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DAG : A Buzz or Breakthrough?

by HackerNoon ArchivesNovember 9th, 2018

Too Long; Didn't Read

And if you’re reading this, chances are you are invested in a blockchain ledger already through cryptocurrencies. But you may have also heard that there is a new kid<em> on the block</em> in terms of decentralised database technology — DAG (directed acyclic graphs).

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DAG: A Buzz or Breakthrough?

Think of blockchain as a staircase and DAG as a tree.

Blockchain is a breakthrough technology.

And if you’re reading this, chances are you are invested in a blockchain ledger already through cryptocurrencies. But you may have also heard that there is a new kid on the block in terms of decentralised database technology — DAG (directed acyclic graphs).

Is this “third-generation blockchain” a buzzword or a breakthrough? And should you have a DAG in your portfolio?

Let’s understand and compare the technical side. Don’t worry, I thought this over and made it easy to understand for everyone.

Think of blockchain as a staircase and DAG as a tree.

Although often mistakenly placed under the same umbrella with “blockchain technology”, DAG isn’t technically similar to blockchain at all.

Think of a standard blockchain like a staircase. Each step you add to the staircase is like a new block added to the blockchain, extending it in a single direction.

Synchronising blocks one at a time, like stacking a staircase, guarantees that transaction records are the same across all the nodes in a decentralised network. If a malicious actor tries to manipulate the blockchain and create a fake transaction, the nodes can now easily determine that it’s a fake and exclude it from the block.

Blockchain technology, therefore, provides a way to maintain consensus, security and trust across all nodes, without a central authority.

This is a major breakthrough.

To guarantee a good quality staircase, building steps takes time. You may even ask others to quality-check your work just to be sure. Generating new blocks is also bound by time, because the chances of fake transactions slipping into a block reduce when nodes have more time to process transactions and do block confirmations. Bitcoin’s block time is 10 minutes, Ethereum’s 16 seconds.

To make sure the staircase is safe, it needs regular maintenance. If it’s a popular staircase, perhaps you set up a small toll fee so that whoever uses the staircase contributes to maintenance. Similarly, blockchains have transaction fees, because the possibility of getting paid well motivates nodes to do their best at maintaining block records and keeping them identical across the network. Fees also make it expensive for a malicious actor to cripple the network with a flood of fake transactions.

Blocks, block times and transaction fees are therefore some of the reasons why blockchains are more secure than current centralised database technology.

However, some of the biggest factors holding it back from being used more widely are the ability to scale and settle transactions fast. Processing blocks one by one and under a strict time limit slows a blockchain down significantly. On average, Bitcoin is able to process only 7 transactions per minute. And this is why Ethereum has trouble running more than a few large dAPPS concurrently on the network — during times of high traffic, slow transaction rates create a tight bottleneck and a backlog of transactions that can take days to catch up. When this happens, transaction fees escalate too, because senders with important transactions compete to get theirs broadcasted and confirmed faster, making it unsustainable to perform smaller transactions, like paying for a coffee.

This is exactly what happened in the December Bull Run in 2017. Bitcoins were sent back and forth with such volume that the fees were more than 80 USD and the backlog 3 days long. Around the same time, CryptoKitties, a popular dAPP trading digital cryptographic kittens, “broke” Ethereum by taking up 25% of the network. By contract, blockchain’s biggest financial processing competitor Visa is able to process 25,000 transactions per second.

So, decentralised technology with synchronous blocks and limited block times are arguably not yet scalable enough for large scale use. To address this deficiency in speed and scalability, DAG does away with blocks completely.

Think of DAG like a tree, where transactions are processed in a network of interlocking branches that grow outwards in multiple directions. In DAG, each transaction only needs to confirm the validity of a previous transaction to become valid itself. If a stand-alone transaction is found without a valid transaction preceding it, the nodes can easily identify it and exclude it from the records.

A single valid transaction can confirm many transactions in succession, growing transaction output like fractal branches on a tree. In fact, the more transactions are processed, the more it becomes possible to process more. So when a DAG system is experiencing high traffic, the very presence of more transactions makes it possible for DAG to meet the increased demand.

Asynchronous processing that grows in multiple directions.

This is a mind-blowing breakthrough.

DAG’s asynchronous processing translates into an infinite ability to scale, instant transaction settlements and permanently low fees, while still remaining a decentralised and secure network.

DAG is so much faster, in fact, that a prominent Korean DAG startup Fantom has tested as many as 300,000 transactions per second on it’s Opera Chain — which is 12 times faster than Visa. CryptoKitties would be a splash in the ocean on Opera Chain.

Which DAG cryptocurrency will become the Ethereum of DAG?

DAG technology is new and untested. So it remains to be seen if it is robust enough to stand the test of the market. But its unprecedented speed and potential for scalability is the reason why many view it as “blockchain 3.0”. As the technology matures, I’m certain it will catch up to the top much like Ethereum caught up to Bitcoin.

Many have been inspired by DAG already and have taken it upon themselves to build the flagship DAG ledger. One of the contenders is Fantom.

Fantom is a DAG and smart contract platform.

It’s mission is to create an ecosystem that allows real-time transactions and data-sharing at low cost. What’s more, Fantom intends to be used on a large scale in different and demanding industries, such as telecommunications, retail, financial services, logistics, food-tech, and even the government. Hence their choice to go forward with directed acyclic graphs technology.

But Fantom already has successful predecessors. As the newcomers, they need to distinguish themselves from the earlier projects, like IOTA, Nano and Hashgraph. Up until now, these projects lack the Smart Contract infrastructure provided by platforms like Ethereum. So Fantom plans to differentiate itself from them by integrating a layer for decentralised applications capable of smart contracts.

DAG architecture in combination with a smart contract functionality makes it possible to have many different and concurrent processes running at the same time — such as controlling millions of IoT devices, running multiple network demanding applications and maintaining an instant payment settlement service. Very promising.

However, Fantom is not alone in working on this either. It’s a competition rich niche already, with Hedera and Constellation both working on similar platforms. Partnerships will likely determine much of the outcome in this race to emerge as the leader.

Partnerships and investments.

Although in it’s early stages, Fantom understands this and has already distinguished itself with notable partners that will assist it in the adoption of its product once it’s ready.

Some of Fantom’s current partners.

Oracle Corportation is one of the largest software companies in the world. The American parent company has $40bn annual revenues and is widely recognised for its database franchise. Partnered with the Korean subsidiary.

Softbank is one of the largest companies in Japan and is ranked 40th in the Forbes Global 2,000 list that measures the world’s largest publicly traded companies. Partnered with the Korean subsidiary.

Danfoss Group is a multifaceted international corporation that leads in manufacturing products and providing services across many industries related to energy. In 2017, Danfoss made €5.8bn in sales across 47 countries and 56 factories globally. Partnered with the Korean subsidiary.

Fantom is also noticed by the Open Blockchain Industry Association — which includes conglomerates like SK Telecom, LG U+, Kakao Messenger, Shinhan Bank and KEB Hana Bank — and was appointed as its Vice-Chairman of the board.

So it’s not a surprise that Fantom’s notable partnerships have landed it 4th position in terms of the number of cryptocurrency investment funds that have invested in it. These include Blockwater Capital. What a clever name.

Global expansion.

South Korea, Fantom’s birth country, has positioned itself as a global leader in real-world blockchain applications. The government announced its plans to invest $4.5bn USD towards the development of blockchain and other emerging technologies. The Ministry of Science also plans to invest nearly $1bn USD to kickstart pilot projects testing blockchain technology in the public sector.

But they aren’t staying in South Korea only. Fantom envisions global expansion for themselves and the project recently announced it’s expansion into Australia, a country where they boast the world’s first cryptocurrency airport.

Leadership.

Korean Food-Tech Association is a partner of Fantom’s too. The 90 companies in it contain some of the largest food companies in Korea, including Siksin, a startup in the restaurant business belonging to Dr. Ahn Byung Ik. Siksin is currently already testing the first use cases for Fantom’s decentralised technology — FantomPay. They are having a go at it together with POS Bank, one of Korea’s largest point-of-sale providers.

Dr. Ahn Byung Ik is also Fantom’s founder. In the company, he is respectfully referred to as Fantom’s own Elon Musk:

Dr. Ahn was one of the first to see the value of internet when it reached Korea in the early 90s. He was also one of the first to recognize the new opportunity mobile services provided as smartphone emerged in 2010. Now he is here to jump on yet another change, blockchain.

As a project based in Korea with a prominent tech leader, Fantom could legitimately maintain a hold on Korea’s domestic market via the connections of Dr. Ahn and others on the team.

Conclusion

DAG promises real-time transaction settlements and infinite scalability at low costs. These are also the main drivers increasing the chances of adoption by enterprises.

As a high-performance decentralised ledger technology, Fantom’s goal is to be among the first to disrupt the existing payments and supply-chain management industries. That said, when actual enterprise adoption will take place remains a question dependent on the general evolution of the blockchain industry. Overall, I think Fantom has a team with the right mix of blockchain expertise and industry domain for a fair shot at success.

Read their Whitepaper.