Hedera Hashgraph is a distributed ledger of transactions, otherwise known as a DLT (distributed ledger technology). While blockchains are the most commonly used DLTs, Hedera is slightly different since it uses a new consensus algorithm known as hashgraph. The hashgraph consensus algorithm aims to process and finalize more transactions at scale than traditional Proof-of-Work (PoW) networks, as they are often characterized by high latency and low transactions per second (tps). Hedera’s state is stored on mainnet nodes, which are all currently run by members of the Hedera Governing Council. But in the future, mainnet nodes will be permissionless. These nodes secure the Hedera ledger by reaching a consensus on the validity and order of transactions. Hedera provides two core network services: the Hedera Consensus Service (HCS) and the Hedera Token Service (HTS). HCS allows clients to submit messages to the Hedera network for consensus timestamping and ordering, but it doesn’t require the consensus nodes to store state related to that message. Instead, application state or data is persisted off-chain, where HCS users can define confidentiality and access control that cater to their use-case. The HTS supports native tokenization, whereby clients can create and manage various token types. Token controls include managing supply and KYC compliance, along with native atomic swaps and multi-sig capabilities.

History

Hedera Hashgraph Vision Hashgraph is a relatively new consensus protocol that aims to process transactions faster than existing networks. Hedera layers Proof-of-Stake for consensus weighting, a fee & rewards model, a cryptocurrency, and the two key HCS and HTS services on top of hashgraph, Hedera’s consensus algorithm. Since hashgraph has the potential to process transactions at a comparatively efficient rate, Hedera intends to be a platform that can support high-volume use cases, such as micropayments, data integrity, and tokenization. The network also supports a virtual machine that can compile smart contracts written in Solidity, similar to the EVM. Hedera intends to be compliant across jurisdictions by offering native support for optional KYC and AML checks via its “Verified Identity” mechanism. Hedera will launch in a permissioned model with only the governing members running nodes. Over time, as the distribution of the network’s native token, HBAR, improves, the node membership will transition from permissioned to fully permissionless, where any network participant can operator a Hedera consensus node. Entities Behind the Network Hedera Hashgraph LLC is a US-based entity that is governed by 39 term-limited global enterprises across multiple industries. These entities manage Hedera’s consensus nodes while collaborating to determine the protocol’s future direction (i.e., Hedera’s near-term governance model). Governing members are responsible for council membership, regulating network rules and tokens, and approving changes to the protocol. They also elect subcommittees that will operate traditional corporate functions such as Legal, Finance, and Marketing departments. Governing members receive fees from operating nodes to compensate for their security and governance contributions, but they do not take profits from the entity in their role as members. Swirlds is a separate company that owns the intellectual property of the hashgraph consensus algorithm and is an equal-weight governing member. Swirlds has licensed the technology to Hedera Hashgraph. The two entities will use the associated patent rights to legally prohibit anyone from forking the code and creating a competing platform and currency. While the consensus algorithm is not open source, it is “open review,” meaning anyone can verify there are no backdoors in the code. Additionally, Hedera’s application development layer is open; no license is required to build Hedera applications.

Technology

Hashgraph Consensus Hedera uses hashgraph consensus, an alternative to blockchain consensus mechanisms. It achieves a lower latency on transaction finality because once consensus on the timestamp and order of transactions is reached, those transactions are applied to the state in that order. Hashgraphs attempts to remove the reliance on fee-based auctions for transaction inclusion, which can lead to greater fees when the native token fluctuates in price and the potential for higher levels of MEV (miner extractable value). Consensus Nodes Hedera’s public ledger being stored and run by the Hedera Governing Council. While running mainnet node is currently limited to Council members, Hedera eventually plans to make its network permissionless, allowing any participant to run a consensus node. Hedera nodes come to consensus on the validity and order of transactions. When the network transitions to a permissionless state, the influence of each node towards consensus will be weighted by the number of HBAR in their account. Hedera will run PoS (Proof-of-Stake) but without any stake bonding or slashing penalties. Hashgraph will function as the consensus and security layer, while the PoS layer will deter DoS (Denial of Service) attacks. Consensus nodes (currently run by Council members) will receive daily payments to compensate for their bandwidth, storage, and computing costs. These daily payments will be proportional to the stake the nodes have designated. Other accounts that proxy their stake to a node will receive smaller payments to incentivize them to select valid nodes. Mirror nodes offer a cost-effective way to query historical data without trust loss. The key network services are cryptocurrency, consensus, and token services. Network Fees Clients pay fees in HBARs for the network to process a transaction. The network attempts to keep fees low. For instance, transferring HBARs between accounts costs approximately $0.0001 USD according to the team. Fees are denominated in USD but charged in HBAR. Clients are given stability in fees since the network updates the exchange rate between HBAR and USD every hour to reflect the market price.

Usage Details

The native token of the Hedera mainnet is the HBAR. This token serves the following purposes: Transaction Fees: Clients pay fees in HBAR to consensus nodes for processing and timestamping transactions and for any subsequent maintenance, such as storing a file or token balances. Fees serve to inhibit DoS (Denial of Service) attacks by making such attacks financially prohibitive. Fees are denominated in USD but charged in HBAR. The exchange rate between the two is updated hourly to give clients stability in prices irrespective of fluctuation in HBAR price. Network Security via Staking: A node’s influence towards the determination of consensus timestamp and order is weighted by the number of HBARs the node itself has in its account and (to be implemented at a future date) the number of HBARs that other non-node accounts proxy to that node. Incentivizing Security (Staking Rewards): Nodes (and those that proxy their HBARs to nodes) will receive daily reward payments as per the participation in validating transactions during that period.

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