Directed Acyclic Graph (DAG)

In a traditional blockchain, blocks form a single chain — each block references exactly one predecessor. In a DAG, each transaction directly references one or more previous transactions, creating a web-like structure where multiple branches can grow simultaneously.

This parallelism is DAG's key advantage. Instead of waiting for blocks, transactions are confirmed by being referenced by subsequent transactions. The more activity on the network, the faster confirmations become — the opposite of traditional blockchains where high activity causes congestion.

IOTA's Tangle is the most well-known DAG implementation: each new transaction must validate two previous transactions, creating an ever-expanding graph. Hedera Hashgraph uses a DAG combined with virtual voting and gossip-about-gossip to achieve consensus, claiming 10,000+ TPS with 3-5 second finality according to Hedera documentation. Fantom uses a DAG-based consensus (Lachesis) to achieve 1-second finality, though its execution layer is EVM-compatible and block-based.

According to IOTA Foundation data, the IOTA 2.0 testnet (Shimmer) demonstrated feeless transactions with full decentralization, removing the controversial Coordinator that centralized earlier versions. DAG architectures are promising but less battle-tested for general-purpose smart contracts than traditional blockchains. Most DAG projects target IoT micropayments, supply chain tracking, or high-throughput enterprise applications.