Distributed ledgers: blockchain vs DAG

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Distributed ledger term covers various types of data structure in which database is shared and synchronized peer to peer across the network without central control.

Ordinary people usually use blockchain and distributed ledger interchangeably but it's not correct. Blockchain is just one type of distributed ledger, one in many data structures. The most famous blockchains in the world are Bitcoin and Ethereum which are applied in a wide range of industries including banking and finance, health services, e-commerce, government services, and so on.

However, we are now experiencing drawbacks as the networks become overcrowded. Both Bitcoin and Ethereum users are suffered from high transaction fee and long time of processing due to traffic jam. The fact that these blockchains are exposing several shortcomings have motivated technical community to come up with solutions in order to improve blockchain efficiency; or resort to new structures like DAG.

Directed Acyclic Graph (DAG), also called Tangle, is believed as an alternative distributed ledger for blockchain thanks to its particular advantages. Although DAG has not been able to be adopted widely, researchers have found a huge potential from DAG for future applications.

Basically, the differences between blockchain and DAG is how they organize the data and how they confirm new transactions, also known as consensus algorithms.

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Data structure

As you may know, blockchain is a chain of blocks, starting from the genesis block. New block is formed by verifying and wrapping new transactions with reference from previous block. Once attached to the blockchain, data cannot be modified, unless you “repair" the whole system from the beginning.

In case of DAG, transactions are connected with each other in cluster, like a tangle. Each new transaction has to confirm two other transactions on random basic on condition that you shouldn't verify your own transaction. The transaction will be approved to the network after receiving verification from two other nodes. Literally, new transaction will be created by two “parent" transactions.

Consensus mechanism

In distributed network, decisions are made based on the consensus of all the nodes. The choice of consensus mechanism will directly define the network efficiency which covers speed, confirmation cost, security and scalability.

Bitcoin and Ethereum have miners who are running Proof of Work to verify transactions and create new blocks. This method is proved to be time and energy wasting; therefore, scalability and speed are limited. The new algorithm called Proof of Stake was introduced to improve Ethereum performance; but remaining concerns have delay its application for around 3 years so far.

Following Bitcoin and Ethereum, distributed networks like Ripple, Stellar, or EOS have been developed new algorithms aiming at accelerating processing speed and efficiency. However, it is admitted that these systems still show some hints of centralization; and consequently, expose themselves to potential malicious master nodes. Recently, Houbi were accused of colluding with EOS on “mutual voting" acts on Oct 2nd.

Meanwhile, DAG has no miners to contribute to the network. Instead, all users are “miner" whenever they have new transactions. As mentioned above, users confirm each other transactions so that they get their ones confirmed in return. The more users contribute to the network the higher speed of confirmation and security it becomes. That is how DAG network scale up without any delay or execution fee.

Scalability

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It is the fact that traditional blockchains like Bitcoin or Ethereum get traffic jam when large amount of transactions are sent on small one-direction linear road. Therefore, it takes longer time and higher cost to process.

In contrast, in DAG, data is connected like a bunch of tree and get verified frequently whenever new transactions occur. Literally, you will get your transaction confirmed in a second without fail except for the worse case: you lost your internet connection. DAG scalability is unlimited; the bigger the network grows, the faster it becomes and the more secure it assures.

Transaction fee

In DAG system, the rewards for users who verify and confirm data is to get their transaction executed in a matter of time. Hence no energy is wasted as Proof of Work leading to almost zero service fee. It suitable for both small and large transactions.

WoW! It seems that DAG can be a perfect alternative for blockchain. Unfortunately, DAG is still considered to be not reliable enough solutions for decentralized applications due to several flaws.

To be defined as a valid transaction, you need confirmation from two other nodes; so basically, you just need to take over ⅓ transaction amount then you can control DAG network. That is called 34% attack.

Vitalik Buterin used to praise the idea of DAG: “…they do have some value, particularly in reducing latency, so basically you can design systems where the latency goes down from something like Ethereum’s 14 seconds possibly to 1 second…”

In short, it fair to say that blockchain and DAG have their own benefits and features. We should make use of both blockchain and DAG as well as make them more perfect with other technical solutions.

In practice, there are a small number of projects running DAG infrastructure, namely IOTA, Jura Network, COTI, Nano or QLC chain. Among them, IOTA is the most successful case so far with ranking 12th on coinmarketcap. Although IOTA differentiate itself from traditional blockchains, it is not a pure DAG when Proof of Work concept is still applied. In order to overcome the risks of 34% attack, IOTA proposes an "onboarding mechanism" called "Coordinator" as a solution for these problems.

According to founder of IOTA, "the ‘Coordinator’ or ‘Coo’ for short, is essentially training wheels for the network until the amount of organic activity on the ledger is sufficient to where it can evolve unassisted, at which point the Coo is permanently shut off." (For explanation in details, you can read full article on IOTA medium).

Unlike IOTA, Nano used a modified version of DAG called block lattice in which users have control over their own blockchains. A transaction that makes changes in account balance of sender and receiver will be recorded on their individual blockchain. These information will be synchronized among the whole network.

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Jura Network is also on the DAG shortlist who is building a DAG platform combined with FUSUS structure. FUSUS enables the network to flexibly switch from blockchain structure to tangle structure on rush hour. It means that the network is secured from 34% attack when it operates like a blockchain with small quantity of transactions. More about Jura Network here.

COTI is a decentralized payment platform supporting e-commerce; so DAG structure is a ideal design for online shopping platform like COTI. COTI applies credibility score algorithms to secure their system and database. More about COTI and its live DAG stimulation.

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In conclusion, each type of data structure meets specific demands from high-tech projects and serves various markets. Blockchain has proved its outperformance and practicality by its world wide adoption; however, efficiency and scalability solutions need to be introduced more, not only Lightning Network, Omni Layer or new consensus mechanism. Regarding DAG, there is a long way for it to catch up with blockchain in terms of adoption level.

Written by nami.today

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