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Hedera is a global-scale distributed ledger and governing body using Hashgraph Consensus to support new and existing applications. Most developers use distributed ledger technologies or blockchains to build computational trust directly into their applications. Businesses or individuals who might not trust or know each other can quickly and inexpensively collaborate with such an approach.
With a public distributed ledger, people can create & exchange value, verify & authenticate value, prove identity, and much more. Hedera performs the same functions as the popular blockchains, such as Ethereum and Bitcoin. However, Hedera is fairer, more energy-efficient, faster, secure, and more stable, benefits from the enterprise governing body and its underlying hashgraph consensus algorithm.
How it works
Hedera uses a hashgraph consensus algorithm, which enables distributed consensus efficiently and innovatively. This algorithm has near-perfect efficiency in bandwidth usage, which means that Hedera can process thousands of transactions per second (10,000 in beta) in a single shard.
The hashgraph does not work like the traditional proof of work blockchains, where a single miner is chosen to select the next block.
The community of nodes that run the hashgraph agrees on which transactions to add to the ledger as a collective. With a gossip-about-gossip and virtual voting system, the hashgraph network comes to a consensus about every transaction’s consensus timestamp and validity. If a transaction is within the appropriate time and valid, the ledger’s state is updated to include the transaction with 100% finality.
Consensus rules in a blockchain demand that blocks eventually settle in a single chain agreed upon by the community. When two blocks are created simultaneously, one chain is selected by the network nodes. The other chain is discarded or the network ‘forks.’
Hashgraph is more efficient than most blockchains as one of the transactions is discarded. All the transactions will exist forever and are woven together. The Hashgraph is also mathematically proven to be asynchronous Byzantine Fault Tolerant (ABFT), the highest level of security for distributed systems.
We will look at the different network services to understand how Hedera works:
HTS supports native tokenization, allowing clients to create and manage various types of tokens. Applications can use this service to configure, mint, and manage unique tokens, all of this without setting up or deploying a smart contract. Managing supply and KYC compliance, multi-sig capabilities, and native atomic swaps are examples of token controls offered by Hedera.
Users have complete control over accounts and tokens. There are also token and key configurations that deliver flexibility for token design. Hedera Token Service is an easy way to create a new token representing anything from an in-game reward system to a stablecoin pegged to the value of USD.
With this service, applications have direct access to the hashgraph consensus algorithm’s guarantees of native security, speed, and fair ordering. Clients send messages to the Hedera network for consensus ordering and timestamping. However, the consensus nodes don’t store the state related to those messages. The data or application state is maintained off-chain, and the Hedera Consensus Service users define the level of access control and confidentiality that aligns with their use cases.
The messages can be in different forms and have actionable information in them. Perfect examples are user engagements on an advertisement platform, money transfer settlement, and provenance tracking in a supply chain. Users and systems can view application events in real-time by using Hedera Hashgraph for verifiable and tamper-proof logging of transactions.
Hedera supports fully decentralized governance through the Hedera Governing Council. The expert council comprises 39 leading global organizations and enterprises, distributed across 11 industries. This governing council is tasked with making critical decisions on software upgrades, treasury management, and network pricing. The Governing Council members don’t profit from Hedera and are term-limited.
All these governing council members have signed an agreement to be partial owners of the Hedera Hashgraph LLC. The minutes from every Governing Council meeting are always availed to the public within 30 days after the majority of the members accept them.
Unknown groups of miners and developers aren’t allowed to govern Hedera, reducing the chances of running into personal and ideological disputes associated with public DLT platforms.
Hedera also allows users to create smart contracts, either by porting over existing Solidity code or from the ground-up in just a few minutes. The Hedera Smart Contract service is Ethereum Virtual Machine compatible, and users can run Solidity unchanged.
The smart contracts on Hedera are hashgraph optimized. Users can always expect predictable gas fees and carbon-negative energy use. Enabling the Hedera Token Service into your contract allows you to power logic such as recording governance votes or exchanging assets without an intermediary.
$HBAR is the native cryptocurrency of the Hedera network. HBAR tokens are used to build peer-to-peer transactional models, protect the network from malicious users, and power decentralized applications. The token has two main functions:
Network fuel. HBAR tokens are used to incentivize nodes to contribute their computing resources to this network and also serve as the fuel that pays for network services. The network services paid for using HBAR tokens include managing non-fungible and fungible tokens, transferring $HBAR, and logging data. For every transaction submitted to the Hedera network, $HBAR will be used to compensate network nodes for storage, computation, and bandwidth.
Network security. Hedera is on the route to permissionless nodes. Hedera’s coin-weighted, proof-of-stake consensus mechanism will utilize $HBAR to protect the network from attacks. $HBAR can be staked or proxy staked by a network node.
Weighted voting with HBAR tokens makes it expensive and difficult for any bad actor to affect the consensus mechanism maliciously. Bad actors need to own and stake over a third of the entire network’s supply to have any impact.
The Hedera Token Service offers individuals and organizations an opportunity to embrace the disruption of public ledgers in a performant, compliant and secure manner. Such users can enjoy real-time settlement as $HBAR and tokens issued from the Hedera Token Service settle in seconds. Their speed can be compared to that of VISA, making all the stablecoins and $HBAR on this network viable finance and commerce options.
Users can also enjoy low and predictable fees. Hashgraph consensus is efficient and fast, ensuring that the transaction fees for issued tokens are low and predictable. It costs less than 1¢ to transfer any Hedera-tokenized asset, which is low compared to Ethereum and other networks.
With Hedera, token issuers can define token supply management, account-level KYC verification & freeze, and transfer criteria for tokens. All this is done to ensure that tokens and stablecoins created on the Hedera network meet regulatory compliance.
With Hedera, organizations enjoy high throughput and verifiable logging of transactions. These transactions have decentralized identifiers adhering to W3C Decentralized Identifier (DID) standards. The approach ensures that all participants are trusted, and all the systems have a real-time view of transactions which eases detection of fraudulent activities and predictive analysis.
Verifiable timestamps for every transaction are essential when mitigating fraud. Knowing when specific actions occurred and their order is essential when mitigating fraud. Hedera offers mathematically provable consensus timestamps to ensure that you can always be ahead of the fraudsters.
Real-time analysis is essential when you want to catch fraud before it happens. Hashgraph consensus, on top of enabling thousands of transactions per second, comes with fast predictive analysis. You can detect fraud before it happens on your application.
Hedera allows you to put users in control of compliance. Organizations can now reduce liability by granting partners, regulators, and auditors the ability to verify your organization’s response and user request with a transparent set of records.
Real-time public verifiability and data standards also simplify complex and manual auditing processes; all this happens while at the same time eliminating costly third parties.
Credentials can capture skills, identity attributes, and qualifications. The Hedera Consensus Service can capture critical moments in a credential’s lifecycle, ensuring certainty and transparency for each stage. The users also have great control over who their identity attributes are shared with and when.
You can create a permissioned blockchain that comes with the trust of a public ledger on Hedera. Permissioned blockchains can integrate with Hedera and send hashes of transactions to its public ledger for enhanced and effective auditability.
The creation of Hedera has been a long journey. Dr. Leemon Baird started exploring how to achieve distributed consensus at scale in 2012–2014. In 2016, Dr. Baird came up with the Hashgraph innovation and, together with Mance Harmon, formed Swirlds. This new firm was created to develop a proof of concept, battle-test Hashgraph, and commercialize it for private implementations. The Hashgraph whitepaper was published on May 31, 2016.
2017–2018 was the Hedera formation era after Swirlds raised its seed investment round. The team later meets Andrew Masanto, Founding CMO, who helps bootstrap the company. Hashgraph Consortium was later formed, and their presentation at TechCrunch Disrupt in San Francisco announced Hashgraph technology to the world.
On March 13, 2018, in NYC, Hedera held a launch event and attracted over 50,000 live streams and about 1,000 live attendees. The Hedera whitepaper was published after HederaHashgraph.com went live during the event.
On August 24, 2018, the Hedera Mainnet went live, and 50 billion $HBAR was minted. In Q4 of 2018, the Mainnet early access launched, allowing users and developers to test the network for the first time.
The Hedera Mainnet was made publicly available in September 2019. This phase made it open for anyone to create and deploy on the network.
Dr. Leemon Baird, Co-founder & Chief Scientist
Dr. Leemon is the inventor of hashgraph. He has over 20 years of experience in startups and technology and even held positions such as Professor of Computer Science at the US Air Force Academy. Dr. Leemon has various patents and publications in peer-reviewed journals and received his Ph.D. in Computer Science from Carnegie Mellon University, making him a crucial member of the team.
Mance Harmon, Co-founder & CEO
Mance is an experienced entrepreneur and technology executive with over 20 years of experience. He has strategic leadership experience in government agencies, multinational corporations, and tech startups.
Brett McDowell, Chair, Hedera Council
Brett has over 20 years of experience in the IT industry. Some of the organizations where he has held founding executive roles include FIDO Alliance, Kantara Initiative, IDESG, and DMARC.org. As a board or advisory board member, he served on MAAWG, NCSA, StopBadWare, and PCI SSC.
The distributed ledger concept continues to be embraced as people learn of its many benefits. Hedera introduces Hashgraph consensus, which promises improved throughput, predictable gas fees, and scalability to solve some of the challenges facing the existing distributed ledger technologies. The network has a clear roadmap and is governed by organizations from different industries while creating a sense of trust lacking in other distributed ledger technologies.