Blockchain 3.0 — Innovations in The Distributed Ledger Technology Part 2
Research in the Blockchain communities is continuously revolving. In each ecosystem, many experts are working on scaling solutions. When it comes to Bitcoin, the Lightning Network and RootStock are two of the best-known methods. And in the case of Ethereum, solutions such as Sharding and Plasma are at the top of the list. Attempts such as the Lightning Network are trying to tackle the scaling problem with a simple solution — not all participants need to know all the information at all times to keep the network in sync.
A DAG is based on a so-called “horizontal” scheme, while a blockchain is based on a “vertical” architecture. In the case of blockchain, miners craft new blocks that are added to the blockchain. On the other hand, the “horizontal” structure of DAGs allows transactions to be linked directly to other transactions without packing them in a block first. This way it is not needed to wait for a confirmation of the next block. Since the DAG concept has neither miners nor blocks, there is no chain of blocks containing transactions and therefore no “blockchain” in that sense. The structure of a DAG resembles more to a “maze” of numerous transactions. This is why people often call it Tangle — a term that arises again and again, especially in connection with the IOTA project. But, it is important to say that at its core, the Tangle has the same features as a blockchain — it remains a distributed database based on a peer-to-peer network. Thus, Tangle is likewise a validation mechanism for distributed decision making.
The Tangle is made by linking individual transactions in the network. The linking is a result of the requirement that each unconfirmed new transaction must confirm one or two additional transactions before it can be processed and approved itself. Compared to the blockchain of Bitcoin or Ethereum, it is not only the miners who are accountable for the confirmation of transactions. With the Tangle, this task of processing and validating new transactions is the responsibility of all active Tangle or network participants. This way not only recently added transactions are confirmed, but the entire transaction history is also indirectly confirmed with it. The “transaction issuer” does not pay a direct fee for processing its own transactions — they only indirectly pay (with computer hashing power) by confirming other transactions.
Transactions in the network that haven’t yet been confirmed are commonly referred to as “tips.” To obtain confirmation, these “tips” themselves have to authenticate other transactions. An algorithm ensures that network participants do not merely confirm their own transactions.
The reason why all transactions have to be confirmed is clear — to avoid the problem of double-spending. As with a regular blockchain, innovative technology also requires the confirmations to prevent double spending.
As the name suggests, the Tangle ultimately becomes a maze of transactions. The Tangle has a feature called “confirmation confidence” so that no two separate branches form in this “mazy” cluster of transactions in which someone has issued the same tokens twice. Because this is the level of trust and acceptance that the remainder of the Tangle gives to a transaction. Each transaction, therefore, has a certain percentage, depending on the number of tips (unconfirmed transactions) accepting it. This is designed to ensure that only one branch prevails, specifically the one with the more substantial confirmation confidence.
It is precisely this concept that should allow a better scaling of any DAG project. What makes a traffic jam in a blockchain and slows down the network should make a Tangle even safer and faster — the more participants in the network and the more transactions are processed, the better the processing of outstanding transactions — at least in theory. The existing projects are still small, so we cannot say for sure until we confirm it on a real-life example.