Is Directed Acyclic Graph a viable solution to the blockchain scalability problem?
Blockchain cryptocurrencies were created with the fundamental goals of creating a payments system that is reliable and secure without relying on a centralized authority to provide infrastructure and vouchsafe security. The fundamental challenge in providing these attributes is that it must also be scalable. A globally accepted payments network for the future needs to be fast and cheap to transact, in order to gain wide acceptance. Scalability on the technical level equates to convenience for the user.
The challenge for accommodating scalability, decentralization, and security is known as the “Blockchain Trilema”. Despite all the innovation and advancements towards ensuring all three at once, the perfect consensus model may never be achieved. Proponents of Directed Acyclic Graphs, for use in cryptocurrencies, believe they may have the solution to this trilema. The speed and cost-effectiveness of DAG networks makes them ideal for IoT related use cases such as decentralized data processing and supply chain management.
MIOTA (IOTA) aims to be a complete solution to IoT applications. It is very efficient, especially suitable for micro-transactions. There are no fees, and a slight computational requirement as each wallet contributes by validating other transactions. To speed up the processing, nodes are arranged into “tangles” which group transactions and then broadcast them to the wider network. Final consensus is reached via a centralized coordinator node, operated by the IOTA foundation. Like other DAG networks, double-checking validity (double spend prevention) becomes less necessary as the network begins processing high volumes of transactions.
Obyte is a cryptocurrency pursuing a completely DAG system. It does rely on trusted validators, known as “Order Providers”, to double-check transactions and post them to the network. This ensures a consistent order and transactions are immutable once recorded. Obyte claims that this does not equate to centralization as the consensus algorithm does not enable Order Providers to tamper with or alter the transactions and, unlike POW miners, they cannot prioritize or reject particular transactions or wallets.
Cybervein (CVT) is a cryptocurrency that strives to combine the best aspects of blockchain and DAG into a highly efficient network. The DAG processing requires each user to validate two transactions for every one it wants to broadcast. With Cybervein these are then finalized in blocks according to a Proof-of-Contribution consensus algorithm. The combination ensures high throughput as well as security.
NANO(XNO) is a project pursuing a hybrid model using a combination of DAG and distributed ledger technology. Each NANO wallet operates from its own blockchain, which is connected to nodes via a lattice arrangement. The owner only has authority to execute changes on their chain. Nodes then reach consensus by authorizing transactions according to a weighted voting system similar to POS. The finalized transactions are then broadcast to other nodes. NANO has no fees and supports very high transactions speeds.
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Thumbnail diagram from IOTA free to use assets