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What is Hedera Hashgraph, the blockchain rival?

In Insights

Businesses are jumping at the opportunity to streamline existing processes, improve record keeping and introduce additional efficiency by utilizing blockchain technology.

While blockchain brings a lot to the table that traditional databases simply can’t, there are still limitations that need to be considered.

Blockchain is a type of distributed ledger technology (DLT). There are alternative DLTs that can potentially improve on the limitations of blockchain. Hedera is using hashgraph, a DLT alternative to blockchain that uses a DAG (Directed Acyclic Graph) to create a DLT that is suitable for mainstream markets and real world, highly scaled use.

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Hedera Hashgraph summary

  • Hedera’s platform lets people interact and transact online efficiently and securely, without the need for third-party intermediaries, which often collect and sell user information.
  • Hedera exists to provide a stable, trustworthy platform optimized for enterprise-grade applications, not to provide a cryptocurrency. But a cryptocurrency is required for the network to function, just like all other public DLTs.
  • Hbar is the cryptocurrency of the Hedera platform. It serves two integral purposes in the network: it secures the network with a coin-weighted, proof-of-stake consensus mechanism, and it will be used to incentivize and compensate participants for the computing resources necessary to make it all work.
  • The hashgraph data structure and consensus algorithm provides an impressive combination of performance and security. The Hedera platform and governance council provide transparency, stability and cross-industry expertise to provide governance and decision-making for a globally distributed network and cryptocurrency.
  • Hedera raised more than 120 million USD in private funding.

To appropriately construe the power of Hedera Hashgraph, first we must take a look at the current limitations of blockchain.

The drawbacks of blockchain

Performance

It’s questioned whether blockchains are capable of scaling to the degree required by mainstream markets. For large-scale, real world adoption, systems will have to be capable of hundreds of thousands of transactions per second with negligible transaction fees. As it stands, this does not appear to be possible with existing blockchain infrastructures. This would limit blockchain to some degree.

Security

Using a public platform to transfer capital every day requires top level security. Any system that processes high levels of monetary transfer is a target.

Blockchains have been proven as highly effective for value transfer, but Hedera believes that existing consensus mechanisms fall short of what’s possible with regards to security. When that much value is being transferred, security should be built into the design of the system from day one.

Stability

Many public blockchains have few or no legal or technical controls to make decisions, which can introduce problems if something were to go wrong with the system. In the eye of a crypto enthusiast, undisciplined and ungoverned decision making is the norm, but for mainstream adoption, organized stability without sacrificing decentralization in decision makers is imperative, according to Hedera.

To be truly stable, Hedera believes that strong security and mature governance is key.

Governance

Many people, including the Hedera team, believe that a public DLT system would be much more trustworthy if it were governed by highly regarded representatives from a range of sectors as opposed to a small group of developers who end up making decisions in the absence of established governance.

Compliance

The ability for applications to comply with their regulatory obligations is a huge barrier to adoption. Many existing DLT platforms do not prioritize enabling developers to build compliant applications.

The Hedera solution

To address the problems outlined above, Hedera uses hashgraph to provide an alternative DLT. In order to move this industry forward, Hedera is creating a platform that has the following traits:

  • High performance.
  • Strong security.
  • Industry-leading governance.
  • Technical and legal controls to maintain platform stability.

Comparing Hedera to the blockchain weaknesses

Performance

The Hedera platform is built on the hashgraph distributed consensus algorithm, which is protected by patents. Hashgraph is highly efficient, enabling the processing of at least tens of thousands of cryptocurrency transactions per second in a single shard. In comparison to competitor alternatives, Hashgraph has very low consensus latency.

Security

The security of a DLT is based on the consensus mechanism used. Hashgraph is proven to be Asynchronous Byzantine Fault Tolerant (ABTF), which makes it highly robust against attacks such as Sybil and DDoS, unlike many other consensus mechanisms.

With Hashgraph and the Consensus Protocol, the transaction ordering is clear and fair, guaranteed by the unique Hedera Hashgraph system which ensures that the order transactions are received by the network will be reflected in the consensus order.

Governance

There are two parts of the Hedera governance structure. The first is Council governance, which is used for managing the business of the council. This part is responsible for network fee schedules, reviewing changes to the platform codebase, electing board managers and so on.

The Council governance model is straightforward: up to 39 leading organizations from a variety of sectors or industries will govern Hedera. Each leading organization will have to meet stringent criteria. No member will have control, and no small group of members will have undue influence over the body as a whole.

The second part of the Hedera governance structure is the consensus mechanism. This is vital – it’s the process by which transactions are approved and ordered in the network. Hashgraph is the consensus mechanism of Hedera. It’s less expensive, faster and more efficient than Proof of Work and arguably more suitable for mainstream adoption. This consensus mechanism is designed to prevent any party having significant power over the network.

Interestingly, we have recently seen Facebook Libra mimic Hedera’s governance model.

Stability

Hashgraph prevents a modified, forked platform version from being accepted as valid. The Hedera Governing Council can specify software changes to nodes and when they must happen, ensuring all honest nodes are up to date and weeding out the illegitimate ones. The Hedera codebase will be publicly viewable and verifiable with the availability of version 1.0 of the platform.

Compliance

Hedera can support identity mechanisms that could allow users to have identities bound to cryptocurrency accounts. The degree to which you identify yourself is intended to be fully controllable.

Hedera plans to continue to be transparent with regulators and to educate governments on how the Hedera network can achieve their policy goals as the DLT market evolves.

Pulling it all together

The power of Hedera Hashgraph is clear – so will Hedera successfully garner mainstream adoption?

At Liquid, we are excited to see Hedera Hashgraph compete in this innovative space.

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This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.

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