Hedera Hashgraph and HBAR Explained

Have you ever thought why so many blockchains cannot handle high transaction volumes quickly and cheaply?

Hedera aims to solve this by offering fast transactions and low fees using something that it’s called a hashgraph algorithm.

But how does it do this? And what is a hashgraph algorithm?

Today we find out!

What is Hedera?

Hedera was founded by Leemon and Mance in 2018.

Hedera isn’t actually a blockchain but instead uses a different type of distributed ledger technology called a Directed Acyclic Graph, or DAG. The main difference between a DAG and a blockchain is in how they structure and process transactions.

In a blockchain for example, transactions are grouped into blocks, and these blocks form a single chain. It’s kind of like adding beads to a necklace, one at a time, in a specific order.

A DAG on the other hand, is more like a web or a tree. Transactions don’t need to be grouped into blocks. Instead, each transaction can link to multiple previous transactions directly. This means that a DAG can process transactions faster, more efficiently and cheaper compared to blockchains.

How Hedera Works & What Makes It Unique

Now, let’s look at how Hedera actually works.

The hashgraph algorithm is the secret sauce here. Instead of bundling transactions into blocks like a traditional blockchain, Hedera uses a “gossip about gossip“ protocol.

Nodes in the network, which is a fancy way of saying computers in crypto, rapidly share information with each other, almost like how rumors spread in a crowd.

This allows for incredibly fast consensus, meaning the network can agree on the order and validity of transactions in just seconds. And because there’s no mining involved, Hedera uses way less energy than proof-of-work blockchains like Bitcoin.

Picture this: You’re at a big party, and everyone’s chatting away. But instead of just gossiping about the latest news, people are also talking about who they’ve talked to.

It’s like saying, “Hey, I just heard this juicy bit of news from Sarah, who heard it from John, who got it from Lisa.”

This way, information spreads super-fast, and everyone quickly knows not just the news, but how it traveled through the party. In Hedera’s network, nodes are like these people.

They’re constantly sharing information about transactions, but they’re also sharing info about how that information is spreading.

This “gossip about gossip” approach helps the network reach agreement really quickly and efficiently.

Another key feature is Hedera’s asynchronous Byzantine Fault Tolerance. This basically means the network is extremely secure and can keep running smoothly even if some nodes are compromised or trying to cheat the system.

Hedera also offers something called “fair ordering” of transactions. This means that the order in which transactions are processed is based on when they were actually received by the network, not determined by a miner who might play favorites.

This fairness is important for certain applications, especially in finance.

Technical Breakdown

Now, let’s break down Hedera’s architecture a bit more.

Here are four main services that make up the Hedera network: First, there’s the cryptocurrency service. This handles the native HBAR token and allows for fast, cheap transfers.

Next is the smart contract service. This lets developers build and run decentralized applications on Hedera, similar to Ethereum, but with much higher throughput.

The third piece is the file service. This allows for decentralized file storage and can be used for things like verifying documents or creating an audit trail.

Finally, there’s the consensus service. This is really powerful, it lets other applications use Hedera’s fast and secure consensus mechanism for their own needs. Imagine being able to tap into Hedera’s speed for ordering transactions in your own blockchain project.

HBAR Tokenomics

Now, the native coin of Hedera is known by the market ticker HBAR and it can be used to pay for transaction fees, which means that every time you use a Hedera service, you’ll need a tiny amount of HBAR to cover the cost.

Second, HBAR can be used for staking, which means that by holding and locking HBAR, users help secure the network and earn rewards in return.

And finally, governance. Unlike many other crypto projects, HBAR doesn’t give direct voting rights to token holders. Instead, Hedera has a unique governance model where a council of up to 39 global organizations including Google, IBM, and Boeing, makes decisions about the network’s future.

In total there will only ever be 50 billion HBAR tokens, and the initial token distribution was as follows: 32.4% was allocated to the Hedera Pre-minted Treasury, 24% to Ecosystem Development, 17.4% to Purchase Agreements, 13.8% to Founders and Early Executives, 8.8% to Swirlds, which is the development team behind Hedera and the final 4.4% was allocated to Employees and Service Providers.

Not all of these tokens are in circulation yet, there’s a gradual release schedule to ensure the network grows sustainably.

One interesting aspect of Hedera’s tokenomics is the concept of proxy staking. This allows HBAR holders to “stake” their tokens to a node operator without actually transferring ownership. It’s a way to participate in network security even if you don’t want to run a node yourself.

Is Hedera Hashgraph Worth it?

Hedera is positioning itself as a next-generation public ledger, one that can handle enterprise-scale applications while still maintaining the benefits of decentralization.

Hedera is fast, cheap to use, and super secure. This makes it a top player in the crypto space.

Major corporations are part of Hedera’s leadership. This gives Hedera more credibility than many other crypto projects. It’s like having industry giants on your team!

Of course, there are still challenges ahead. Hedera will need to continue growing its ecosystem of developers and applications.

And there’s always competition in the fast-moving world of blockchain. But overall, Hedera represents an exciting new approach to solving some of the biggest problems in cryptocurrency.

Hedera’s unique technology and governance model could make it much easier for many industries to start using decentralized applications, from finance to supply chain management and more.

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