DAGs — The future of DLT?

The new chain on the block

A few years ago we were excited by the idea of bluetooth, now your smartphone’s telling you to be more active and your fridge has a name. Welcome to the Internet of Things.

We’ve known that the tech world would be moving in this direction for some time now, as did the team behind the first cryptocurrency to go beyond blockchain.

IOTA is a distributed ledger system built specifically for the Internet of Things industry. The team behind IOTA realized that in the IoT machine-economy of the future, millions of computers and sensors would need to interact and pay each other, often in micro and nano-payments. They also realized that blockchain networks wouldn’t be able to handle such transactions because of ever increasing transaction fees and scalability limits.

This meant that if the Internet of Things and DLT were ever going to merge, a new kind of blockchain would need to be developed — which is precisely what the IOTA team created.

It’s called the Tangle Network and it’s a blockchain without the blocks or the chain. Instead it uses a Directed Acyclic Graph (DAG) called the Tangle Network, and in doing so, the Tangle doesn’t just maintain the original benefits of blockchain, it can improve on them exponentially.

The core innovation behind using a DAG is its ability to conduct zero-fee transactions and therefore, the ability to conduct nano-payments. This is only achievable by cutting out miners and miner fees, which the Tangle in particular does by making validation of transactions an intrinsic part of the ledger — making miners and stakers (people sending transactions) one and the same.

In a blockchain system, the ledger must be distributed and verified by all users, while miners compete for a payout. The self-regulating Tangle Network bypasses that, instead, only requiring two confirmations per transaction. In doing so, much less computing power is needed, and thus, much less electricity — great news from both an economic and environmental perspective.

Scalability is a hot topic in the crypto-world as it’s become apparent that the inability to process large volumes of transactions per second could stint growth of the industry. The Tangle Network, in theory, doesn’t have a scalability cap. Throughput grows in conjunction with activity, meaning that the more transactions being sent on the Tangle, the faster they’re verified — the only limit are bandwidth and the laws of physics.

Indeed we could be seeing the first hints of a new dawn for Distributed Ledger Technology — a Crypto 3.0, perhaps.