WHAT: A Directed Acyclic Graph (DAG) is a PoA or PoS based DLT protocol purpose built for Internet of Things (IoT) networks. Several projects are underway, but the most well know are the Hedera Hashgraph algorithm and IOTA’s Tangle Network (TN).
TN incorporates transaction validation in the ledger — making miners and stakers one and the same. In a blockchain, the ledger must be distributed and verified, whilst miners collect transaction fees and spend time and money competing for block rewards. The Tangle Network bypasses this by requiring each new transaction validate only two previous transactions before it can be validated itself- i.e. two confirmations per transaction. IOTA’s algorithms mandate random selection of transactions for verification, which prevents participants from validating their own transactions.
WHY: DAG consensus allows multiple transactions to be verified simultaneously; With low to no transaction fees, DAGs can be used in situations where current on or off-chain technologies would not be feasible, but further research- particularly real world use cases for PoA or PoS and security at the orders of magnitude expected with IoT networks is yet to be proven.
EXAMPLE: A prime example would be the verification and settling of micro or nano-transactions between millions of IoT devices and sensors per minute.