Blockchain and DAG: Arch-Rival or 1+1>2?

As much as I enjoy reading Bloomberg’s articles, I didn’t appreciate its latest report on the potential regulatory risk against the cryptocurrency world — the headline, to be precise, I personally found to be rather clickbait.

Check this out — “Crypto Exchanges Are Facing Their Biggest Regulatory Hurdle Yet”.

Let’s leave out the subjective and objective, which are neutral words. It’s the use of present tense and superlative adjective — how terrifying they sound!

Fortunately, the actual wording of the report body reads much less hyperbolic and more rational.

The core content focuses on the news that the intergovernmental organization Financial Action Task Force (FATF), which develops recommendations against money laundering and financing of terrorism, will publish a note of guidelines for virtual asset watchdogs later this month.

For starters, FATF is not an institution with either legislative or law enforcement power, and the overseers make their own decision on whether to follow FATF’s guidelines, as well as when and how to regulate the industry.

Secondly, it should be future tense when referring to the publishing of the FATF note, while the potential regulations might be even much further away. For now, it’s all up in the air.

Last but not least, most of the crypto practitioners don’t deliberately choose the opposite stance against the regulators. With our pioneering spirit together with their experience of protecting the public good, I expect more of a “one plus one is greater than two” scenario.

Similar cases were seen in comparisons between blockchain and directed acyclic graph (DAG) in the early days, when sentimental words like “versus” and “overcome” were frequently applied in relative contexts.

To be honest, neither technology is perfect yet, nor could they be replaceable by each other. Rather, synergistically they work more nicely.

Technically, DAG is not a successor or a derivative of blockchain technology. It is a concept initiated in mathematics and adopted in computer science. They do have features in common though.

Similarly, vertices connected by arcs constitute a DAG, while blocks connected by edges constitute a blockchain. Plus, both vertices and blocks are ordered by time sequence.

Then, you might be curious of why DAG is so different from blockchain.

It goes straight back to the fundamental element of blockchain — the blocks. Every block, if we simplify it as pure data, is a collection of its own data and the previous block’s. Here, data stands for the transaction information of a certain type of cryptocurrency.

That said, the latest block should contain all information of the transactions prior to itself.

Also, as blockchain is used as a distributed ledger technology, one of its major features is immutability, since every transaction will be confirmed and recorded. Validating each block takes time, especially as the data accumulates.

On average, the block times of Bitcoin, Litecoin and Ethereum stand at 10 minutes, 2.5 to 4 minutes and 15 seconds respectively.

Assuming a block contains a fixed number of transactions, accordingly, the longer the block time is, the fewer transactions can be dealt per unit time (in seconds usually). Transaction per second (TPS) is the most widely applied indicator of the scalability of a certain system, of which BTC and ETH stand at (an underwhelming) single-digit and double-digit.

DAG, on the other hand, is capable of addressing this drawback, courtesy of being block-less and able to conduct concurrent executions.

In a DAG-based system, each vertex could represent a single transaction, and by randomly verifying a few previous transactions/vertices, a new vertex could successfully make itself part of the system.

Thanks to the randomness of the confirmation process, multiple new vertices are able to simultaneously validate several early transactions.

What’s even better is that as more vertices join the network, the system would show stronger scalability. In contrast, a standard blockchain is like a single stick that lengthens in a straight line, which makes concurrent execution impossible.

Scalability is definitely not the only measurement of a blockchain’s performance, but it is indisputably a major one, given that BTC as an electronic cash was invented in the first place. Could you imagine if it took 10 minutes to complete a transaction on e-commerce platforms like Taobao?

And DAG is certainly not the only scalability solution, but it surely helps to make VISA’s 24K TPS a much less unachievable target for blockchains. So, why not give it a shot?