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Crypto Daily Topic

Blockchain vs Tangle: All you need to know

The issue of blockchain’s scalability is as old as blockchain itself. If you’re the tiniest bit familiar with the technology, chances are you’re aware of the blockchain’s inability to support millions of transactions at a scale that would enable it to compete with current money transfer systems such as Visa. 

When you wade deeper into the scalability debate, you’ll soon hear such terms as IOTA, Tangle, and directed acyclic graphs (DAG).  What do these terms mean, and is Tangle a threat to blockchain? 

In this piece, we’ll explain what Tangle is, how it stacks up to blockchain, and whether we can see a future where it replaces Bitcoin or becomes its formidable match. We’ll also give our verdict on which technology is currently more superior.

What Is Tangle?

The Tangle is a network that aims to achieve the same purpose as blockchain:  facilitate transactions in a trustless and decentralized environment. Tangle is an implementation of the directed acyclic graph (DAG) – which is also a distributed ledger like the blockchain. Also, much like the blockchain, DAGs do not have intervening authority or entity such as a bank or a government.

 This is where the similarities end. Tangle has special features designed to facilitate the ‘Internet of Things’ (IoT). IoT is a  universe of interrelated devices that can interact with one another through a multitude of little unique identifiers to enable them to execute the functions they were designed for without requiring human or computer intervention.

Unlike how it sounds, the internet of things is not that complicated a concept. Imagine a shower switching itself on 5 minutes before you arrive, or a coffee machine that makes coffee 5 minutes before you wake up, or a washing machine setting itself on – all without any sort of input from you.

If this technology is to work as it’s meant to, there must be an underlying network that can handle a  massive amount of transactions- from facilitating exchanges, to transferring data,  to sending of signals – all in a seamless, secure and fast network. 

Enter Tangle. This technology is based on DAG, which is designed to support a plethora of data interactions but will facilitate the IoT in a way that the blockchain cannot.  These features are like the following: 

No miners: Unlike the blockchain, there are no miners in the Tangle network.  This eliminates the need for fees, or miners being able to block some transactions.

More relaxed data transfer rules: This makes Tangle more agile than the blockchain and thus better for handling a vast amount of transactions.

Scalable data units: This feature facilitates the transfer of training bits of data, enabling Tangle to process micro-transactions.

The pros and cons of Tangle: 

Pros

  • Zero fees
  • Faster transaction times
  • Scalable

Cons 

  • The technology is not yet tested and proven
  • Does not support decentralized applications
  • Arguably less secure
  • Centralized – Tangle relies on a ‘central coordinator node’ that checkpoints valid transactions

What Is Blockchain?

Blockchain is the technology that supports cryptocurrencies such as Bitcoin, Ethereum Litecoin, and so on. Blockchain is a ledger that holds transaction blocks – which are linked to each other and secured using cryptography. Each block has a reference to the block that came before it, hence a ‘chain.’ 

Each node (miner) independently verifies the authenticity of a transaction – meaning that transactions are agreed upon via group consensus. The miner who confirms a block of transactions receives block rewards or a fraction of the transaction fees.  Miners usually invest considerable sums of money in a special mining computer known as application-specific integrated circuit (ASICs). 

Blockchains, like the Ethereum blockchain, can facilitate the creation of a special type of applications called decentralized applications (DApps). DApps are, unlike today’s applications (such as Facebook or Google), under no one’s authority or censorship. Also, DApps grant users the complete autonomy of their personal data – which is the complete opposite of how legacy applications handle users’ data.

Bitcoin’s Scalability Issues

The current blockchain architecture faces serious scalability issues. The fact that each node must verify transactions before they are added means confirmation is slow. The limited size of blocks, e.g., 1MB for the Bitcoin blockchain, is another bottleneck since a very limited amount of data can fit in each block. 

Now, as more people transact on the blockchain, the more clogged it becomes.  This means longer waiting times and increased fees, which leads to unsatisfied users. This has led to several hard forks of the Bitcoin blockchain –   all which sought faster transactions and lower fees.

Let’s take a quick look at the pros and cons of the blockchain. 

Pros: 

  • A proven history of reliability
  • A secure system that is difficult to compromise
  • Layer 2 Solutions such as the lightning network are being explored to remedy the scalability problem

Cons: 

  • The blockchain is not scalable on its own
  • High fees and long waiting times

Differences between Tangle and Blockchain

While only a few technical differences distinguish blockchain and Tangle, those differences are significant nevertheless. Let’s take a look: 

Structure – blockchain comprises a series of cryptographically connected data blocks. Tangle, on the other hand, consists of a group of data nodes that flow in just one direction. Also, blockchain can double back on itself in a circular manner, but Tangle can only move in one direction. (This means that Tangle can more rapidly transfer data.)

Security– blockchain offers better security thanks to its extremely meticulous block confirmation process that involves solving computational puzzles and verification of transactions via group consensus. On the other hand, Tangle’s security feature entails validating the two most recent transactions before confirming the next.  By this measure, blockchain is more secure than Tangle.

Decentralization – blockchain is undoubtedly decentralized since it operates on thousands of computers around the world, with no single authority overseeing transactions. Tangle is also billed as decentralized, but it utilizes a safeguard that it calls a ‘coordinator node.’  The presence of the safeguard renders Tangle centralized, one way or another. It’s hard to say that the tangle framework is entirely autonomous.

Tangle fans argue that the technology’s less detailed node addition protocol might make it less secure than blockchain, but it also makes it more agile. They stress that this makes Tangle better equipped to handle massive volumes of IoT interactions. But this uncertainty and its security, as well as its centralization problem, means the technology is far from ripe to fulfill its intended purpose, let alone compete with blockchain.

What is IOTA?

Tangle’s only application to date is the IOTA cryptocurrency. IOTA is named after IoT, which it’s designed to facilitate.  IOTA can handle a multitude of tiny transactions, which makes it ideal for the micro-transactions that run an internet of things.

As of March 30, 2020, IOTA is trading at $ 0.142212 at a market rank of 24 with a $ 395, 282, 148 market cap. 

For its part, Bitcoin is trading at $ 6, 316.03, and it ranks at number one with a market cap of $115, 552, 963, 908.

Blockchain Vs. Tangle: Which Is Better?

As the debate about which of the two technologies is better rages on, it helps to look at the specifics. To begin with, Tangle is yet to be proven as opposed to Bitcoin, which has been a mainstay for ten years now. Also, it doesn’t have nearly half of the number of users on the Bitcoin network.

Additionally, IOTA is at risk of a 34% attack, as opposed to Bitcoin’s 51%. This means that an attacker would only need to gain control of 34% of the IOTA network, rendering it less secure than blockchain.

As previously mentioned, IOTA utilizes a coordinator node that synchronizes data among all nodes, making it centralized.  This is in contrast with Bitcoin, whose nodes are equally distributed across the globe.

From these observations, it’s clear to see that blockchain maintains the upper hand in the battle between the two Technologies – at least for now.  This does not mean that IOTA’s completely written off. It is, on its own, a force to reckon with, as evidenced by its fiercely loyal community as well as a strong value proposition.

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Crypto Daily Topic

Will DAG Replace Blockchain as the Future of Crypto?

Blockchain has been a breakthrough technology, but would you believe it if I told you a new kind of DLT that promises to render it useless is almost ready for production?

Blockchain has been great thus far. It brought us cryptocurrency and was the technology that set the pace for a myriad of industry-disrupting innovations. If you know what blockchain is, you probably also know that it is a kind of distributed ledger.

And if you heard this for the first time, a  distributed ledger is a database that is shared and synchronized in real-time across many different users, sites, institutions, and physical locations. A distributed ledger is said to be decentralized because it is not ‘owned’ or ‘controlled’ by one entity. Decisions on a decentralized system are essentially made as a contribution by all the members who share it. Because of this, every transaction on the database has public ‘witnesses,’ making the whole system transparent and trustworthy. 

Blockchain is not the only technology that makes use of distributed ledgers. Another newer and less recognized technology is Directed Acyclic Graphs or simply DAG. This new kid on the distributed ledger bloc is dubbed the ‘third-generation blockchain’ because it is developed to cover the shortcomings of blockchain, which limits its adaptive scalability.

Blockchain vs. DAG 

How do blockchain and DAG relate? Well, if blockchain were a staircase, DAG would be a tree. While the former is a list of blocks, the latter branches out from one transaction to another.

Distributed ledger technology (DLT) does not refer to just blockchain technologies. DAG is another type of DLT that works differently from the blockchain. Most industry experts agree that DAG is a rival technology to the blockchain that offers solutions to some of the major shortcomings of the latter, while others view it as an enabler that only works better in different applications.

While both blockchain and DAG are ledgers that stores records on a distributed ledger, they are very different in structure, and uses contrasting consensus techniques.

A blockchain is an ever-growing chain of blocks of transactions ordered in a linear and chronological manner in such a way that each of them contains a timestamp as well as a link to a previous block. DAG, on the other hand, is a newer kind of distributed ledger that offers all the benefits blockchain offers but with better performance and greater scalability.

In mathematics, DAG refers to a graph that flows in one direction and with no cycles that connect other edges. There is no way to move to every point of the graph, starting from only one end because its edges go only one way.

Picture a collection of transactions where every transaction is linked to one or more transactions. The image below compares blockchain’s ‘chain of blocks’ to DAG’s graph of transactions:

Difference between blockchain and DAG

You should see that in the second formation, transactions are:

  1. Directed: This means that the links all point in the same direction. Earlier transactions are linked to later transactions.
  2. Acyclic: There are no loops in the formation of the transaction. This means that a transaction cannot loop back to link to itself after linking to a later transaction.
  3. Graphical: The mesh formed by the connection of transactions are essentially nodes in a graphical network. The nodes connect to each other via links.

In summation, DAG is a ledger of records of individual transactions that link to multiple newer transactions, whereas blockchain is a linear formation of blocks of validated transactions.

Since there are no blocks transactions in a DAG network, it is ideal for use in data processing, scheduling,  data compression, and finding routing navigations.

Shortcomings in blockchain consensus

In our analogy, we equated the blockchain network to a staircase where a DAG network is a tree. Most cryptocurrencies today use the blockchain network. Therefore, when one block of verified transactions is added to the chain, it extends the network in one direction. This means that transactions have to be synchronized one at a time, much like stacking a staircase. 

This is how blockchain maintains consensus, ensures security and trustworthiness of the blocks of transactions without a central authority. It not only guarantees that all the blocks of transactions are the same across all the nodes in the network but also ensures that no block can be easily altered or manipulated by a single node.

While this way of enabling and maintaining consensus has been an ingenious innovation, it has its shortcomings.

To guarantee a consistently good quality chain of blocks, to verify them and to add them to the network takes time and effort. There must be quality checks just to be sure that every transaction meets pre-set rules.

Creating blocks that meet set criteria such as size also takes time, and chances of fake transactions slipping through are significantly reduced when nodes are accorded more time to process transactions and verify blocks. The Bitcoin network takes 10 minutes to process transactions and verify 1Mb blocks while Ethereum takes 16 seconds to complete blocks of varying sizes.

Consensus in DAG Networks

DAG, as a tree, uses a different technique to maintain consensus and security of the records in its network. The network is much like a collection of interlocking branches that grow outwards in different directions. Each transaction in this tree is only required to verify the preceding transaction to be valid itself. A standalone transaction without a valid preceding transaction would be easily singled out by the nodes in the network and removed from the records.

The best part about DAG consensus is that one transaction can confirm multiple transactions in succession. In the process, the transaction output grows much like the fractal’s outward growth of branches on a tree. The higher the number of transactions processed in the network, the higher the number of transactions the network will be able to process.

Benefits of DAG over blockchain

Blockchain technology was a hit and continues to be the greatest DLT technology because it brings transparency, immutability, and trustworthiness to public transactions. DAG has the same benefits and more. While the storage, network bandwidth, and ‘proof of work’ requirements of blockchain increase with the growth of volumes of transactions, with DAG, scaling is not only efficient in power requirements but also in reducing transaction fees.

DAG, as a decentralized ledger, is not limited by lengthy block verification periods and block sizes. A DAG DLT is much faster than a blockchain one, and while it is still relatively new, it has been tested to provide as many as 300,000 transactions in a second according to figures by  Korean DAG startup Fantom.

By completely doing away with blocks, DAG addresses bitcoin’s major disadvantages: scalability, speed, and efficiency. Being a new technology, this DLT remains untested outside development labs, but most industry experts who have had a say about it laud the innovation for its unprecedented speed potential, scalability, and promise to catch up with established blockchain networks.

At present, there are numerous DAG-based projects in development. One of the most famous is a smart contract platform being developed by Fantom that promises to rival Ethereum in just a few months. Only time will tell whether cryptocurrencies and projects running on the DAG will indeed be the ‘blockchain 3.0’ when it matures.