We all know the impact blockchain technology has had so far on the global economy and industrial landscape. Not only does blockchain power the likes of Bitcoin and Ethereum, but it has also found immense utility in fields like banking and healthcare. However, did you know that the blockchain is only one of the many distributed ledger technologies (DLTs) implementations? In this blog, let’s acquaint ourselves with the three main DLTs – Blockchain, Hashgraph, and Directed Acyclic Graph (DAG).
What Is Distributed Ledger Technology (DLT)?
Distributed Ledger Technology (DLT) is a technological infrastructure that records transactions and their details in multiple locations simultaneously. In a DLT, there is no centralized storage where you keep data. Each node in the network processes and verifies each item in the ledger. The three most popular DLTs are – blockchains, hashgraphs, and DAGs.
Blockchain vs Hashgraph vs DAGs
DLT #1: Blockchain Technology
In 2008, Satoshi Nakamoto introduced the world to Bitcoin and blockchain technology. In a blockchain, data is stored in a chain of blocks. These blocks are connected via cryptographic hash functions.
The defining features of a blockchain are as follows:
- Decentralization: The blockchain is downloaded by every node in the network, ensuring that every single piece of data is stored in multiple nodes.
- Transparency: All the data stored in the blockchain is visible to every single node in the network.
- Immutability: Once data has been stored inside the blockchain, it is impossible to tamper with it.
By marrying these qualities, blockchain has found immense utility in several fields.
Transaction verification
A transaction can only be added to the blockchain after it has been verified and greenlit by more than 2/3rd of the network. This verification process is known as a “consensus mechanism.” Bitcoin uses proof-of-work (PoW) to achieve consensus, while Ethereum uses proof-of-stake (PoS).
Examples of coins using blockchain technology
Bitcoin (BTC) and Ethereum (ETH).
DLT #2: Hashgraph
Hashgraphs were invented in the mid-2010s by the American computer scientist Leemon Baird. Baird is the co-founder and Chief Technical Officer of Swirlds. Hashgraphs don’t bundle data into blocks as blockchains do. Instead, hashgraph nodes use a “gossip about gossip” system, wherein they organically transmit messages. These messages consist of the following data:
- One or more transactions.
- Timestamp of the transactions. Multiple transactions can be stored on the ledger with the same timestamp in Hashgraph.
- A digital signature.
- Cryptographic hashes of the two earlier events.
Hashgraphs don’t require you to run multiple computations of a consensus mechanism to verify transactions. This dramatically reduces the load on the system and allows them to deliver a higher throughput. Hashgraphs can theoretically achieve ~250,000 transactions per second.
How does a hashgraph work?
- Hashgraph uses a gossip protocol to relay transaction information (called events) across the network. Every node randomly chooses a neighboring node to relay the information.
- Since the process is swift, most events propagate quickly throughout the network.
- Once consensus is reached, it becomes irreversible.
Examples of coins using hashgraph?
DLT #3: DAGs
A directed acyclic graph (DAG) is a graphical representation of a series of activities. A series of circles and lines visually represent the order of these activities.
- The circle, aka vertex, represents an activity that needs to be added to the decentralized network.
- The line, aka edge, shows that a DAG moves only in a forward direction. There is no path back to a previous vertex.
Here are some things that a DAG can do:
- Process new transactions without waiting for the older ones to complete. This allows for multiple transactions to be processed simultaneously.
- Process transactions without spending resources in PoW-style mining.
- No processing fee is needed to confirm and validate transactions.
How do DAGs work?
- Each new transaction must reference a previous one before getting into the network.
- Each vertex represents a transaction. Each transaction is built on top of the other.
- Unlike a blockchain, transaction data is not collected and added to a block.
- Nodes must link each transaction to previous transactions to ensure double-spend protection.
Examples of coins using DAGs
Blockchain vs Hashgraph vs DAGs: In Closing
As you can see, blockchain is not the be-all and end-all of DLTs. Hashgraphs and DAGs are also pretty popular implementations. However, blockchain technology remains the most widely implemented and battle-tested DLT implementation.
Disclaimer: The content of this email is strictly for information purposes only. All of the opinions expressed in this email are not connected to CoinSmart and are not intended to provide you with investment advice. It is important that you do your personal research and/or consult an investment advisor to determine what is right for you.
