Obyte’s Latest Comparison of Blockchain and DAG in Crypto Highlights that DAG is More Decentralized

February 24 00:01 2023

Both blockchain and DAG are underlying systems for cryptocurrencies and smart contracts. From the point of view of a final user, they’re maybe something not to worry about. Both systems enable quick and safe transactions. However, let’s talk a bit about decentralization to understand the difference between a blockchain and a DAG (Directed Acyclic Graph).

Bitcoin (BTC), the first cryptocurrency, was created in 2008 to achieve a decentralization ideal in a fully centralized world. Everyone is surrounded by centralization every day. It means intermediaries: companies, brands, governments, organizations, groups, and even individuals who hold enough power to control a lot of users —since they usually provide goods or services.

In a centralized system, all actors/users depend on a single central party.

A bank is a centralized institution that moves money. They’re able to control all transactions inside their systems. They can see everything, and they can freeze anything too. Users have to trust them not to do it. They’re intermediaries between people and their own money. And that’s why Bitcoin (and all the other cryptocurrencies) were created.

A chain of blocks

Satoshi Nakamoto (Bitcoin creator) designed a system in which the users wouldn’t need to trust a single central intermediary. Instead, every transaction would be put in a block, and each block cryptographically linked to the previous and future ones, in a chain of blocks containing transactions. There would be no centralized institution like a bank that is able to see and control everything. 

However, someone would actually need to pack transactions into blocks. In this case, the miners. They use their own energy and computer devices to create every data block, add it to the longer chain, and, thus, make it “accepted”—along with the transactions involved. Unlike centralized entities, anyone with the resources can be a Bitcoin miner. 

There were probably thousands of them in the early days of Bitcoin. However, now most of them are grouped into a small number of mining pools that do the job of “accepting” transactions, while miners only provide their computing resources. Thanks to being able to accept or not accept transactions, the mining pools are something like an intermediary.

Then, a blockchain is this: a chain of blocks filled with transactions and controlled by miners (mining pools, to be more accurate).

Directed acyclic graph: a family tree

In a blockchain, transactions aren’t connected outside the blocks, so chaos would ensue if the system just gets rid of them. 

That wouldn’t happen with a Directed Acyclic Graph (DAG) system. Every block-free transaction will link to their parents and children (the ones that happened before and after) at the same time, freely. Like a big family tree, always intertwined. 

A DAG system doesn’t have blocks. Transactions are connected and recorded this way, without the help of miners or block producers. The only other necessary thing is the order: which operation came first is important to avoid the double-spending problem. The DAG by itself provides only partial ordering — through a chain of parent-child relations when such a chain exists. 

To establish the full ordering of transactions, a DAG system has “Order Providers” (like in Obyte). They’re highly recognized individuals/companies whose transactions serve as waypoints for ordering everything else, however they can’t change the transaction history or reject transactions.  If a user made a transaction referencing previous ones, then it exists on the DAG and nothing can change it.

Anyone, indeed, can make a transaction in a DAG —without asking for “acceptance” by the miners. There are no blocks to build: the graph is directly created by the users with every transaction they add. They connect to the previous ones, while the new ones will connect to them as well. Therefore, DAGs don’t have middlemen. 

Since there are no intermediaries, there is nobody who can collude to control the network and censor transactions. No permissions are needed, and there’s no censorship. No one is in control of the platform, so, no one has the power to censor anything on it. Just users sending and receiving their assets in a fully decentralized platform.

Additional resources:

From Blockchain to DAG

Distribution of Power in DAGs and Blockchains

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Company Name: Obyte
Contact Person: Tony Churyumoff
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Country: Liechtenstein
Website: https://obyte.org/technology