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Over the years, we have spent far too much time talking about the benefits of blockchain technology for enterprises. It can indeed power a wide range of enterprise use cases that demand high scalability, throughput and security. However, the underlying infrastructure faces a set of unique challenges when compared to the traditional Web2 ecosystem where centralized companies control data.
Decoding the blockchain trilemma
Blockchains need to be highly secure in the absence of a central authority. And they need to be highly scalable to accommodate a rapidly growing number of users, transactions and other data. But the traditional blockchains have yet to catch up with the needs of enterprises.
For instance, the Bitcoin network is fairly decentralized and secure. It would be incredibly difficult, if not outright impossible, to break Bitcoin, due to its decentralized nature. But it’s not very good in terms of scalability, being able to process only around 5-7 transactions per second. Not ideal for enterprises or mass adoption.
A newer breed of blockchains like Solana, Avalanche and others have tried to address the issue of scalability that haunts the likes of Bitcoin. Although these new blockchains can process more transactions faster and with lower fees, their lack of security has led to the rise of several new hurdles for the young ecosystem, namely in the form of security breaches.
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The blockchain trilemma is the concept of the struggle to achieve a harmonious combination of three core characteristics scalability, security and decentralization.
- Scalability: The ability to offer higher transaction confirmation speeds and lower gas fees.
- Security: The ability to protect the data stored in distributed systems from threats.
- Decentralization: The ability to maintain equal ownership for all network participants.
Most blockchain networks excel in only two of those three characteristics. Finding the right balance between decentralization, security, and scalability is the holy grail of the Web3 movement. But there’s no concrete solution so far. Legacy blockchains like Bitcoin and Ethereum haven’t been able to achieve it.
For enterprises, security and scalability are two of the most critical demands. Scalability is essential for blockchain technology to support the growing number of users and facilitate the transition from centralized Web2 model to a decentralized Web3 version.
However, decentralization isn’t as important in enterprise-level use cases, as there are minimal chances enterprises would want to store sensitive data in public blockchain networks.
Overcoming the constraints
If being scalable and secure is more important than decentralization for enterprises, isn’t it better to develop a blockchain that delivers on it?
This is where Directed Acyclic Graph (DAG) can play a promising role in driving enterprise adoption. The DAG is a “blockless” data structuring tool that looks more like a graph than a chain that you see in traditional blockchains. There are no blocks to add transactions to. Instead of storing data in one block at a time, it is like a tree where new branches are growing off of old branches. So, it can simultaneously process a lot more transactions as the tree branches, solving the problem of scalability for enterprises.
The standard blockchains face scalability issues because they store all data in blocks, and one block is added after another to form the chain. There’s a waiting period between executing a transaction, creating a block, validating it, linking it to all previous blocks, and finally adding the block to the chain.
On the security front, DAG validators who verify transactions can never reference back to themselves. Every approved transaction must reference two previous transactions. Since there are no miners, the transaction fee is negligible. Simply put, each new transaction registered is first verified with two previous transactions, thereby eliminating the need for multiple validations like traditional blockchain networks.
Despite the benefits that DAG offers for enterprise adoption, no one had managed to issue tokens on top of it until recently. Issuing new tokens is essential to attract projects, funding and companies that want to serve their clients or use more complex reward systems.
Low-cost mechanisms to drive use
We developed a DAG-based workaround that supports this expanded functionality while concurrently addressing the blockchain trilemma, powering enterprise use cases that demand high scalability, throughput, and security.
The MultiDAG protocol allows developers to issue tokens using the CMD (COTI MultiDAG) standard, just like you can mint new ERC-20 tokens on the Ethereum blockchain. Yet, unlike Ethereum, transaction costs can be minimized and handled by the issuer, making it easier for users to adopt the solution without considering how much it would cost to transact on the network. For enterprises, having a low-cost mechanism to process a large number of transactions is very valuable, and will ultimately help drive use.
Taking into account the value of this approach, Directed Acyclic Graph (DAG) has emerged as a handy solution to overcome the scalability and throughput constraints of existing networks, particularly for more widespread enterprise adoption.
For large organizations that value speed, regulatory compliance, and an intuitive user experience that supports streamlined onboarding, choosing MultiDAG might be a powerful accelerant for transitioning toward a greater embrace of Web3 ideals.
Shahaf Bar-Geffen is CEO of COTI.