Hedera Hash Graph: A Review

Hedera Hashgraph just launched their public blockchain this past Tuesday. Hedera Hashgraph, which is similar to a blockchain but uses a different mechanism to achieve consensus about the state of its ledger, lets anyone build smart contracts as well as decentralized applications that are scalable. With this, they also aim for their blockchain to be able to achieve high volume and faster transactions than any other in existence (scaling up to be able to handle millions of transactions per second in future).

Its' internal economy will be incorporated around its native cryptocurrency HBAR. Said economy or network, will feature a file management service, in addition to native smart contracts. Its' public programming interface enables the creation of projects that may be considered to be cryptocurrency-as-a-service.

The project is also backed by some of the world’s largest corporations incuding Fortune 100 companies like Boeing, IBM, and the Telekom Group and is now listed on exchanges like AlgoZ, BitOoda, Bering Waters, Bittrex, Galaxy Digital, GSR, Liquid, OKEx, OKCoin, OSL, Upbit and xFutures.

The network kicked off with 13 nodes and 11 governing council members each running a dedicated node and the reported capability of processing 10,000 transactions per second.

Later on, the development team plans to have shards added to expand the possible scalability for applications that choose to parallelize their operations. Applications that cannot parallelize their operations will be limited to a single shard, which likely means they'll be limited to 10,000 transactions per second.

What is Hedera Hashgraph?

In discussing all of this, however, we still haven't gotten down to brass tacks about what makes Hedera Hashgraph important and possibly necessary.

Hashgraph was proposed to help address the challenges in many blockchain networks today: including the inability to scale to support millions of transactions per second while ensuring decentralization and security of applications (most will need to compromise on decentralization or security or both to do so).

HH aims to support use cases such as IoT devices that require scaling multiple times and certain issues associated with Directed Acyclic Graphs (DAGs), which are similar to Hashgraph, but to date, through IOTA's example, have reported several negative developments including bugs.

In the end, to truly understand why any of this matters, however, it's important to be clear on Hedera Hashgraph's history.

HH: A History

After Leemon Baird started researching ways to achieve asynchronous BFT (Byzantine Fault Tolerance), he came up with the idea and plan for Hedera Hashgraph in 2015. In general, BFT is the foundation of creating networks that do not need any sort of involvement of trusted third parties. Hashgraph is currently the intellectual property of the Swirlds Corporation founded by Leemon Baird, which makes it somewhat centralized by design.

Before HH, there was another. The first product the team came up with was called Swirlds and aimed to be a permission network for an enterprise-scale use case.

Circling back to HH, at its core, it is asynchronous Byzantine Fault Tolerant tech, which means that it is the strongest form of a network that is "Byzantine Fault Tolerant” (BFT) that can still achieve consensus. This theoretically holds true even if malicious actors are able to control the network and delete or slow down messages of their choosing. Overall, this is made possible by the assumption that more than 2/3 will consistently follow the network's protocol correctly.

Generally, other versions of BFT may be considered partly asynchronous, which means that they are secure as long as attackers do not have enough power to manipulate these networks' messages too much.

Sharding Scaling in Hedera Hashgraph

When it comes to scaling with the HH network, Sharing plays a key part.

In an overarching sense, this means that sharding will be enabled when there are enough nodes on the network running enough transactions to justify splitting it all into shards.

In case you're not already aware, sharding is, at its heart, an Ethereum-based technology in which large data is stored in partitioned, smaller databases called shards instead of a single huge database(like a blockchain). These shards are easier to analyze and more efficient since their transaction volume is much lower than a heavily trafficked blockchain.

On a deeper level, because of how they are, shards allow for the scalability of applications that can parallelize their operations. For those applications that cannot parallelize their operations, they will be limited to a single shard i.e. 10,000 transactions per second. Using shards allows the network to scale without using solutions like the lightning network, which is now widely considered to be akin to a form of centralization.

Hedera smart contracts

Smart contracts on Hedera will be developed using the Solidity programming language(of Ethereum fame). Like most existing smart contracts, they will primarily be used for tokenizing and transacting with digital assets. With tokenization set to redefine the ownership of just about all assets in existence, Hedera Hashgraph is positioning itself to be a platform like most of the industry's leaders, though it will have the added element of using decentralized oracles, which not all platforms do.

With this, however, it's important to remember that HH is positioning itself to target more than one secondary use case as well. For instance, from the get-go, users can use the network to sign and verify files, as well as prove compliance to GDPR with controlled mutability. More specifically, what this means is that data and files stored on Hedera will be cryptographically secured and immutable as on any blockchain-based system, though individuals and companies can still use the technology to revoke access to files and documents, define file ownership, and verify that the relevant credentials have not been revoked by the issuing party by verifying signatures. For instance, insurance providers, employers, and more. can verify document ownership and issuance to drivers by authorities etc.

With this feature, Hedera lets its users cost-effectively manage larger files which are stored on a side-ledger, the IPFS, or with other centralized providers.

Other secondary use cases include facilitating cryptocurrency payments and micropayments which we'll discuss further below. In general, however, Hedera smart contracts will be used to manage exchange orders, audit logs, supply chain tracking, and other consensus services that are and will be built on the Hashgraph network.

Identity and compliance

Hedera can support identity mechanisms that may allow users to have their identities bound to blockchain-based accounts including wallet accounts. In these cases, the degree to which each user intends to identify themselves will always be fully controllable. The network also plans to be fully transparent with regulators, which includes a commitment to continuously educating governments on how the Hedera network can achieve their policy goals as the DLT market evolves.

Hedera cryptocurrency HBAR

HBAR, which is Hedera Hashgraph's native crypto that I mentioned above, is used to facilitate peer-to-peer payments and micro-payment business models as well as protect the network through decentralization. On top of all of this, like Ether, it will also be used to power the network's present and future dApps. Also like Ether, this means that developers will be able to use the token to pay for network services like running smart contracts.

As is the case with masternode networks, HBAR will be simultaneously used to compensate staking nodes that support the network by providing the needed computing power, bandwidth and storage for it to continuously run and grow.

The system's weighted voting depends on HBARs to protect the network from malicious attacks since in order to execute their plans, they would need to stake over one third of the network's total supply of cryptocurrency. Because of HBAR's scheduled releases, this will not even be possible for the first 5 years.

Currently, the network can manage a network throughput of 10,000 HBAR cryptocurrency transactions per second in a single shard and on-ledger without compromising network stability or security. The cost per transaction is also very low at around $0.0001 USD. This truly makes micropayments possible. Furthermore, this also means that transactions can be completed within three to five seconds.

Staking on Hedera

Hedera will also allow its users to set up something like a masternode that can help achieve network consensus through taking in stake and offering a return on said stake. Users who hold tokens and want to stake but cannot gather enough to set up a node, can still delegate their stake to a node as a proxy and earn a percentage of its returns. Of these two options, proxy-staking will be added later.

As of now, Hedera's staking service is under development and hasn't been released in any sort of public format.

Governance with Hedera

Hedera Hashgraph uses a different governance system in order to allow for scalability. Instead of users running full nodes to secure the network, HH will depend on a group called the Hedera Hashgraph Council which is comprised of 39 global blue chip organizations that represent 18 different business sectors most of the world's major continents and countries, including: Australia, Japan, Europe, India, USA and South America. Each member has a 3-year maximum term, while being able to serve a maximum of 2 consecutive terms.

In this system, the governing members will elect the governing board and country expertise will be represented through subcommittee memberships. The system will also focus on ensuring that no one particular group will ever take anything close to centralized control over the network.

According to Hedera, a public DLT system is more trustworthy if it is governed by highly regarded representatives from a range of sectors as opposed to a small group of developers that end up making decisions in the absence of a more democratized level of governance. The council is therefore also responsible for things like network fee schedules, reviewing changes to the platform's code-base, electing board managers, and so on.

The council can also specify software changes to nodes and when they need to happen. Ideally, this ensures that all honest nodes are up to date and weeding out the illegitimate ones. The council will vote on decisions from categories such as: treasury management to ensure overall network safety,  addressing legal and data compliance, and voting on legal requirements to serve global markets. Overall, the members of the governing council each have a single vote in the cases where the future direction of the project is being debated. With this, it should also be added that all decisions and developments will require unanimous council support.

Network-based Consensus Mechanism

A consensus mechanism is a process through which transactions are approved and ordered on a network. Hashgraph, being HH's consensus mechanism, is theoretically less expensive, faster and more efficient than a Proof of Work algorithm and arguably more suitable for mainstream adoption. Generally, this assumption depends on the network's ability to prevent any party from having unduly significant power over the network. Facebook even plans mimic Hedera's governance model for its Libra cryptocurrency.

Because the Hashgraph consensus algorithm is proprietary, yet open-source in terms of those who wish to review its code, there is a no-fork guarantee for the network and its cryptocurrency. This means it has an inherent level of stability for app development that should encourage users to take more of a long-term commitment to the network.

Hedera Cryptocurrency API

Through its API, develops will be able to extend benefits of Hedera to their users for instance through creating dApps that have high speed crypto transaction volumes such as data marketplaces and IoT using HBAR cryptocurrency. Further, in addition to the high scalability, the transactions are done at low fees. Developers can also use the platform to create dapps that support micro-transaction-based business models.

Dapps can also support multisig wallet signatures, threshold signatures and even hierarchical signatures, which contain other threshold signatures. Additionally, with the HH API, users can build cryptocurrency paywalls and donation buttons for their content. While this sort of idea is far from new, making it a one-click option could change the status quo as we know it, if HH chooses to take that route.