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Hedera – When not being a blockchain could be the ‘better’ solution

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PDAX

January 30, 2024

9 min read

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TL;DR

Hedera is a distributed ledger network that employs ‘hashgraphs’ instead of a conventional blockchain architecture. This novel approach avoids many of the pitfalls often associated with blockchains such as high network throughput, slow transaction speeds, and intense energy demands, offering a greener and more efficient route towards decentralization.  

What is Hedera?

Without reading up on it, one might assume that Hedera is more or less like any of the dozens of blockchains promising faster transaction speeds and lower gas fees than legacy blockchains like Bitcoin or Ethereum. After all, its native token, HBAR, can be found ubiquitously listed in nearly every major exchange alongside other higher market cap tokens. Though Hedera is indeed faster, cheaper, and more environmentally friendly than most, Hedera stands out among the rest due to one crucial detail–Hedera isn’t even a blockchain.

Running instead on an alternative distributed ledger technology called a ‘hashgraph’, Hedera offers an entirely unique approach to achieving network decentralization, security, and scalability.

Hedera’s distributed ledger offers smart contract capability, similar to other Layer 1 blockchains. This means that decentralized applications (dApps) can also be built on top of it, as with the case with networks like Ethereum, Solana, or Cardano. Hedera however, differs completely from the way that these blockchains handle and process network data using its alternative hashgraph mechanism. 

Hedera is also secured differently, as its staking mechanism allows only for a limited number of nodes for validating and processing transactions. On Hedera, these network validators consist exclusively of world class organizations such as leading global business enterprises and universities, which at the present include such names as Google, IBM, Dell Technologies, Boeing, and University College London (UCL) to name a few. 

This unique network architecture has given Hedera not only a stellar reputation in the corporate industry but more importantly, significantly faster transaction speeds, among a host of other features and benefits:

  • Hedera’s unique consensus mechanism allows the network to process 10,000 transactions per second, with each transaction taking only an average consensus time of 3.74 seconds.
  • Due to high network efficiency, network fees on Hedera are fixed at USD 0.0001 per transaction, making it ideal as a payments network. 
  • It is estimated Hedera’s hashgraph consumes only 0.000003 kilowatt hours per transaction, which is 1000 times cleaner than a Visa transaction, even outperforming eco-friendly blockchains like Algorand or Avalanche
  • Hedera is also an EVM-compatible network (Ethereum Virtual Machine), which means that any application built on it can be read and recognized by the Ethereum network, offering greater interoperability.

How does a hashgraph work?

To understand how Hedera’s hashgraph technology works, it has to be discussed in contrast with how a blockchain works. 

In a blockchain, new information is added to the ledger by generating new ‘blocks’, and using encryption to link them with the previous chain of blocks that came before it. This structure is what gives a blockchain its immutable nature, as new blocks can only be added with the consensus of the majority of the network nodes.

This gives a blockchain a unilateral direction of growth, as only one path is recognized by the network as being valid. However, in the process of deciding which block to add to the chain and continue from, the network employs an inordinate amount of computing or financial resources. In Proof-of-Work (PoW) networks for instance, miners rely on increasingly powerful hardware to solve complex algorithms to outdo other miners for the privilege of adding the next block. While in Proof-of-Stake (PoS) networks, consensus is arrived at by the nodes who hold the majority of the network’s tokens. In either case, the process relies on a vast network and requires huge bandwidth to arrive at a decentralized decision for each transaction, which only keeps getting bigger and more congested as the network grows.

A hashgraph, however, does away completely with contesting over which block to add to the ledger. In a hashgraph, all information that is added is kept on record, even if they branch off into multiple directions. They are, instead, subsequently woven back into the ledger to connect with the other entries, growing and entangling with each other like a vine to validate their contents. In fact, this is where the name “Hedera” comes from, which in Latin translates to “ivy” or “helix”.  

Hedera is able to achieve this unique vine-like structure through what is called a “gossip protocol”. Simply put, the gossip protocol describes the way the different nodes share and “gossip” about transaction data to each other at random, in the process having them cross-reference and sync the information at hand to arrive at a network consensus in real time. 

Each ‘gossip’ event by a node contains a timestamp of the information being sent, as well as a hash (or encryption) of the previous message sent by the node, as well as a hash of the last message sent by the other node that sent it the message (or a “gossip about the gossip” so to speak). This ensures that all events involving the network nodes eventually spread throughout the whole network and can be accounted for by simply following the historical chatter trail, requiring very minimal computing power and processing time. 

This unique approach ensures users of the same security and transparency offered by a blockchain but with increased efficiency and sustainability–potentially a game-changer in how decentralization ought to be integrated into a network. 

To date, Hedera is the only distributed ledger and HBAR the only cryptocurrency to run on hashgraph technology. 

For a more detailed explanation of how the hashgraph works, you can watch Hedera’s official explainer here

What is HBAR used for?

HBAR is the utility token of Hedera. Similar to other Layer-1 tokens, HBAR tokens serve a dual purpose in its native network. Specifically, HBAR has the following use cases:

  • HBAR is used as the primary payment token for transaction fees on Hedera, including fees for transferring tokens, minting NFTs, and executing smart contracts. 
  • HBAR is used to secure the network via delegated staking, wherein HBAR tokens can be staked to support any of the trusted network nodes which comprise the Hedera Council. 

The Hedera Council

Contrary to conventional PoS setups wherein anyone in the world with the necessary hardware can sign up to be a validator node, Hedera opted to limit this function to a diversified set of globally recognized reputable partners as a means to streamline the validation process.

This ensures the community that malicious actors can be prevented from participating in network consensus as there are stringent expectations for membership in the council. Specifically the Hedera Council is interested in having members belonging to the 11 Global Industry Classification Standard (GICS), the top ten ranked universities, and international NGOs coming across different global regions

Furthermore, having nodes that already have a vested interest in maintaining public trust and a reputable image allows for the ‘slashing’ feature found in conventional PoS setups to be rendered unnecessary, further streamlining the governance process. 

Overall, the Hedera Council is in charge of overseeing the future direction of the Hedera platform and maintaining the software required to run the network. The Hedera Council is also committed to providing transparent governance, with the minutes of their meetings published openly on the official website

Hedera Sustainability Initiatives

Even with an already minimal carbon footprint, Hedera takes it a step further by committing to being fully carbon negative with the purchase of carbon credits to offset its own greenhouse emissions. 

Simply put, purchasing carbon credits is a voluntary initiative from companies and businesses who purchase these credits from other organizations who remove or offset carbon emissions. Carbon credits themselves are tradable assets in a rapidly growing movement across industries to collectively reduce their impact on the environment. 

Being a leader in this space, Hedera itself has become the spirited choice for sustainable solutions providers such as TMYLEZ who are in need of a robust and auditable distributed ledger to provide accurate carbon emissions data for businesses as well as carbon credit markets like Guardian. More household names such as Hyundai and KIA have also announced that they will be utilizing Hedera for monitoring and predicting carbon emissions at every stage of their production process–from the procurement of raw materials, manufacturing and transport–as part of their sustainability efforts.

HBAR Tokenomics

HBAR has a maximum supply of 50 billion tokens of which over 34 billion HBAR (68.67%) have already been allocated. 

The allocation goes as follows: 7.74% went to Swirlds, the company responsible for the initial development and licensing of Hedera’s hashgraph technology, while 14.77% are allocated for Hedera’s network governance, which includes founders, executives, employees and contractors. Meanwhile, 22.26% have been allocated for purchase agreements, including regulated investment and swap contracts, while 23.9% are allocated for the Hedera ecosystem and its open-source development.   

The remaining 15 billion HBAR (31.33%) comprising the unallocated supply remains to be determined by the Hedera Council for future projects and developments. Further announcements and release schedules are announced on the Hedera Treasury Management Report page.  

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