Beyond blockchain: Unlocking the potential of directed Acyclic Graphs (DAGs) in commodity trading and supply chain management

By Sankar Narayanan, CTO, Hectar Global 

The advent of blockchain technology brought a paradigm shift in digital transactions, enhancing transparency, security, and traceability. However, as the technology matures, its limitations in scalability and speed have become evident, especially in dynamic sectors like commodity trading and supply chain management. This is where Directed Acyclic Graphs (DAGs) come into play, offering a robust alternative with the potential to address these challenges and revolutionise these industries.

For example, In cross-border rice trading, a DAG can track rice bags from an Indian farm to an overseas market. Each node represents steps like harvest, milling, export approval, shipping, customs clearance, and arrival at a foreign distributor. Edges indicate transaction progression. The DAG ensures transparency, showing the rice’s origin, quality checks, and transit times. It aids in identifying inefficiencies, like customs delays. Smart contracts on the DAG automatically process payments upon milestone completion, enhancing trust among international traders. This real-time visibility and automation reduce fraud risk, streamline operations, and inform traders’ market decisions.

Understanding DAGs

Conventional blockchain systems arrange transactions into linear chains called blocks. A finite number of transactions are added to each block one after the other. Although this sequential structure is good at guaranteeing security and transparency, it can occasionally cause scalability problems and congestion, much like traffic bottlenecks on a busy highway.

DAGs are a type of data structure that uses a topological ordering, allowing for multiple branches that converge but do not loop back on themselves. Imagine a network of interconnected highways where each transaction can follow its own distinct course, branching off and joining forces with other transactions as required. This structure enables simultaneous transactions, eliminating the need for sequential processing, which is a bottleneck in traditional blockchain systems. DAGs excel in this capacity for parallel processing, providing scalability and efficiency that traditional blockchains find difficult to match. This inherent efficiency can dramatically reduce transaction times and costs, a critical advantage in fast-paced environments like commodity markets and global supply chains.

Architectural differences compared to blockchain:

DAGs eliminate the need for block confirmation times, allowing for near-instantaneous transaction verifications. Unlike blockchain, where each block is connected linearly, DAGs allow transactions to be linked in a web-like structure, enhancing speed and efficiency. For instance, in agri-commodity trading and supply chain management, consider a shipment of fresh produce traveling from farm to table. Along the way, it passes through numerous checkpoints, where each transaction—whether it’s the transfer of ownership, quality inspections, or temperature monitoring, is recorded on the distributed ledger. With blockchain, each checkpoint would add its transaction to the end of the chain, creating a linear history of events.

While this ensures transparency and immutability, it also means that the process can be slow, especially when dealing with high volumes of transactions. With DAGs in the supply chain scenario, each checkpoint can record its transaction independently, without waiting for others to finish. These transactions form a web of interconnected data points, reflecting the dynamic and complex nature of the supply chain. As a result, information flows more freely, enabling real-time tracking and optimization of the entire process. This architecture allows for greater scalability and faster transaction speeds compared to traditional blockchains, which is vital for high-volume industries like commodity trading.

Advantages of DAGs

One of the notable challenges of traditional blockchain technology is its scalability. DAGs address this issue by allowing more transactions to be processed in parallel, significantly increasing throughput, a key advantage for real-time applications in commodity trading and supply chain management. DAGs are more energy-efficient than proof-of-work blockchains, as they do not require substantial computational power for intensive mining activities, aligning with global and particularly India’s increasing focus on sustainable technological solutions.

But the benefits of DAGs don’t stop here. Imagine a scenario where a shipment of perishable goods is delayed due to unforeseen circumstances, such as adverse weather conditions. With blockchain, updating the status of the shipment would require adding a new block to the chain, which could take time and cause delays in decision-making. In contrast, DAGs allow for instantaneous updates to be recorded and propagated across the network. This means that stakeholders can react quickly to disruptions, whether it’s rerouting the shipment to avoid spoilage or adjusting production schedules to meet demand fluctuations.

Potential impact on supply chains:

Supply chains are inherently complex, involving multiple stakeholders, geographies, and transactions. DAGs can streamline these processes by providing a transparent and immutable record of goods as they progress along the supply chain. This visibility can lead to improved inventory management, reduced losses, and enhanced trust between partners. Furthermore, the ability to track products in real-time can aid in ensuring the authenticity of goods, combating counterfeiting, and ensuring consumer safety. By providing an immutable record of transactions, DAGs can also enhance the traceability of goods from origin to consumer, critical for ensuring the authenticity and quality of commodities in India’s vast and diverse marketplaces.

Imagine the journey of turmeric from farms in India to grocery shelves in the United States. A Directed Acyclic Graph (DAG) applied to this cross-border spice supply chain could revolutionize its efficiency and integrity. Each significant action, from harvesting, quality certification, packing, export clearance in India, shipping across the ocean, import checks in the U.S., to final distribution to retailers, becomes a node on the DAG. This structure ensures that data at each node is time-stamped and immutable, creating a transparent and verifiable record. As turmeric moves through checkpoints, stakeholders can view real-time progress. If a batch fails a quality test at a node, the DAG helps swiftly isolate the issue without disrupting the entire chain, facilitating faster corrective actions. Additionally, with the integration of smart contracts, payments can be automatically triggered as the turmeric passes through predefined nodes, ensuring timely remuneration and reducing bureaucratic delays.

In the event of a food safety recall, the DAG enables quick tracing back to the source. For cross-border transactions, this level of traceability and automation can lead to reduced costs, faster customs clearance, and enhanced trust among consumers, who are increasingly concerned about the origin and handling of their food. Ultimately, the DAG could lead to more competitive pricing, consistent supply, and higher standards of food safety in the international spice trade.

DAGs in commodity trading

In commodity trading, the ability to execute and record transactions swiftly and securely is paramount. DAGs offer an edge over traditional blockchains by facilitating high-speed transactions and ensuring data integrity, essential for real-time trading decisions and risk management. This technology can also enhance the transparency of commodity chains, allowing traders to verify the origin, quality, and authenticity of goods, thereby reducing fraud, and ensuring compliance with regulatory standards.

Enhancing data integrity and security

The security and integrity of data are critical in both commodity trading and supply chain management. DAGs offer robust protection against tampering and unauthorized access, ensuring that data remains unaltered and traceable. This level of security is vital for maintaining trust among all parties involved and for complying with increasingly stringent regulatory requirements.

Challenges and future directions

While DAGs offer significant advantages, their adoption comes with challenges. The technology is relatively new, and there are concerns about its complexity and the need for further testing to ensure its robustness. Companies may also be navigating challenges related to security, network consensus, regulatory compliance, and interoperability with existing systems. Moreover, the transition from traditional systems to DAG-based systems requires technical expertise, change management, and potentially significant investment. As the technology matures and more success stories emerge, we can expect to see broader adoption and innovative applications of DAGs across various sectors.

Globally, DAG technologies are being integrated into sectors such as finance, healthcare, and smart cities to enhance efficiency, transparency, and traceability, highlighting its transformative potential. Given India’s extensive commodity portfolio and its growing investments in building manufacturing capabilities, adopting this technology for supply chain management to enhance transparency and traceability could significantly boost India’s role in the global market, establishing it as a trusted sourcing and manufacturing hub. By integrating DAG technologies, Indian companies can align with international standards, improving operations, and reliability and solidifying their global standing. This is a strategic imperative for India’s growth and competitiveness in the international arena.

In conclusion, while blockchain has laid the foundational stone for modernizing trading and supply chain management, DAGs represent the next evolutionary step. By offering faster, more scalable, and energy-efficient solutions, DAGs have the potential to further enhance the transparency, efficiency, and security of these critical industries. As we move forward, the continuous exploration and integration of DAG technologies will be key to unlocking new levels of performance and trust in global trade and logistics.

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