Just as blockchain becomes familiar, in comes an alternative
After gradually convincing different industry players that decentralized, distributed ledgers might offer valuable business opportunities, blockchain is up against what could be its biggest competition yet – DAG (Directed Acyclic Graph). DAG is already used by the cryptocurrencies Byteball and IOTA as a substitute for blockchain and is thought to be able to solve some of the incumbent technology’s most prominent issues. Is DAG a viable alternative to blockchain, and how might it disrupt the FinTech community?
The benefits of DAG
DAG is a programming tool that represents relationships between objects and data. In simple terms, it’s blockchain without the blocks – and it’s these blocks that have caused the cryptocurrency community so many headaches. One of the major issues with blocks is that they are limited in size. This has caused processing problems for Bitcoin as well as crypto exchange Coinbase as an increase in users has consequently increased transactions. The more transactions, the slower the waiting period.
Another side effect of relying on blocks is the existence of the miners who create them. Miners can manipulate the system by delaying some transactions and approving others, causing friction between the people who make transactions and those who verify them. However, if there are no blocks, there are no miners, and this answers many of blockchain’s most pressing criticisms.
IOTA, the current poster child for DAG, uses previous transactions to verify new ones rather than potentially biased coders. A serendipitous side effect of this is that there are no transaction fees. IOTA’s DAG, Tangle, is also compatible with blockchain, which arguably makes it even more of a threat. At the same time, this is a blessing for blockchain-based cryptocurrencies as it allows them to coexist and cooperate. The real question is whether investors will turn away from what could be viewed as an outdated platform in favour of a fresh alternative.
DAG, blockchain & the distributed economy
DAG has the potential to disrupt what has become the standard technology used for cryptocurrencies. In theory, DAG could be quicker, fairer, and more scalable than blockchain due to the lack of blocks. Removing miners from the process may help to avoid complications between the issuers and approvers of blockchain as there are no conflicting interests.
Blockchain providers will either have to fix the issues with their underlying technology or work with challenger cryptocurrencies to integrate similar techniques. DAG isn’t just about payments, either. Much like blockchain, DAG is driving disruptive technology. IOTA’s Tangle is specifically geared towards the Internet of Things, establishing the necessary infrastructure for a global network of connected devices that share, sell, and buy data. Paramount to this growth will be micropayments, another notable business trend that may not be supported by blockchain due to heavy transaction charges on small transfers. This doesn’t necessarily mean that DAG will replace blockchain, particularly given the public support of a number of companies.
But, at the same time, it could signal a revolution in FinTech that forces the blockchain community to work more collaboratively. DAG has the potential to lay the foundations for the distributed economy, which promotes innovation by small and medium-sized enterprises and will rely on micropayments.
DAG, like any technological advancement, is both a threat and an opportunity for existing blockchain businesses. Either they will learn from and integrate it or risk being overtaken. There can be no doubt that blockchain has its strengths, which are evidenced by its increasing prominence in the strategies of major companies. It’s also worth noting that while DAG is currently used to power two cryptocurrencies, blockchain is used by essentially everyone else. It’s possible that other alternatives will spring up, and DAG could be the first of a long list of competitors.
The key to handling these challenges is to present a united front, which is something that blockchain enthusiasts have struggled with for years. As IOTA firmly establishes itself as one of the top ten cryptocurrencies by market capitalization, blockchain supporters need to start taking DAG very seriously indeed.
Will DAG replace the blockchain? How should influential blockchain-based cryptocurrencies react? Are miners’ days numbered? Share your comments below.