A directed acyclic graph (DAG) is a type of graph in which the edges have a direction and the graph contains no cycles. There is no way to start at one vertex (node) and follow a sequence of edges that will eventually lead back to the same vertex. DAGs are commonly used to represent complex relationships between different entities or to model the flow of information or data in a system.
One of the key characteristics of DAGs is that they allow for multiple paths between any two vertices in the graph. This means that, unlike in a tree structure, where there is only one path between any two nodes, in a DAG there may be multiple paths between any two nodes. This property makes DAGs useful for representing complex or hierarchical relationships between entities, as it allows for multiple different ways of organizing the data.
On a blockchain, miners or validators are needed to validate the transaction and build the block. Meanwhile, in DAG, the user will act as both miners and validators. Users need to validate two other transactions before they can have theirs validated by others.
Some blockchain systems, such as IOTA and Nano, use a DAG structure instead of a linear chain of blocks. In these systems, each transaction is represented as a node in the DAG, and transactions are linked to each other through directed edges that point from one transaction to another. This creates a complex network of transactions, with multiple different paths between any two transactions in the DAG.
One of the main advantages of using a DAG is that it allows for faster and more efficient transaction processing. In a linear chain of blocks, each new block must be added to the end of the chain, which can lead to bottlenecks and delays. In a DAG, on the other hand, transactions can be processed in parallel and added to the DAG at any point, which makes it possible to process many transactions simultaneously and reduces the overall time required to process a transaction. It also eliminates the need for mining equipment that results in low energy and drastically lower fees.
However, they do have some disadvantages. Due to the multiple paths, it can be difficult to efficiently compute properties of the graph, such as the shortest path between two nodes or the minimum spanning tree of the graph. They are also more susceptible to attacks and have less traction compared to blockchains. Most importantly, they are not fully decentralized since they are still in their infancy.