The two most popular cryptocurrencies – Bitcoin and Ethereum.
Bitcoin uses PoW and Ethereum runs on PoS. Let’s take a look at how these two disparate systems differ.
PoW is a mining and computer power based system in which participating users are required to solve difficult mathematical problems to validate and authenticate transactions. The difficulty of these mathematical tasks is constantly increasing along with the computational power of the whole ecosystem.
These calculations are very costly because of the high amount of energy needed. This leads to the problem that the grid is no longer as decentralized as originally intended and is instead controlled by large mining pools. This then causes a lot of the wealth of the ecosystem to leak to energy companies and graphics card manufacturers.
On the other hand, PoS has solved this energy related problem. In the PoS get tokens from actual holdings of the cryptocurrency. Users that own the largest chunk of cryptocurrency have the authority to make network changes and mine an equivalent portion of their funds regardless of computing power.
In 2016, the Ethereum network was split. After that appeared threats from users, including the angel investor Chandler Guo. Guo threatened to use a 51% attack on Ethereum Classic and this was possible due to the its small network size.
Is this a decentralized network? Where are the groups of people who manipulate the network? Someone says yes, someone not.
DAG (directed acyclic graph) has been offered as a solution. It is very different in contrast to the other systems. One user’s voice is just as important as another, regardless of their computing power and the number of tokens that they own. DAG is a blockchain free system and it solves several problems of the blockchain systems, including the following two basic issues – the mining pool’s oligopoly problem and the lack of possibility to speed up the validation process.
In DAG-based cryptocurrencies each new transaction confirms one or more previous transactions. As a result, transactions perform a structure which represent a directed graph with no directed cycles.
In 2012, the first concept of a cryptocurrency was developed – DagCoin. Following this was Byteball in 2015, which is based on DAG and is the project of a new Blockchain-free cryptocurrency. Then in 2016 an overview of Tangle technology, based on DAG, was published. Tangle is the framework for the Blockchain-free cryptocurrency IOTA, which is aimed at improving the payment methods between the Internet of Things.
This DAG concept is still very new and it is not being talked about much, however, the potential it has is very interesting and sooner or later people in the field of cryptos will become aware of its advantages.