Key Takeaways
A directed acyclic graph (DAG) is an alternative data structure to blockchain for building decentralized cryptocurrency networks, using vertices and directed edges instead of blocks and chains.
In DAG-based networks, each new transaction must confirm one or more previous transactions, removing the need for miners and block times in most implementations.
DAGs can potentially offer higher throughput, zero fees, and better scalability than traditional blockchains, making them attractive for micropayments and IoT applications, though these benefits vary by design.
Trade-offs include elements of centralization in early implementations and limited real-world testing at scale.
Notable DAG-based projects include IOTA (which launched a fully decentralized version in 2024) and Kaspa, which combines DAG architecture with proof-of-work.
Introduction
When you think of cryptocurrency, the term "blockchain" likely comes to mind first. Since the launch of Bitcoin, hundreds of cryptocurrencies have been built on similar network architecture. Most rely on a growing chain of blocks, each linked to the previous one through a cryptographic hash.
In a blockchain, users broadcast transactions that get bundled into blocks. There is usually a waiting period before a transaction is confirmed, depending on how full the blocks are. In busy conditions, this wait can range from seconds to hours.
Some developers and researchers believe this block-based model has fundamental scalability limits. One proposed alternative is the directed acyclic graph, or DAG. DAGs take a different approach to recording and confirming transactions, removing the concept of blocks altogether.
What Is a DAG?
A DAG is a type of data structure made up of vertices and edges. "Directed" means the connections only flow in one direction. "Acyclic" means there are no loops, so you can never travel back to a starting point by following the graph forward.
In scientific and data modeling applications, DAGs are used to show relationships between variables and observe how they influence each other. In the context of cryptocurrency, each vertex in a DAG represents a transaction rather than a block. Transactions link to earlier transactions, building a web of confirmations rather than a linear chain.
This structure is fundamentally different from a blockchain. There are no miners grouping transactions into blocks, and there is no fixed block time. Transactions can in theory be submitted at any time without waiting for the next block.
How Does a DAG Work?
In a DAG-based cryptocurrency, when a user submits a new transaction, they must first reference and validate two or more previous unconfirmed transactions. This creates a self-sustaining confirmation system where users collectively validate each other's activity rather than relying on a dedicated mining class.
Some DAG implementations require a small amount of computational work when submitting a transaction, as a lightweight spam-prevention measure that also validates the referenced transactions. Others, such as IOTA 2.0, have moved to staking-based approaches that do not require submission work. Once a transaction references and confirms earlier transactions, those transactions are considered confirmed. The new transaction then sits as a "tip" waiting to be confirmed by a future transaction.
Transactions with more accumulated confirmations behind them (referred to as heavier weight) are more likely to be selected by new transactions building on them. This incentivizes the network to keep extending the most confirmed branch of the graph.
How do DAGs prevent double-spending?
Double spending is prevented by requiring new transactions to trace back through the entire history of the DAG to verify the sender has sufficient funds. If a transaction references an invalid path, other users will refuse to build on it, isolating that branch and effectively discarding it.
In theory, two conflicting branches could emerge simultaneously. DAG selection algorithms address this by favoring the heavier, more confirmed branch. Over time, the heavier branch attracts more new transactions while the weaker branch gets abandoned.
This means DAG-based systems do not have absolute transaction finality in the traditional sense. Like blockchains, they work on probabilistic finality. The more confirmations a transaction accumulates, the more confident a user can be that it will remain settled.
Pros and Cons of Directed Acyclic Graphs
Pros of DAGs
Speed: because there are no fixed block times, users can submit transactions at any time. The system can process many transactions in parallel rather than queuing them for the next block.
Reduced or no mining requirement: many DAG designs replace energy-intensive proof-of-work mining with lightweight validation done by the sending user or through staking. This can dramatically reduce energy consumption compared to PoW blockchains. Note that some DAG implementations, such as Kaspa, deliberately retain PoW for its security properties.
No transaction fees: without dedicated miners to pay, users in many DAG networks do not pay fees. This makes DAGs attractive for micropayments, where even small fees would erode value.
Scalability: DAGs are not constrained by a single block size limit. As more users submit transactions, the confirmation rate can increase, addressing common blockchain scalability bottlenecks. This makes DAGs appealing for Internet of Things (IoT) scenarios where millions of small devices exchange tiny amounts of value automatically.
Cons of DAGs
Centralization risk: many existing DAG implementations have relied on a central coordinator node during their early phases to prevent attacks while the network was small. Removing this coordinator is a complex engineering challenge, and some projects have struggled to achieve it.
Limited real-world testing: DAG-based cryptocurrencies have not yet seen the kind of sustained, high-volume usage needed to verify their claims at scale. Their behavior under adversarial conditions or extreme load remains less well understood than blockchain alternatives.
Examples of DAG-Based Cryptocurrencies
IOTA is the most prominent project built on DAG architecture. Its network, called the Tangle, was designed for feeless microtransactions between IoT devices. For years, IOTA relied on a central Coordinator node to secure the network. In late 2024, IOTA launched IOTA 2.0 (also called Rebased), a fully decentralized version that removes the Coordinator entirely and introduces a new consensus mechanism based on delegated proof of stake within the DAG. As of mid-2026, IOTA 2.0 is the live mainnet.
Kaspa combines DAG structure with traditional proof-of-work mining. It uses a protocol called GHOSTDAG, which allows multiple blocks to be created in parallel and included in the ledger simultaneously rather than discarding competing blocks. This gives Kaspa high block rates (over 100 blocks per second) while retaining PoW security properties. Kaspa grew substantially through 2024 and 2025, reaching top-20 status by market capitalization at its peak, serving as a practical demonstration of DAG viability alongside PoW.
Sonic (formerly Fantom Opera) uses a DAG-based consensus mechanism called Lachesis. Each node builds a local DAG of event blocks, and the consensus layer orders them into a final chain. In late 2024, the network launched the Sonic upgrade, followed by a full rebrand and migration from the FTM token to the S token through 2025. Sonic is now the primary network, with the original Opera chain having been superseded.
FAQ
What is a directed acyclic graph in cryptocurrency?
A directed acyclic graph (DAG) is a data structure used to record and confirm transactions in some cryptocurrency networks. Instead of bundling transactions into blocks, each transaction directly references and validates previous transactions, forming a web of confirmations.
How is a DAG different from a blockchain?
A blockchain groups transactions into sequential blocks secured by miners or validators. A DAG has no blocks. Each new transaction confirms prior ones, and the network grows as a directed, non-looping graph rather than a linear chain. DAGs typically have no fixed block time and, in many designs, no transaction fees.
Does a DAG have transaction fees?
Many DAG-based networks are designed to be feeless, since there are no miners to compensate. Instead of paying fees, users may contribute a small amount of computational work when submitting transactions, though some newer implementations use staking instead. Some implementations do charge minimal fees to nodes that perform additional network functions.
What are examples of DAG-based cryptocurrencies?
Prominent examples include IOTA (Tangle), which launched a fully decentralized version in 2024 after years of using a central coordinator; Kaspa, which combines DAG architecture with proof-of-work mining; and Sonic (formerly Fantom), which uses a DAG-based consensus layer called Lachesis.
Is a DAG more scalable than a blockchain?
DAGs can potentially handle more transactions per second than traditional blockchains because they are not constrained by block size or block time. However, most DAG networks have not yet been tested at the scale of established blockchains, so their performance under sustained real-world load remains an open question.
Closing Thoughts
Directed acyclic graphs offer an alternative approach to building cryptocurrency networks, removing blocks and miners in favor of a transaction-based confirmation web. The architecture holds real promise for high-throughput, feeless applications, particularly in IoT and micropayment use cases.
Recent developments, including IOTA's removal of its central coordinator and Kaspa's growth as a DAG-based proof-of-work chain, suggest that DAG technology is maturing. Whether it can match the security and adoption of established blockchains at scale remains to be seen.
Further Reading
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