directed acyclic graph (DAG)

A directed acyclic graph (DAG) is a chainless model of distributed ledger technology (DLT), that exists in parallel to a chain-based model, such as blockchain. Yet, directed acyclic graphs are not as widely used as blockchains in the cryptocurrency industry.

While blockchains (as indicated by the name) are based on chains formed by chronologically linear blocks, neither a chain nor a block exists in a directed acyclic graph. Instead, a directed acyclic graph is based on vertices and edges, forming a network of casually interconnected nodes, similar to a web of relationships. Specifically, it organizes data in graph structure in which a variety of data points directly refer to each other without forming a chain.

A directed acyclic graph relies on a consensus mechanism that is different from that of blockchain. In a blockchain, each block can only reference one block. In contrast, each transaction can reference multiple transactions in a directed acyclic graph structure. Additionally, while adding a new block in a blockchain necessitates the consensus of the entire blockchain network, adding a new transaction in a directed acyclic graph only necessitates the consensus of a supermajority of validators. As a result, it is possible for transactions to be confirmed asynchronously and concurrently, thereby allowing directed acyclic graphs to offer greater scalability and higher transaction speed.

[Last reviewed in December of 2024 by the Wex Definitions Team]

Keywords

• CRYPTOCURRENCY

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