Abstract
Blockchain technology appears to be ready to revolutionise a broad number of industries. However, the blockchain itself contains a number of inefficiencies and areas for improvement, namely: transaction fees and transaction speeds. Directed acyclic graphs (DAGs) address, and improve on these inefficiencies and a number of digital currencies utilising this technology have already begun to appear. This paper provides an explanation of the technology behind DAG-based assets, while identifying and highlighting strategic advantages that DAGs possess over traditional blockchains. We conduct an EGARCH volatility analysis of a range of blockchain-based and DAG-based cryptocurrencies in the aftermath of a range of market shocks, taking the form of regulatory announcements such as bans and broad restrictions for cryptocurrencies. We find that DAG-based assets become increasingly responsive to market shocks as they mature. Such behaviour mirrors that of established cryptocurrencies such as Bitcoin, Ethereum and Litecoin, providing evidence that DAG-based cryptocurrencies now share similar characteristics to traditional blockchain-chain based products.
Highlights
Much research in the area of digital assets and cryptocurrencies has so far been focused almost exclusively on Bitcoin [Nakamoto, 2008]
Our research provides the first examination of the consensus methods behind these three digital assets, and the underlying Directed acyclic graphs (DAGs) technology itself
Discuss, a number of key strategic advantages that DAG-based assets hold over blockchain, these include: an increased ability to scale; an absence of transaction fees; a new set of economic incentives; and a resistance to quantum computing
Summary
Much research in the area of digital assets and cryptocurrencies has so far been focused almost exclusively on Bitcoin [Nakamoto, 2008]. DAG-based assets use a different method to achieve consensus between network participants and this consensus method allows for the elimination of transaction fees while simultaneously providing an increased ability to scale Both are problems which have far plagued blockchain assets. Discuss, a number of key strategic advantages that DAG-based assets hold over blockchain, these include: an increased ability to scale; an absence of transaction fees; a new set of economic incentives; and a resistance to quantum computing (a long-term threat to all blockchain based digital currencies). It further details other implementations of DAG technology, namely the digital currencies NANO and Obyte.
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