What can DAG technology bring to Bitcoin?
Blockchain and the Bitcoin are fast-innovating industries. Practitioners are always undergoing new technologies and architectures to make blockchain better.
In this article, I am going to discuss possible changes if we update the bottom level of bitcoin to the DAG technology.
For its introduction, please refer to my previous article: DAG， the real Blockchain 3.0?
More Decentralization, Less Controversies
A Powerful MinerIt is interesting about how to maintain the consistency of distributed systems. The traditional distributed architectures, such as paxos protocol, raft protocol are excellent protocols. However, they can only meet the consistency under physical downtime, but not that of Byzantine Fault Tolerance (BFT). Generally, even when some node goes down, or tells lies, the entire network is still working. Bitcoin's POW is a distributed system with consistency protocol which addresses the Byzantine fault tolerance.
POW is indeed a great consensus protocol. Satoshi Nakamoto entrusted the miners with the maintenance of the consistency of bitcoin network. After users place their transactions, the miners select them by specific requirements, pack them into one block, and then link it into the blockchain. The miners compete with each other in solving hash functions to obtain the validation right of blocks. However, the miners play an overwhelming role ('big brothers') on bitcoin network. The computing power of some bitcoin mining pool alliances is nearly 50%. Moreover some mine pools provide the transaction acceleration function which as long as you send your money to them, your transactions can be quickly confirmed. However is this the original intention of bitcoin?
I don't want to evaluate the pros and cons about the recent clamorous clashes between the miners and the bitcoin development teams. One thing we can make sure is that there is no consensus about the current bitcoin protocol.
The biggest feature of DAG is blockless. For this reason, there are no miners on the network. Its consistency is fulfilled and maintained by the transactions themselves. Participants on the DAG network have no privileges. As witnesses, nodes can only record the sequence of the transactions, and have no miner-like privileges. A miner-free Bitcoin would be probably more decentralized and less controversial.
A Faster SpeedFast, faster, fastest!
The DAG technology discards the concept of block. All transactions go directly onto the network and participate in maintaining the consistency of the network automatically.
The traditional blockchain, such as Bitcoin or Ethereum, depends heavily on miners. After a user initiates one transaction, miners pack transactions from a certain period of time into one block before it can be validated in the blockchain. There are two limitations in this process. The first one is that the block validation time is limited. The average time of Bitcoin and Ethereum is 10 minutes and 12 seconds respectively. Second, the number of transactions is limited by the size of the block in every time unit. For those over-loaded transactions, traders can either wait till the next block validation, or increase the commission to shorten the time waiting.
On the DAG network, however, these transactions are validated by others. For this reason, they don’t have to rely on miners and wait for a certain period of time. Transactions will be confirmed way faster than the previous blockchain architecture.
What is even more interesting is that when new transactions are placed on the DAG network, it is necessary to search for the existed and relatively new transactions as their parents. This is why some people say that validation would be faster with more transactions running on the DAG network.
Better Privacy ProtectionBitcoin only protects the privacy of the traders, but not protect that of the transaction itself.
We generally consider that Bitcoin is secure and does not depend on central agencies. In fact, on one hand, the security comes more from the anonymity of the blockchain. People can see all the transaction records from a bitcoin address, but we do not know who the owner is. Currently, many users trade bitcoins through the exchange or OTC platforms. In order to meet the regulatory and compliance obligations, they map and combine users' bitcoin addresses, IDs and social security IDs. Actually, this instead leads to undermine bitcoin’s anonymity, making all transaction information transparent.
On the other hand, until now, the counterparty information, number and time of the transactions are made public. In many scenarios, these specific information is sensitive. For instance, when a shareholder transfers his/her equity, its agreement price and transfer time are all sensitive and need to be protected. This is also one remaining problem in Bitcoin.
However, the DAG has its own solution about privacy issues. For example, Byteball users can choose the private mode for data-sensitive transactions. In private transactions, the DAG's main network can prove the existence of the transactions. Their counterparties' information would be protected soundly instead of being exposed to the entire network.
A Small-Amount-Payment Friendly Network with A More Reasonable CommissionBitcoin back to payment
The design of token models for virtual currency is often accompanied by the economic incentives of the game. On the Bitcoin network, the consensus is maintained by miners. They get coin-based incentives each time after competing to get the block validation rights.
Meanwhile, due to the block size limitation, Bitcoin also has a charge mechanism: the miners select the transaction from the commission. Under this situation, as Bitcoin users and trading volumes increasing, traders can only increase their fees to get a quicker confirmation.
The original intention of the Bitcoin White Paper is to define Bitcoin as an electronic cash. But the mining mechanism hinders the use of bitcoin as a cash transaction in small-amount transactions.
The current outstanding DAG projects are IOTA and Byteball. IOTA has no transaction fees; Byteball’s transaction fee is determined by the transaction physical space. Even in small-amount payment scenarios, Byteball's fee is only as low as 1/100,000. And the transaction fees will not be increased due to network congestion or a large-amount transaction.
Currently, DAG technology is still rapidly developing. New technologies bring new values. We are looking forward to a better bitcoin.
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