Blockchain vs. DAG Technology

A quick comparison.

Structure

Blockchain is a distributed ledger, replicated by all nodes in the network. This distributed ledger forms a chain of blocks of transactions in an unalterable, chronological order. Transactions are bundled into blocks to be validated. Validated blocks are stamped and added to a chain of previously validated blocks.

Consensus

In blockchain, consensus is achieved by validating transactions block by block. Various solutions exist for this, one is the ‘Proof of Work’ consensus mechanism that requires miners to race to solve a computationally strenuous problem. Successful validation may earn the miner a reward.

Pros

Blockchain offers transparency and immutability. It is also relatively well established, being the basis of cryptocurrencies like Bitcoin and of distributed application platforms like Ethereum. Blockchain offers solid guarantees and cost-effectiveness for transactions of medium to high value.

Cons

As blockchain transaction volumes grow, storage and network bandwidth requirements increase. ‘Proof of Work’ can also consume large amounts of computing power and electricity. Mining may become concentrated between just a few big mining users or companies and in the case of big dips in cryptocurrency value, incentive to mine can be destroyed altogether. High transaction fees are also an issue. There are of course different consensus algorithms, but ‘the perfect’ consensus algorithm is yet to emerge (if it ever does).

What’s best?

Start with your business requirements. Compare possible solutions to see what best meets your needs. Remember that you or your team will need to understand the technology chosen, customer or end-user preferences, and any requirements to cap transaction fees and run distributed applications like smart contracts. Different use cases may then make blockchain or DAGs a better option.

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Max Thake

Building the Web3 machine economy — and writing about it too. | peaq co-founder | https://linktr.ee/maxthake