DAG (Directed Acyclic Graph): The Technology That Challenges Blockchain Scalability

Since the emergence of blockchain technology, it has become evident that it would revolutionize the financial sector. However, development did not stop there. In the crypto ecosystem, experts and developers have identified other equally promising technological solutions. One of them is DAG or Directed Acyclic Graph, which many see as a competitive alternative to traditional blockchain. Contrary to what some believe, DAG does not aim to completely replace blockchain technology but to offer a different approach to solving scalability and energy efficiency issues. This guide delves into what DAG is, how it works, and how it compares to conventional blockchain solutions.

Understanding DAG: Structure and Fundamental Components

The Directed Acyclic Graph is a data structure used by certain cryptocurrencies as an alternative to blockchain. The word “directed” refers to elements flowing in a single direction, while “acyclic” means there are no loops or closed cycles. Unlike traditional blockchain, which organizes transactions into blocks, DAG structures them as interconnected nodes.

This structure is based on circles (vertices) representing transactions or activities in the network, and lines (edges) indicating the order of validation. The key advantage is that transactions do not need to wait to be grouped into blocks but are chained together continuously. This fundamental feature allows DAG to achieve processing speeds higher than conventional blockchain.

Researchers use this data structure to model complex relationships between variables. In the context of cryptocurrencies, DAG enables network nodes to validate transactions without the need for centralized intermediaries, facilitating consensus in distributed networks.

DAG vs Blockchain: Key Differences in Architecture and Performance

Although DAG and blockchain perform similar functions in the crypto industry, their internal mechanisms differ significantly. Blockchain groups transactions into sequential blocks, while DAG organizes them as a graph where each transaction confirms previous ones.

In terms of visual structure, a blockchain looks like a chain of links, whereas DAG resembles a branched graph where multiple paths coexist. This architectural difference has profound implications:

• Block creation: Blockchain requires miners to solve cryptographic problems to create blocks. DAG does not need this step; transactions are simply validated by each other.
• Confirmation time: In blockchain, users wait for their transaction to be included in a block. In DAG, validation occurs immediately upon confirming previous transactions.
• Composition: While blockchain consists of linked blocks, DAG uses circles and lines representing direct relationships between transactions.

These differences make DAG a potentially more agile solution, though it still has limitations that need to be addressed.

Real Projects: How IOTA, Nano, and BlockDAG Implement DAG

Although many recognize DAG’s potential, few cryptocurrencies have fully adopted it. IOTA is the most prominent example. Launched in 2016, IOTA (ticker symbol MIOTA) became known for implementing a version of DAG called “Tangle.” This structure allows the protocol to process transactions at high speed while maintaining full decentralization, as all participants validate previous transactions.

Nano (XNO) represents another interesting approach. Although not a pure DAG, it combines DAG technology with blockchain elements. Each user has their own transaction chain in the form of a personal blockchain, but consensus is reached through DAG-like structures. Nano is known for its instant transactions and zero fees.

BlockDAG is a more recent project that uses DAG similarly to IOTA. It provides energy-efficient platforms and allows users to mine BDAG through mobile applications. A distinctive feature is its halving cycle, which occurs every 12 months, unlike Bitcoin’s halving every four years.

These projects demonstrate that DAG is not just theory; it is a functional and evolving technology already transforming how transactions are processed in certain crypto networks.

How Does DAG Really Work? A Technical Breakdown

DAG’s operation is based on a simple yet elegant principle: each new transaction must confirm previous transactions. When a user wants to make a payment, they first select two unconfirmed previous transactions (called “tips”). By confirming these transactions, the user validates the entire preceding history chain.

This process creates a cascading effect. Once the user’s transaction is confirmed, it becomes a new “tip” that others will need to validate. In this way, the network grows organically, layer by layer of mutually validated transactions.

To prevent double spending, nodes evaluate the entire path from any transaction to the root of the network. This ensures there are no insufficient funds at any point in the chain. If a user attempts to build on a fraudulent history, their transactions will be automatically rejected.

This mutual validation mechanism is what allows DAG to operate without miners and without significant transaction fees. Security arises from the collective participation of the entire network, not from a group of specialized validators.

Advantages and Limitations of DAG: A True Replacement for Blockchain?

Strengths of DAG

Speed is the most obvious advantage. Without block time restrictions, transactions can be processed at any moment. There are no volume limits, only the obligation to confirm previous transactions.

Low or nonexistent fees are another crucial benefit. Since DAG does not depend on mining, it does not require rewards for validators. Some DAG projects charge minimal fees to specialized nodes, but these are insignificant compared to blockchain fees. This makes DAG ideal for micropayments.

Energy efficiency is particularly relevant in the sustainability era. While PoW blockchain consumes enormous amounts of energy, DAG uses alternative consensus mechanisms that drastically reduce consumption. DAG’s carbon footprint is minimal in comparison.

Scalability without long waiting periods allows DAG to handle transaction volumes that blockchain still cannot process effectively.

Current Limitations

The main challenge is decentralization. Some DAG protocols have incorporated central coordination elements in their early stages, sacrificing decentralization for speed. Although many developers see this as a temporary solution, DAG has yet to demonstrate it can operate without some degree of external intervention. Without it, the network could be vulnerable to attacks.

Technical maturity is another concern. Despite being on the market for several years, DAG has not achieved the mass adoption that layer 2 blockchain solutions have. This means DAG is relatively untested at large scale and under extreme conditions.

The lack of unified standards and fragmentation among different DAG implementations also pose interoperability challenges.

The Future of DAG: Toward Technological Maturity

Directed Acyclic Graph represents a fascinating technological innovation with significant potential. It offers tangible advantages such as lower fees, improved scalability, and superior energy efficiency compared to conventional blockchain.

However, DAG is still in early development stages. Its current limitations, particularly in decentralization and large-scale testing, prevent it from being a complete replacement for blockchain at this moment. The technology is still emerging, with many possibilities yet to be explored.

What is certain is that DAG will continue to evolve. As new use cases emerge and research advances, current challenges can be addressed. Many in the crypto space are watching how DAG develops in the coming years, seeing it as a potential tool to solve scalability issues that blockchain still faces.