What is a Directed Acyclic Graph (DAG)? Deciphering the blockchain challenger

In the early morning, meteorological sensors thousands of kilometers away automatically sell data to research centers and receive an insignificant but precise reward in real time; intelligent devices in the Internet of Things autonomously complete massive small transactions without human intervention—these scenarios rely not on traditional blockchain but on an innovative architecture called Directed Acyclic Graph (DAG).

DAG systems stack transactions as connected nodes within a graphical structure, rather than inserting transactions into sequential blocks. When you submit a transaction on a DAG network, you need to verify two previous transactions, creating a cascading confirmation system where every user becomes part of the consensus mechanism.

Core Concepts of DAG

Directed Acyclic Graph (DAG) is an innovative technology in the fintech field, often viewed as an alternative to blockchain. Unlike the chain-like structure of blockchain, DAG adopts a graph data model composed of “vertices” (circles) representing transactions and “edges” (lines) representing confirmation order.

In a DAG structure, edges extend only in one direction, hence “Directed”; simultaneously, vertices do not form cycles back to themselves, hence “Acyclic.” This feature allows for parallel processing of transactions, unlike blockchain which must bundle transactions into blocks sequentially.

In the cryptocurrency space, DAG is often called the “blockchain killer,” as some industry insiders believe this technology has the potential to disrupt traditional blockchain architecture. This title reflects DAG’s potential in overcoming inherent bottlenecks of blockchain.

Operational Mechanism Analysis

Transaction processing in a DAG network follows a unique consensus mechanism. When a user wants to initiate a new transaction, they must first confirm two unconfirmed previous transactions in the network (called “tips”).

After validation, the user’s transaction becomes a new tip in the network, waiting for subsequent transactions to confirm it. Through this “everyone participates in validation” approach, the community layers transactions, driving the system’s continuous expansion.

To prevent double-spending, DAG nodes trace back the entire path to the original transaction when confirming a transaction, ensuring account balances are sufficient and all historical transactions are valid. This mechanism guarantees network security.

Key Differences from Blockchain

Although both DAG and blockchain are distributed ledger technologies, they differ significantly in structure, speed, and scalability. Blockchain packages transactions into blocks linked sequentially over time, while DAG allows new transactions to be built directly on previous transactions, forming a networked structure.

In terms of speed, DAG completely eliminates block time, enabling near-instant settlement of transactions without waiting for the next block to be generated. This feature gives DAG a clear advantage in high-frequency trading scenarios.

Regarding scalability, traditional blockchain is limited by block size and generation interval, which can lead to congestion as transaction volume increases. DAG’s parallel processing capability theoretically allows it to improve processing capacity as network participants grow.

In terms of energy consumption, DAG does not require traditional Proof of Work (PoW) mining, consuming only a small fraction of blockchain’s energy, with extremely low carbon emissions. This makes DAG technology more environmentally friendly and aligned with sustainable industry trends.

Practical Applications and Representative Projects

DAG technology has been applied in multiple cryptocurrency projects, each optimized for specific scenarios.

IOTA is one of the early projects adopting DAG architecture, focusing on Internet of Things (IoT) applications. Its core Tangle technology supports fee-less microtransactions between devices, making it ideal for machine-to-machine (M2M) payments. As of January 22, 2026, Gate market data shows IOTA’s price at $0.09043, with a 24-hour trading volume of approximately $911.14K, a market cap of $385.68M, and a 3.17% increase in the past 24 hours, with trading activity remaining stable.

Nano uses a “block lattice” structure, where each account has an independent blockchain, and all account chains together form a DAG network. This design achieves instant payments and zero transaction fees, focusing on everyday payment scenarios. Current market data indicates Nano continues to attract a specific user base with its high efficiency.

BlockDAG is an emerging project that combines DAG with Proof of Work in a hybrid architecture. During its presale, it raised over $443 million and plans to go public on February 16, 2026.

According to Gate market data, the presale price of BlockDAG was $0.001, with an official listing price of $0.05, creating a significant price difference. The project claims to achieve 1,400 transactions per second and is fully compatible with the Ethereum Virtual Machine (EVM).

Hedera (HBAR) adopts a variant of DAG called Hashgraph, managed by a governance council including Google, IBM, and other well-known companies. Hedera can confirm transactions within seconds, with a maximum throughput of 10,000 TPS. As of January 22, 2026, Gate market data shows HBAR’s price at $0.1108, with a 24-hour trading volume of about $5.2M, a market cap of $4.75B, and a 1.55% increase in the past 24 hours, with trading volume remaining steady.

Fantom (FTM) combines DAG with blockchain through the Lachesis protocol, making it an EVM-compatible Layer-1 platform. It focuses on decentralized finance (DeFi) and smart contracts, with transaction confirmation times of 1-2 seconds.

Advantages and Challenges

The advantages of DAG are clear: faster transaction speeds, lower or zero fees, high energy efficiency, and strong scalability. These features make it excellent for micro-payments, IoT data exchange, and similar scenarios. However, DAG also faces many challenges. Decentralization remains a key issue, as some DAG protocols require third-party validators to initiate the network, introducing elements of centralization.

Most DAG networks have not yet undergone real-world large-scale stress testing. While Layer 2 blockchain solutions have proven themselves at scale, DAG has not experienced the same level of stress testing. The “death spiral” risk is also significant; DAG networks rely on continuous user participation to validate transactions. If participation drops, transaction confirmation speeds can slow dramatically—an Achilles’ heel not as pronounced in blockchain to the same extent.

Complementary Market Positioning Rather Than Replacement

From current market development, DAG is more likely to serve as a supplement to traditional blockchain rather than a complete replacement. Blockchain has demonstrated its security model and benefits from enormous network effects. The future is probably not a dichotomy of blockchain versus DAG, but rather coexistence, with each addressing the problems they are designed to solve. DAG provides specialized solutions for micro-payments, IoT data validation, and scenarios requiring extremely high transaction throughput.

As the cryptocurrency market develops toward 2026, investors should pay attention to DAG’s progress in solving specific industry pain points. Whether it’s IOTA focused on IoT, Nano for efficient payments, or emerging projects like BlockDAG, these projects showcase DAG’s potential in various applications.

With projects like BlockDAG approaching listing, the market visibility of DAG technology will significantly increase in early 2026. Before the presale ends on January 26, early participants still have the opportunity to acquire tokens at $0.001, a substantial discount compared to the official listing price of $0.05. In an era where the number of IoT devices is expected to surpass 290 billion, the demand for micro-payments between machines is growing exponentially. Thanks to its high throughput and zero-fee features, DAG technology is quietly laying the infrastructure for the next generation of value exchange in this trillion-dollar market.