Directed Acyclic Graph (DAG) Consensus: What is It, Why Does It Matter, and What Can It Do for Blockchain?

Scalability has become one of the most concerning problems when it comes to the blockchain ecosystem. Legacy networks like Bitcoin and Ethereum have been facing extreme network congestion and low throughput for years now due to this very reason.

Several initiatives are circulating around the cryptoverse, most of which are primarily aimed at enhancing the throughput of existing chains. A more radical approach to remedy the scalability problem has emerged among these solutions. Instead of relying on blockchain’s distributed ledger technology (DLT), several projects are now seeking to implement something called directed acyclic graph (DAG).

Here’s a quick overview of what a DAG actually is, and how it can revolutionize the blockchain ecosystem.

What Is A Directed Acyclic Graph?

To understand the concept of DAG, you need first to understand the workflow of blockchain. In a blockchain network, data is stored in blocks. A new block is created and linked to the previous block for every transaction through a cryptographic link (hash). There’s a waiting period between the transaction and its inclusion in a block. 

As such, depending on the size of all transactions being processed, the entire process may take anywhere from a few seconds to hours. Add to this the inflated network fee, and you’ll realize why scalability is a major problem in face of the mass adoption of blockchain.

A DAG, however, overcomes this problem by using nodes and groups of nodes that work simultaneously instead of storing data in blocks. Simply put, the directed acyclic graph model is quite similar to a file directory where folders can have subfolders that branch into their respective subfolders and so on. In this context, the word ‘acyclic’ means that no node within the graph can reference back to itself.

Every node in the DAG model can consist of multiple layers of transactions. These nodes also eliminate the need for miners. Powered by algorithms, every new transaction registered in a node is first verified with two previous transactions, which is a drastic decrease in unnecessary validation required in existing networks. 

The Advantages Of Directed Acyclic Graph

The DAG consensus model ensures faster throughput and minimum transaction costs, enabling more users to enter the crypto ecosystem compared to the existing consensus models. In legacy blockchain networks, miners can’t create more than one block simultaneously, which means that new transactions can’t be added to the network until the previous transaction is completed. 

On the other hand, the DAG model eliminates the need for creating blocks by adding transactions directly to its network. Since it follows a tree-like structure, the DAG model allows multiple transactions to be validated simultaneously, thus offering faster throughput than blockchains that rely on the PoW (proof-of-work) or PoS (proof-of-stake) consensus models.

Additionally, the DAG model also eliminates the role of miners. In PoW and PoS networks, miners are rewarded for successfully mining a block. Since everyone wants greater rewards, there’s a lot of competition, resulting in conflicting goals and visions between token holders and miners. In a DAG-powered network, the ‘node’ itself is the miner. With miners eliminated from the process, the transaction fees, too, are reduced to zero.

Currently, several companies are working on the DAG consensus. Co-funded by the UK Government, Millicent, a hybrid layer-1 distributed ledger network, is a promising project spearheading this revolution. Using a Directed Acyclic Graph (DAG)-based consensus engine called Soloman, Millicent’s hybrid structure leads the race to become the infrastructure layer for the future of global finance.

The platform’s DAG-based consensus mechanism offers many features, including parallel transaction processing, composability and interoperability, and speeds of up to 10,000 TPS (transactions per second). As a result, Millicent connects legacy banking with blockchain and offers seamless connectivity between individual chains.

DAG represents the next big wave of evolution in the realm of blockchain technology, designed to overcome the drawbacks of legacy consensus mechanisms. So far, just a handful of projects have started using this technology, and they are yet to evolve fully. If platforms like Millicent can deliver what they have promised, we may witness massively scalable blockchain ecosystems that can be used to solve a diverse range of real-world problems.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.