What is DAG (Directed Acyclic Graph)?
Crypto Glossary Definition
A graph (a kind of data structure) that is directed and without cycles connecting the other edges.
Why DAG (Directed Acyclic Graph) Matters
Instead of bundling transactions into sequential blocks, a DAG lets transactions reference and validate each other directly, forming a branching, non-repeating structure. Projects like IOTA (Tangle) and Nano (block lattice) use DAG-based designs specifically to avoid the throughput bottlenecks that come with waiting for blocks to fill and confirm one at a time.
DAG (Directed Acyclic Graph) in Practice
Suppose a payment network is designed for machine-to-machine microtransactions — thousands of tiny transfers between IoT devices every second — where waiting for transactions to be bundled into a block and confirmed sequentially would be far too slow. Instead of using blocks, the network structures transactions as a directed acyclic graph: each new transaction must validate two previous transactions before it can be added, weaving them together into a branching structure where nothing ever loops back on itself. A device sending a tiny payment doesn't wait in a queue behind unrelated transactions; its transaction gets confirmed by validating others, contributing directly to network throughput instead of competing for limited block space. Projects like IOTA built their entire consensus model, called the Tangle, around exactly this idea, aiming to eliminate the fees and throughput ceilings that come with traditional blockchains. Nano takes a related but distinct approach with its block-lattice structure, giving each account its own individual chain that updates independently rather than sharing a single global sequence. Both designs trade away some of the simplicity of a traditional single-chain blockchain in exchange for theoretically much higher transaction throughput, which is precisely the tradeoff DAG-based networks are built to make.
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