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Directed Acyclic Graph

A Directed Acyclic Graph (DAG) is a data structure used in some distributed ledgers where transactions are linked directly to one another rather than grouped into discrete, linear blocks. In a DAG, each new transaction must reference and validate one or more previous transactions, creating a web of interconnected nodes. Because there is no sequential block production, multiple transactions can be processed in parallel, significantly increasing scalability and allowing for feeless or low-fee microtransactions in highly active networks.

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Definition

A Directed Acyclic Graph (DAG) is a data structure used in some distributed ledgers where transactions are linked directly to one another rather than grouped into discrete, linear blocks. In a DAG, each new transaction must reference and validate one or more previous transactions, creating a web of interconnected nodes. Because there is no sequential block production, multiple transactions can be processed in parallel, significantly increasing scalability and allowing for feeless or low-fee microtransactions in highly active networks.

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Simple explanation

Imagine a family tree where every person is a transaction. In a normal blockchain, you have a line of blocks like a chain. In a DAG, it is more like a web where every new person needs to mention their parents to join the family tree. This allows everyone to join the web at the same time, making the network much faster.

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Why it matters

DAGs represent a major departure from the traditional linear blockchain, offering a solution to network congestion and high transaction fees. They are particularly well-suited for IoT (Internet of Things) and micropayment use cases that require rapid, high-volume processing.

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How it works

A user initiates a transaction by pointing to multiple prior transactions to confirm their validity. This decentralized verification process removes the need for dedicated ‘miners’ or ‘stakers’ in the traditional sense, as the entire community performs validation as they use the network.

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Real-world example

IOTA and Nano are well-known projects that utilize DAG-based structures for transaction processing.

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Advantages

  • Massive parallel processing power
  • Zero or near-zero fees
  • High efficiency for micropayments

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Limitations

  • Increased difficulty in achieving global consensus
  • Higher vulnerability to network attacks
  • Complex wallet and node software

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Common misconceptions

  • Many assume DAGs are not blockchains at all, despite their inclusion in distributed ledger technology. People often wrongly believe that all DAGs are inherently insecure compared to linear chains.
Canonical knowledge ID: glossary:directed-acyclic-graph