What is Hedera Hashgraph?

What is Hedera Hashgraph and How Does it Work?

There are a growing number of layer one distributed ledger technology (DLT) providers entering the market, whose main aim is to improve upon existing blockchains and networks. Because the technology is barely a decade old, there are many issues to iron out, the most pertinent of which is solving the “blockchain trilemma” – that is – a network that doesn’t compromise on decentralization, scalability or security, while at the same time being energy efficient.

In this article, we’re going to learn about Hedera Hashgraph – a DLT which claims to be solving all of these issues.

Introduction – What is Hedera Hashgraph?

Hedera Hashgraph is a public distributed ledger, which is built on top of the hashgraph distributed consensus algorithm (we’ll refer to this as the “hashgraph algorithm” from here on).

The hashgraph algorithm was invented by Hedera’s co-founder, Dr. Leemon Baird. The technology is patented and the intellectual property is owned by Swirlds Inc.

Hedera’s public network was officially launched in September 2019. Unlike most other public DLTs, the hashgraph algorithm is not open-source. Instead, it’s “open review” only. The stated rationale for this is to prevent forking, which would be problematic for enterprises building on top of Hedera.

While the hashgraph algorithm itself is not open source, elements of the Hedera architecture are open-source and can be built upon by independent devs.

Hedera Hashgraph claims to be faster, fairer, and more energy-efficient than most other blockchains, including Bitcoin and Ethereum. These attributes make Hedera an “enterprise-ready” DLT.

How does Hedera Hashgraph reach consensus?

Hedera uses Proof-of-Stake (PoS) to reach consensus, which is far more energy-efficient than Proof-of-Work (PoW) networks. PoW requires nodes to compete against other nodes in solving complex mathematical problems, which requires vast amounts of computing power. In contrast, PoS validates transactions on the network based on the number of tokens held by a particular node. With hashgraph, all of the nodes work together to reach consensus, while the nodes are rewarded for securing the network based on the proportion of “staked” coins or tokens.

Hedera Hashgraph is not a blockchain. Instead, Hashgraph uses a gossip protocol and virtual voting to reach consensus.

If you want to get into the nitty-gritty of how Hedera Hashgraph’s network reaches consensus and the data structure of the hashgraph algorithm, you can read their whitepaper.

Throughput and Energy Efficiency on Hedera Hashgraph

The hashgraph algorithm has the ability to process tens of thousands of transactions per second. However, while being lightning fast, it’s also incredibly energy efficient.

Hedera processes transactions in a matter of seconds, whereas proof-of-work blockchains like Bitcoin take minutes or even hours. A recent study by University College London shows that Hedera Hashgraph is faster and more energy-efficient than other public PoS blockchains, such as Ethereum 2.0, Algorand, and Cardano.

What is Hedera Hashgraph’s Governance Model?

Hedera uses an interesting governance structure. Its governing council consists of up to 39 council members and includes some of the world’s biggest corporates and non-profits across various industries. At present, IBM, Google, University College London, Dentons, and Standard Bank are examples of organizations that sit on Hedera’s governing council.

Each council member runs a node on the Hedera public network and each has an equal say in the direction of the DLT’s technology. These organizations do not have an economic interest in Hedera by virtue of their membership of the council. In addition, membership is term-limited – each organization can sit on the council for up to two consecutive terms of three years.

According to Hedera, the Governing Council is structured to ensure “decentralized, transparent, stable, and effective governance on behalf of the long-term interests of the network” and that the “enterprise-led structure greatly reduces the risk of ideological or personal disputes that have affected the governance of other public DLT networks.”

As such, Hedera aims to position itself as a scalable solution and the first public blockchain that achieves widespread adoption at an enterprise level.

Hedera Governing Council
From Hedera

Hbar – Hedera’s Native Cryptocurrency

Hedera’s native cryptocurrency is called Hbar. Hbars are used to both fuel and protect Hedera’s public network.

DApps: For applications run on the Hedera public network, developers use Hbars to pay for transaction fees.

Staking: Hedera’s public network is Proof-of-Stake. Hbars are staked to a node in order to weigh votes when the network is reaching consensus. Each mainnet node participates in consensus and stores a copy of the ledger. Node operators are rewarded with Hbars.

Hedera also facilitates “proxy staking”. This is where anyone holding Hbars, even a small amount, can pledge their tokens to a node and earn rewards in Hbar for doing so. Hedera claims that staking on their network is more secure than other PoS (as it does not practice “slashing”). Therefore rewards may be smaller than other staking programmes.

Fees on Hedera

Fees for using Hedera are set in USD but paid in Hbars. This means that if the value of 1 Hbar increases, it will not make network fees unpalatably high. Ethereum’s price rise meant that GAS fees became exceedingly high and have deterred many from using the network. This will not be a problem for Hedera users.

Tokenisation on Hedera

Tokenization involves the representation of assets, whether digital or physical, on a blockchain or distributed ledger. The use of a distributed ledger eliminates the need for a third party when it comes to ownership, transfer, and storage of the asset.

Basically, everything has the potential to be tokenized – stocks, art, gold, fiat currencies, real estate etc.

Hedera offers two options for tokenization:

  • Hedera Token Service – this allows the issuance of tokens on Hedera’s public network.
  • Hedera Consensus Service – allows for more customized and permissioned networks. This service enables the creation of permissioned networks, which means that only certain nodes are allowed to participate in the network.

If you’re interested in a deep-dive into the Hedera tokenization services or want to mint your own tokens on Hedera, their whitepaper goes into a considerable amount of detail. You can access it here.

From Permissioned to Permissionless

At present, Hedera is a permissioned network, meaning operators must have permission to run a node on the network. Nodes (a) validate transactions and (b) keep a copy of the ledger. At the time of writing, all nodes are either run by Hedera or the governing council members.

This network structure has invited criticism from the blockchain community, with some saying Hedera is not fully decentralized. However, Hedera plans on making its public network permissionless and increase decentralization, so that at some point in the future anyone will have the ability to run a node.

Infographic: What is Hedera Hashgraph?

What is Hedera Hashgraph infographic

Where to learn more about Hedera Hashgraph

You can learn more about Hedera Hashgraph and their native token Hbar

on their website. Here you can download and read Hedera’s whitepaper and keep up to date on future developments through their regularly updated blog.

Where to buy Hbar?

If you’re interested in investing in or trading Hbar, the native token of Hedera Hashgraph, it can be purchased on a number of cryptocurrency exchanges, including Binance.

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