The term "DAG" is often used, but it can be somewhat misleading depending on where you look, While many sources associate DAGs with blockchain alternatives, it might not fully grasp the entire concept. As the prime example, Avalanche® X-Chain, in contrast to Bitcoin's blockchain, employs a UTXO-based DAG structure. It utilizes the Avalanche consensus protocol, which introduces a causally ordered approach to transaction validation. This support article aims to shed light on causal ordered Directed Acyclic Graphs (DAGs) and their role in revolutionizing distributed ledger technology (DLTs) in the least technical way possible. For more technical information based on this article's information, select review our whitepaper directory here.

Before diving in, it's important to understand what causally ordered DAGs are and how they differ from their total ordering counterparts. Unlike traditional blockchains, which employ total ordering, causally ordered DAGs prioritize the cause-and-effect relationships between transactions over their chronological order.

Avalanche's DAG of transactions resembles a graph, with each node in the graph representing a transaction. The nodes are connected based on their cause-and-effect relationships, leading to a consensus on transaction validity. Avalanche's approach to efficiently increases transaction speed (TPS) while maintaining a causally ordered ledger.

As for more context in Unspent Transaction Outputs (UTXOs), each UTXO forms a sequence of ownership, wherein the existing owner authorizes a transaction to transfer ownership of the UTXO to the new holder's address. In the UTXO DAG context, Avalanche's consensus mechanism comprises four building blocks:

Slush consensus allows nodes to reach decisions by choosing between red and blue in a voting process. Snowflake and Snowball build on this by introducing memory and confidence into the consensus process. The culmination of these building blocks is the Avalanche consensus, where transactions are conjoined to a DAG structure.