March 7, 2023
9 min read
In an increasingly diverse crypto-sphere, it can be daunting to get your head around new projects. Any projects that deviate from the standard blockchain models, like Hedera Hashgraph, can feel vexing. Not to mention that upskilling to understand the project is time-consuming, which puts a potentially excellent project on the backfoot with investors.
Yet, Hedera Hashgraph and its native token, HBAR, have turned heads among giant corporations, like IBM and Google. That suggests you should also be paying attention, and that's what this complete guide plans to do. This article will help you get to grips with HBAR and dig deeper to see if this seemingly revolutionary technology lives up to the bold promises its developers made.
So, let's dive right into HBAR!
Hedera Hashgraph is a Proof-of-Stake (PoS) network that promises to provide all the benefits of traditional blockchains without drawbacks, like high costs and slow transaction speeds.
Hedera's developers claim that HBAR can carry out transactions and execute smart contracts cheaper, faster, and more securely than other major networks, like Ethereum and Bitcoin. This makes it an appetizing prospect for any investor.
Before I delve into Hedera, let's take a look at where it all started.
Leemon Baird launched Hedera Hashgraph in 2018 and along with Mance Harmon. These innovators had more than two decades of experience in the technology sector and many academic qualifications, which they used to create HBAR.
Baird and Harmon had previously formed a company called Swirlds in 2015. This company launched the Hedera network via a beta test system on September 8, 2017. They later opened the project to the public on September 16, 2019.
Hedera aims to provide a low-cost, more efficient alternative to all major blockchain networks. These include Ethereum, Solana, and Cardano for running decentralized applications (dApps), decentralized finance (DeFi), and executing smart contracts.
The team claims that Hedera's Distributed Ledger Technologies (DLT) can achieve these objectives, providing an alternative to the traditional blockchain system. DLT records transactions in numerous places at the same time, unlike a blockchain that records transactions block-by-block.
According to Hedera's official site, following the 2017 launch, Swirlds “granted to Hedera an exclusive, non-transferable, perpetual right and license to Swirlds' patented Hashgraph technology to create a distributed, general-purpose public ledger.”
The Hedera whitepaper states that the project aims to overcome the 5 fundamental obstacles that prevented the widespread adoption of DLT by the public and businesses.
Performance: Widespread DLT adoption is only possible if the network can carry out hundreds of thousands of transactions per second (TPS).
Security: If DLTs replace the traditional financial networks, they'd handle trillions of dollars. That'll only be feasible if the networks are secure.
Governance: A public ledger should be governed by nodes with world-class expertise that can effectively manage the software.
Stability: Public DLTs risk devolving into chaos when a mature body of managers doesn't manage them.
Regulatory Compliance: Government regulations will most likely continue to develop, and DLTs will need to provide all the information required by the legal frameworks to stay compliant.
Hedera stands out from the increasingly crowded crypto market. Why? Primarily because its consensus mechanism doesn't use the traditional sequenced blockchain system that you see in other networks.
A sequenced blockchain essentially adds a new block to the chain every time a transaction happens. The Hedera project claims their unique Hashgraph consensus model provides a faster and more secure alternative to the blockchain consensus mechanism.
The Hashgraph's structure is different from a blockchain. A blockchain begins with the first block–often referred to as the genesis block. The Hashgraph–a Directed Acyclic Graph (DAG)–randomly sends transaction data known as events between nodes.
The information passes between nodes through a gossip protocol, which, much like gossiping in real life, passes the message randomly from node to node. The events passing between the nodes contain transaction data, a timestamp, a digital signature, and two cryptographic messages known as hashes. The ledger uses these hashes to build the historical graph that charts all the transactions that have taken place on the network.
To make this simple, let's consider a network with 5 nodes named Tim, Ellie, Mo, Javier, and Mario. This is how the nodes communicate using Hashgraph:
Each node will gossip events to one another at random as instructed by the gossip protocol. The bottom of the graph has no transactions until Tim sends a random message to another node, let's say to Mario. From there, the message gets passed to Ellie, and so on. The 'event' continues to bounce between nodes as instructed by the gossip protocol. That creates 'exponential spreading'.
This spreading event continues until enough nodes are aware of the event to reach a consensus. The Hashgraph grows as time passes; at the bottom, it has no transactions, and as events are registered, the graph grows vertically.
The HBAR token powers the network as it covers the cost of carrying out transactions on the Hashgraph. I'll get into more detail about the token later in the article.
Now that you understand how the Hashgraph works, take another look at the side-by-side comparison with the blockchain Bitcoin uses.
Every time a transaction is successfully carried out on a blockchain, a new block holding the transaction information is added to the ever-growing chain. Let's go back to our 5 node example. If Mo sends a transaction to Javier, the information is stored in a block and added to the chain; versus going over to all nodes. To get a full picture of how blockchains work, check Atomic Wallet's guide here.
Since gossiping can go a long way with Hedera, let's see 4 primary use cases for the Hashgraph.
The Hedera Hashgraph has 4 primary use cases:
1. The HBAR token allows users to make low-cost, rapid, and secure transactions.
2. The Hedera network can automatically execute smart contracts and develop dApps.
3. The network can provide secure file storage services.
4. Hedera can secure consensus in applications that require parties to form a level of trust.
Dozens of dApp developers have taken advantage of these use cases to start building their applications on the platform. Many companies work on the network, ranging from healthcare to advertising. Take a look at some:
The Hedera team believes the consensus mechanism is better than the traditional blockchain system. Here's why.
According to Hedera, the Hashgraph mechanism “achieves the highest-grade of security possible with blazing-fast transaction speeds and incredibly low bandwidth consumption.” The Hedera network claims to carry out 10,000 transactions per second (TPS) compared to ETH's 12 TPS and BTC's 3 TPS.
Hedera also claims to keep fees to a minimum, charging an average of $0.0001 per transaction compared to BTC and ETH that charge around $20 each. According to Hedera, their low-cost and high-speed network is seeing a lot of traffic with over 4 million daily transactions and over 600,000 active accounts. (You can check the latest updates on the Hedera Networks traffic here.)
The transaction speeds claimed by Hedera's teams are unheard of on other networks so what puts them so far ahead of the competition?
The Hedera network's lightning-fast speeds put it well ahead of BTC and ETH and even nearing the transaction rate supported by the financial services corporation Visa.
The Hedera team claims that the Hashgraph's allegedly superior structure gives their network a significant TPS edge over traditional blockchains.
If two blocks are created at the same time on a traditional blockchain, the nodes have to choose to discard one and verify the other. That slows down the network, especially during high traffic periods.
Hedera's hashgraph doesn't have to discard a transaction when traffic is high because every event is added to the ledger and woven into the graph. That can't happen on a blockchain as the blocks have to fit in one after another (i.e., in a clean chain).
Another issue with traditional blockchains, according to a report from the Hedera team, is that when traffic is too high, the chain may start to grow too fast. That can crash the network before it can order the blocks into the chain.
According to Hedera's team, traffic doesn't overload the Hashgraph like other blockchains. That's because the network doesn't need to select which event to add to the chain as the graph can grow very quickly in all directions.
Does this sound too good to be true? That's what some critics have voiced.
Hedera's claims about monumental TPS and low-costs have come under fire from the crypto community. Many big names suggested that Hedera's claims are half-truths at best and outright lies at the worst–so what's true?
Eric Wall, who was previously a cryptocurrency lead at Cinnober, caused a stir when he questioned Hedera's TPS claim in an article titled Hedera Hashgraph – Time for some FUD. In the article, Wall points out that Hedera's advertised TPS only applies to cryptocurrency transactions. It doesn't cover smart contract execution, one of Ethereum's main use cases.
Digging deeper into Hedera's website, Hedera explains smart contracts and file service in the TPS section. They write that both are currently throttled to 10 TPS, which substantiated Wall's claims. When executing smart contracts and providing file services, Hedera isn't faster than the Ethereum network in its current form.
Paul Madsen, the technical lead at Hedera, also discussed TPS claims stating that the network should handle over 10,000 cryptocurrency transactions. Yet, speeds may decrease if a large proportion of clients request state proofs.
That said, according to Hedera's website, the network's TPS is expected to increase in the future and even become unlimited at some stage. According to Hedera's transaction tracker, the average monthly TPS is currently at 46.3, although it's unclear at what capacity percentage the network has been operating.
The Hedera website also states that the transactions used to create the performance table seen above don't include transactions that generate a record. That means Hedera doesn't have state proofs, which is a cornerstone that makes blockchain transactions reliable.
Wall described Hedera's decision to count transactions without a record, saying: “They're just counting how many times per second a node can claim that it received a transaction, but it comes with no assurances.”
Madsen responded to Wall's article in his own medium post titled Counter-FUD. He stated that a client using the network has three options to ensure trust between themselves and the node:
1. The client can request a transaction receipt from the node for free.
2. The client can request a transaction record from the node, which provides more information than the receipt, but isn't free.
3. A client can request proof of state, also known as state proof.
Beyond the high TPS claims, the way Hedera is run has drawn some criticism. Unlike open-source cryptocurrency networks, like Ethereum, Hedera is run by a group of organizations known as the Governing Council.
Let's discuss what that means and why it may cause an issue.
Hedera claims to carry out far more TPS than other significant names in the crypto world at a lower cost while consuming less energy. Yet, unlike traditional Blockchain networks where anyone can become a node and contribute to running the network, Hedera depends on a group of pre-selected nodes known as the Governing Council.
The governing council is made up of up to 39 world-leading organizations. It currently includes companies like Google, IBM, and of course, Swirlds (the founding company). According to Hedera, these organizations own and govern the network to ensure security and stability.
Each member has an equal 2.6% influence on decision-making. They each have a say in Hedera's future development, and they're limited to two, three-year consecutive terms. The governing council sits at the top of the power pyramid, but it delegates some tasks and decision-making processes to the Hedera Board of Managers.
The Board of Managers is made up of 7 voting managers. The organizations on the governing council elect four, while Swirlds appoints the remaining three. Currently, they're William Miller, the Hedera CEO, Mance Harmon, and the Hedera CFO, Leemon Baird.
The voting members serve a two-year term which can be extended by one extra year, and they receive no compensation for their service. Still, it gives them influence over the Hedera network's development.
The governing council controls the project's direction, at least for now. Still, some decisions are delegated to voters directly affiliated with the organizations. This governing structure has drawn a volley of criticisms claiming that Hedera isn't decentralized.
When a blockchain is made public and permissionless, anyone can create nodes, participate in future updates, and invest in the project. That makes it a decentralized utility desirable for many since it bypasses the issues associated with traditional centralized banking systems.
Yet, HBAR isn't fully decentralized, as major corporations like IBM, Google, and LG run Hedera's network; HBAR's system isn't permissionless. To become a node, you have to be pre-selected, i.e., be a member of the governing council. That could be a dealbreaker for those eager for decentralized commerce.
According to a report released by Hedera in June 2021 titled Understanding Decentralization of Hadera Hashgraph, the team plans to carry out the shift from permissioned to permissionless soon. Hedera appears to be planning to gradually reduce its dependence on permissioned nodes and open up the network in a three-step process.
Hedera is currently still in step 1 of its journey towards decentralization. During this step, consensus nodes are permissioned, owned, and operated by the Hedera council. The number of permissioned nodes is limited, and council members are directly responsible for their operation–the network isn't permissionless.
A further push towards permissionless nodes will involve opening the network to more permissioned nodes. That can only happen once the governing council determines the network is secure and stable enough. At this point, peripheral parties and organizations will be asked to join the network and operate nodes.
That'll be the moment everyone has been waiting for, as the Hedera network becomes open to everybody. Don't get too excited yet! Hedera only plans to make this change once it has 39 governing council members. Currently, the Hedera network has 25 members and hundreds of active permissioned nodes.
It's unclear how long it'll take to acquire more council members and get enough permissioned nodes. For now, Hedera didn't set a deadline for when step 3 must be completed. According to their road map, though, they aim to achieve decentralization sometime in Q2 of 2022.
We've summed up most information on the network so far, so let's check how you can participate in the ecosystem through the HBAR token.
Hedera's website describes the HBAR token with three simple sentences “Incredibly fast. Predictably low fees. Finality in seconds.” HBAR tokens power the Hedera network and its processes, like executing smart contracts, transferring HBAR, managing NFTs, and storing data. Holding Hedera's token is only profitable if the price increases–you can't stake it. We'll discuss this in detail later in the article, along with Hedera's plan to bring staking to HBAR in the near future.
According to CoinMarketCap, HBAR currently has a market capitalization of $4.9 Billion, ranking #33 within the cryptocurrency market in terms of market cap. HBAR supply is limited to 50 billion tokens, with just over 18 billion currently in circulation.
HBAR's initial coin offering (ICO) took place between July 5 and August 15, 2018, and saw investors part with an estimated USD 100 million, with each token costing a mere $0.12. Following the ICO, things went south for HBAR, and it hit an all-time low of $0.01 on January 2, 2020. The bearish sentiment dominated HBAR for months to come until January 2021, which saw the start of a new bull market. HBAR's price went parabolic, rocketing from its $0.01 low, all the way to $0.4 by March 15.
The HBAR price then came crashing down to around $0.15 in July 2021, before commencing another bull-run. The upwards climb that began at the end of July 2021 made HBAR hit an all-time high of $0.57 on September 16. That was massively rewarding for those who scooped up some HBAR on the dip during the summer or those who had been holding the coin since its launch. Since then, HBAR has slid back down, and as of writing (January 7, 2022), it's valued at $0.28.
Since launch, if you had held onto your HBAR tokens, you've seen an impressive 136.5% return on your investment. Those who picked up some HBAR around its all-time-low in January 2020 have seen a whopping 2735% return to date.
If you're impressed with HBAR's capabilities, you probably want to know how you can add some of the tokens to your portfolio. Luckily, HBAR is available on most crypto exchanges, like Coinbase and Binance.
To purchase HBAR:
Atomic Wallet allows you to buy and hold HBAR and other crypto-assets directly from one website, making it great for beginners! It removes the need to use sites, like Binance. It also rewards you with Atomic Wallet's native AWC token just for carrying out the transaction.
You're probably thinking: “If I can't become a node on the Hedera network, I probably can't stake my HBAR tokens either”. This assumption is, unfortunately, correct. For anyone wondering what staking is, it's a way of earning cryptocurrency for holding onto tokens; you can read more about this on Atomic Wallet's what is staking guide.
Currently, it's not possible to stake HBAR to earn rewards. Yet, the Hedera team claims to be on their way to bringing staking to the Hedera Network. According to their site, Hedera will launch staking in the second quarter of 2022–coinciding with the previously mentioned network decentralization.
The Hedera project turned many heads with its unique Hashgraph consensus model. That allows it to be a faster, more secure, and cheaper alternative to Bitcoin or Ethereum. Hedera hasn't lived up to its promises yet. Its claims regarding transaction speeds compared to Ethereum appear to have been misleading or poorly worded. The crypto community may also turn from it because large corporations and organizations currently run it.
Nonetheless, it'd be wise to keep at least one eye on the HBAR project, especially now that it's moving towards a decentralized system with staking. If it implements all its promises, HBAR could have a bright future.
Hedera Hashgraph is a proof-of-stake cryptocurrency network. It uses decentralized ledger technology to carry out transactions, execute smart contracts, and store information instead of the traditional blockchain system. The Hedera network is run by a governing council and isn't open to the public like decentralized crypto projects. Its ticker symbol is HBAR and represents its native token.
HBAR is the Hedera network's native token. It's used as payment on the network for executing smart contracts, storing files, or carrying out peer-to-peer transactions. HBAR's cap is 50 billion tokens, with 18 billion tokens already in circulation. At the time of writing, HBAR had reached $0.28, implying a 136.5% gain since its initial coin offering in 2018.
1. Open an account on an exchange that supports HBAR
2. Buy HBAR on Atomic Wallet or another exchange.
3. Store your HBAR to a secure crypto wallet, like Atomic Wallet.
The Hedera Hashgraph road map suggests that 2022 will be a huge year for HBAR. According to Hedera's team, they expect to open up the network to permissionless nodes sometime in 2022 which would make it possible to stake HBAR tokens. Staking would encourage more people to hold HBAR in the long term in exchange for rewards potentially increasing its market price.
For the latest information on the Hedera Hashgraph visit the official website.
Keep up with the latest news from Hedera on their Medium blog.
Join the Hedera community Telegram chat.
Follow Hedera on their Twitter page.
Subscribe to Hedera's YouTube account.
Get updates on Hedera from the official Facebook page.
Take a closer look at the source code on GitHub.
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