What is DAG? An in-depth exploration of how Directed Acyclic Graph technology empowers the Internet of Things and high-frequency trading

DAG: A New Paradigm of Distributed Ledger Beyond Blockchain

In the world of cryptocurrencies, blockchain technology is widely known. However, a data structure called Directed Acyclic Graph (DAG) is emerging as a potential alternative, offering new ideas to address the scalability bottleneck of blockchain.

Simply put, DAG is a model that uses vertices (or nodes) and directed edges to represent data and their relationships. “Directed” means the edges have a direction, and “Acyclic” means it’s impossible to start from a vertex and follow directed edges back to the same vertex, forming a loop. In cryptocurrency applications, each vertex represents a transaction, and each directed edge indicates a confirmation relationship between transactions.

How does DAG work? Transactions as Consensus

The operational mechanism of DAG differs fundamentally from blockchain:

• No Block Structure: Transactions are no longer packaged into blocks and linked sequentially. When a new transaction is issued, it directly confirms and links to multiple existing transactions. The entire ledger thus forms a continuously expanding, intertwined “web.”
• Transactions as Consensus: In many DAG implementations, initiating a new transaction requires validating previous transactions. This means network participants indirectly participate in consensus by issuing transactions, eliminating the need for traditional miners or validators, and potentially achieving zero transaction fees and high throughput.
• Parallel Processing: Since transactions are not chain-linked, multiple transaction chains can grow and confirm simultaneously, enabling parallel processing, which is key to its high scalability.

Core Comparison of DAG and Blockchain

Major DAG Cryptocurrency Projects and Market Performance

Currently, the representative cryptocurrencies adopting DAG technology include:

1. IOTA (MIOTA): Designed specifically for the Internet of Things, its core “Tangle” is a DAG structure. Aims to enable fee-less micro-payments and secure data transmission between machines. Currently priced at $0.2475 on Gate, with a 24-hour trading volume of about $28,000,000.
2. Nano (XNO): Focused on instant, zero-fee value transfer. Its “block lattice” structure assigns each user account a separate micro-blockchain, which interact asynchronously via DAG. Currently priced at $1.532 on Gate, with a 24-hour trading volume of about $12,000,000.
3. Hedera (HBAR): Although not a typical DAG, its Hashgraph consensus algorithm is an asynchronous Byzantine Fault Tolerance (ABFT) variant of DAG, known for high efficiency and deterministic finality. Currently priced at $0.0987 on Gate, with a 24-hour trading volume exceeding $85,000,000.

Advantages and Challenges of DAG Technology

Advantages:

• High scalability and throughput: Parallel processing allows transaction capacity to grow with network usage.
• Low latency and zero fees: Breaks free from block time constraints, suitable for high-frequency micro-payments.
• Excellent energy efficiency: Usually does not require energy-intensive mining, aligning with green technology trends.

Challenges:

• Security validation: Compared to blockchain’s “longest chain rule” (like Bitcoin), DAG’s consensus mechanisms (such as “weight accumulation”) are more complex, and large-scale security needs further validation.
• Centralization risks: Some DAG projects initially set up coordinating nodes to bootstrap the network, raising concerns about decentralization.
• Ecosystem and application maturity: Its development tools, smart contract capabilities (some projects do not support), and overall application ecosystem still lag far behind mature blockchain platforms like Ethereum.

Future Outlook: Parallel Coexistence Rather Than Replacement

DAG technology is not a “killer” for blockchain but an important supplement and extension. It is especially suitable for scenarios highly sensitive to throughput, real-time processing, and transaction fees, such as IoT micro-payments, high-frequency trading, and in-game economies.

In the future, we may see hybrid architectures, such as using DAG as a Layer 2 scaling solution for blockchain, or employing DAG to handle specific transaction types under a main chain, combining the advantages of both.