The constantly evolving technology of blockchain has radically transformed the world by making it possible for transactions to be done in a secure, transparent and decentralized manner. However, with its advancement, traditional models of blockchain encounter a serious problem of scalability and transaction throughput. Here comes BlockDAG, the next generation alternative to traditional blockchain models. BlockDAG is set to become the real game changer technology by offering solutions to the major challenges of blockchain systems.
How BlockDAG Works
Let’s start with the full form of this unconventional name. It Block Directed Acyclic Graph, and it may be healthy to note that it is a data structure that changes the way transactions and blocks are received. It is present in a graph structure as opposed to a linear chain one, which is the norm for blockchains. The term “directed acyclic graph” refers to a graph that does not loop back on itself (Acyclic) but flows in one direction (directed).
Unlike blockchains, where a block is linked to a previous one, BlockDAG permits a block to connect with a range of different blocks at the same time. Because BlockDAG permits a widespread connection, it increases scalability tremendously. Miners and validators can work concurrently, so more transactions can be completed at the same time.
IoT networks, decentralized finance , and real-time gaming systems are all examples of industries where BlockDAG is crucial as they deal with high transaction numbers and require reduced confirmation times.
Comparing BlockDAG System and Blockchain
To really appreciate the value and relevance of BlockDAG, it’s important to first explain the differences between both classic blockchains and BlockDAG based systems.
1. Linear Chain Vs. Graph Structure
- Classic blockchains like Bitcoin and Ethereum (before Ethereum 2.0) are constructed as a chain where every new block added is added sequentially. Each block points to the previous one.
- With BlockDAG, blocks are organized into a graph structure that is directed. In this way, one block can point to multiple earlier blocks and so blocks can be created and processed simultaneously.
2. Throughput
- In classic blockchain systems, transaction throughput is restricted by the number of transactions in a block and the duration to generate a new block. For instance, Bitcoin only manages to process about 7 transactions per every new block created in a second while Ethereum does about 15- 30.
- BlockDAG increases throughput significantly since thousands of transactions per second can be achieved by processing multiple blocks at the same time.
3. Conflict Resolution
- In Blockchains, conflicts like forks are resolved by selecting the longest chain and discarding the other branches. This is very inefficient in terms of wasted computation power and slowed down transaction validation.
- In BlockDAG, opposing blocks are integrated into the network using algorithms which measure the trustworthiness of the block ensuring consistency to the entire network.
4. Decentralization and Security
- BlockDAG is a system that embodies every key feature of blockchain, include decentralization and security, but does not get stuck in bottlenecks or centralization that occurs due to scaling challenges.
Key Features of BlockDAG
BlockDAG has a number of advantages compared to the traditional sequential blockchain structure:
1. High Scalability
The ability to process blocks in parallel allows BlockDAG to maintain a very large amount of transactions. This makes it extremely useful for cases where real time transactions at a high frequency are needed.
2. Faster Confirmation Times
The parallel processing also means that transaction confirmations happen much faster, decreasing the overall latency of the system.
3. Robustness Against Forks
Instead of discarding the conflicting blocks, BlockDAG incorporates them within the network, making it more efficient and bypassing the problems caused by forks.
4. Decentralized Mining
Instead of miners competing for ‘next’ blocks in the sequential chain, many miners can now simultaneously work on blocks. This allows for a more decentralized approach to mining.
5. Energy Efficiency
Implementations of BlockDAG like IOTA and Nano use lightweight consensus methods, for example Proof of Stake (PoS), instead of Proof of Work (PoW) systems like bitcoin, making the energy intensive mining processes more simplistic.
Use Cases of BlockDAG
BlockDAG has features that can efficiently serve many applications in the real world. Here are some of its most important use case examples:
1. Internet of Things (IoT)
IoT networks comprise millions of devices that communicate with each other and transact data in real-time. Combination of scalability and low latency in BlockDAG is a perfect fit for enabling secure high frequency microtransactions between IoT devices.
2. Decentralized Finance (DeFi)
Speed and cost are key factors in the DeFi ecosystem, which is why BlockDAG is a strong candidate for powering decentralized exchanges, lending platforms, and payment services. Its ability to process thousands of transactions per second makes it a cost-effective solution.
3. Supply Chain Management
In BlockDAG supply chains, a large number of parallel transactions can be tracked and verified for efficiency and transparency. High throughput means that participants in the supply chain can verify, almost in real-time, the movement of goods.
4. Gaming and Entertainment
Industries like gaming that rely on microtransactions and real-time payments could effortlessly benefit from BlockDAG’s infrastructure with instant transaction finalization.
Examples of BlockDAG Based Platforms
There are a few projects in the blockchain space that have adopted the BlockDAG model, and each has its own unique implementation such as the following:
1. IOTA
One of the most popular references of BlockDAG is IOTA’s Tangle. Tangle was made for IoT applications, providing the unique feature of having no transaction fees and scalable microtransactions.
2. Nano
In the specific case of Nano, transactions are nearly instantaneous which is only possible because of the concurrent architecture the project has implemented. Each account possesses its own blockchain which is why it is referred to as a block-lattice. This particular design allows for incredibly instantaneous transactions and high efficiency.
3. Phantom
This project harnesses the power of BlockDAG to solve the problems surrounding the scaling of decentralized applications/dApps, which is why Phantom has been classified as a project. With its novel consensus mechanism, low latency and high throughput is guaranteed.
4. Conflux
Similar to phantom, Conflux is a BlockDAG based blockchain that seeks to solve the scalability problem. It, however, promises that security and decentralization will never be compromised.
Challenges and Limitations of BlockDAG
Now that we have explored the advantages of BlockDAG, let us look at the challenges it presents, which include, but are not limited to:
1. Complexity
The complexity is higher when compared to normal blockchains because of their graph-based structure which makes it cumbersome to debug and implement.
2. Consensus Algorithms
The way different blocks reference each other makes reaching a consensus more difficult than it is in normal blockchains. Specialized algorithms must be built to avoid double spending and to achieve fairness.
3. Adoption
With how new the concept of BlockDAG still is, it will take a significant amount of time adjustment for the blockchain community to accept and standardize its implementation.
The Future of BlockDAG
Considering how massive industries are modernizing, the unique structure of BlockDAG is likely to be critical in the next generation of blockchain technology. Since it solves the problems associated with traditional blockchain systems, BlockDAG is the next obvious evolutionary step in the ecosystem.
Yet, Nomura’s report highlights that at this point in time, there are still technological barriers that impact real-time adoption for a greater number of use cases. Although, BlockDAG’s relevance in scaling, efficiency, flexibility makes it one of the strongest candidates to lead the revolution in decentralization networks.
To sum up, BlockDAG isn’t in competition with blockchain; it’s a shift in the perception of the whole decentralized system. Hence, the design of BlockDAG enables one to imagine how extensive the opportunities in distributed ledger technology can be.