
That’s the dream here, and several cryptocurrencies, such as Nano and its “fork” Banano, allow you to send them to others without ever incurring a fee. It’s beautiful!
There’s also the issue of scaling. Remember how I told you that traditional blockchains tend to increase demands in computation power and size?
DAGs significantly reduce that required infrastructure since everyone on the network verifies transactions.
The more nodes you add, the more efficient and powerful the DAG crypto becomes. That’s a HUGE asset to crypto that’s trying to scale.
Here’s an exciting thing about DAG: This is probably the most “decentralized” a network can get in many ways.
Instead of having big ol’ miners with their gigantic infrastructure verifying transactions and solving hashes, you have the whole network doing the job.
It splits the work up remarkably well, where even the “decentralization” of PoW protocols seems centralized in comparison.
You don’t have to worry about the network slowing down because miners are capitulating or super long transaction times. After all, your network produces only one block of transactions every X minutes.
You can have your transaction verified and ready to go in seconds.
As a COMPLETELY NEUTRAL example, take Banano. You can send and receive bananas (in most cases) in less than thirty seconds.
I have done this repeatedly through my own Kalium wallet, and it’s remarkable.
Personal Outlook on The Technology.
While I would never dream of you taking this as financial advice (BECAUSE IT IS NOT. DON’T LISTEN TO ME. WELL, LISTEN to JUST A BIT MORE), I have this intuition that DAG-based cryptocurrencies are going to be the next big thing.
Traditional PoW blockchains were the grandaddies, Proof of Stake was the “2.0” blockchain, and any Cryptocurrency employing a Directed Acyclic Graph as its distributed ledger should have a significant advantage just in the time and resources it saves its users.
I’ve heard it called “Blockchain 3.0,” and it is for a good reason.
The scalability alone will make this the next-generation tech in the crypto space, and it’s wild to think that it only popped up about five years ago.
For more information on the specific implementations, I highly recommend you look into IOTA, Byteball, and Nano (and Banano. They’re the DogeCoin of DAG, and their community will keep you in stitches).
Thank you for reading. Until next time, keep your eyes on the market and stay safe.