Hedera Hashgraph Review: Blockchain 2.0 or Just Another Hype? | KoinOK Blog

Hedera Hashgraph (HH) came in the news recently because it successfully raised $100 million from institutional investors. At the peak of the crypto bear market really?! When retail interest has bottomed!

But probably what Pompliano (Crypto Influencer and Entrepreneur) said is true “We’re in the third worst bear market in crypto history. It wouldn’t surprise me if someone is in the process of starting the next global, multi-billion dollar crypto project right now. Bear markets get rid of the tourists, so the talent can focus.”

The amount of consistent interest shown by big fund owners through capital infusion in this nascent crypto ecosystem is just incredible. This funding will be used to build out the Hashgraph network and set up a micropayment system. The company believes hashgraph technology could one day be used to handle millions of transactions per second in a secure way.

Hedera Hashgraph not only plans to create a crypto-economic network around its native cryptocurrency, but will also integrate a smart contract platform and a file storage service. It will create public applications programming interfaces to enable these three services (including cryptocurrency as-a-service).

Crowd Sale

After raising $100 million from institutional investors, HH is now offering its tokens for crowdsale at the same token price of $0.12 and plans to raise another $20 million. However, the offering will be conducted as a private placement in accordance with SEC regulations, i.e., only accredited investors will be allowed. So it’s not going to be an ICO, but a SAFT (a Simple Agreement for Future Tokens) instead.

After its launch, initially for around 6 months of operations, the network will be closed for the public and will be accessible just to developers and partners building applications. And then the network will be opened up for general market use and tokens will also be available in public markets.

Blockchain 2.0?

According to supporters of Hashgraph consensus algorithm, blockchains are secure but slow, while Hashgraph will remove this trade-off and be both secure and fast. But to be honest, in the last 4–5 years in the crypto ecosystem, we have seen so many potential “next Bitcoin” projects die a tragic death (not literally as crypto networks are alive as long as one node is active but in terms of its hype) that such a value proposition no longer seems appealing and infact tenable.

At the same time, history has taught us that you cannot and shouln’t bet against technological innovation and maybe this time, Hashgraph has something innovative going on which its predecessors lacked. A peek into early years of Hashgraph will throw some light. Let’s look at its historical background.

Historical Background

Hashgraph as a concept is not as new. It was proposed as a better alternative to blockchain in terms of supporting scalable applications (e.g. IoT devices) through its innovative distributed ledger technology. Hashgraph resembles close similarity to DAG (Directed Acyclic Graph), but with so much negative developments, bugs and issues around IOTA (another big crypto project which commercially pioneered DAG in crypto ecosystem), any association with DAG invites scrutinity initially.

The founder of Hedera Hashgraph, Leemon Baird, has been involved in crypto world ever since 2011. A PhD in computer science from Carnegie Mellon, he became obsessed with trying to solve the problem of achieving asynchronous BFT (Byzantine Fault Tolerance) at scale. BFT is the foundation of creating a trustless network without any involvement of trusted third party. After years of research, he finally came out with Hashgraph in 2015.

Hashgraph was never thought of as a competition to Bitcoin. Infact, Baird didn’t even have a plan to integrate cryptocurrency into the solution. It was just a cool math problem to solve for him. The first product which the team came up with in 2015 was called Swirlds and it was meant to address permissioned networks for enterprise use cases. With Hashgraph, it is now moving into the world of cryptocurrencies.

Hedera Hashgraph plans to work with Fortune 500 companies and startup companies to leverage its consensus algorithm to scale and secure IoT ecosystems. Infact, there’s going to be a very close linkage which will be elaborated when we discuss its “Unique Governance System”.

Unique Governance System

Instead of full nodes securing the network like in bitcoin, here the governing system is different so as to enable scalability.

The Hedera Hashgraph Council will be the governing body of the Hedera hashgraph network. The Council consists of 39 global blue chip organizations representing 18 different business sectors and all geographies including Australia, Japan, Europe, India, USA and South America. Collectively, they represent the entire market of potential use cases. And their memberships are term-limited, so they cannot remain members for unlimited time.

The Governing Members will elect the Governing Board and also contribute expertise through subcommittee membership. Hedera’s governance terms ensure no single member will have control, and no small group of members will have undue influence over the body as a whole.

According to the company, this is designed to be the most decentralized governing body of all public platforms, unlike a set of core developers or a single foundation making all the big decisions for the network/platform.

How Hedera Hashgraph envisions scaling to millions of transactions per second?

Initially, all 39 members will be running a node in the first version of the network and will be able to process 10,000 transactions per second. This will be the first shard. By adding more shards later, scalability can be achieved by some applications which can parallelize their operations using shards. However, those applications which cannot parallelize their operations will be limited to a single shard, i.e., 10,000 transactions per second.

The above approach shows that the company has given much thought to the governance mechanism remaining as neutral as possible. However, the question which arises is “how do we know that it is implemented in the same spirit as planned”? Blockchain is all about creating trustless networks. If we have to trust on Hedera team to deliver on this promise of ensuring integrity of Council members, its not going to be a trustless system and essentially defeating the purpose.

Enabling Micropayments for the first time?: Overlooking the existence of Lightning Network!

The company believes that it will enable micropayments for the first time which is completely false. Lightning Network (on top of Bitcoin Base Layer) is already growing exponentially with time since last year with growing number of payment channels and it has the potential to facilitate micro-payments in terms of millions of transactions per second and with sub-satoshi fees (1 satoshi is equivalent to one hundred millionth of a bitcoin).

And much of value proposition of hashgraph revolves around micro-payments. Unless hashgraph ensures the same level of security as bitcoin base layer with the potential for millions of transactions, we already have Lightning Network which is linked to bitcoin base layer through smart contracts (where final settlements take place) and thus ensures a good balance between security and scalability.

“As a technology, it’s a fundamental advance in the world of distributed systems,” said Hedera CEO Mance Harmon. But how? There’s very little info on this, as compared to what we have on all aspects of Bitcoin. Naturally, Bitcoin has a huge advantage in terms of Lindy Effect. Bitcoin’s White Paper has been there for 10 years for anyone to go in depth and find faults. And yet it keeps on going stronger with time. Any alternative to Bitcoin will have to go through same level of scrutiny while being a live network in order to gain community trust.

Conclusion:

The fact that the project has institutional supporters (who usually get involved after great amount of due diligence) and doesn’t feel a need to get into the ICO market presently, shows that whatever the outcome may be, the company is striving hard to make their vision a reality and its not just in this to make quick money.

However, as Bitcoin’s dominance continues to remain in crypto market and its network effects continues to grow further, it is becoming more and more difficult for anyone else to replace Bitcoin’s dominance. We have been witnessing talks around Ethereum flippening Bitcoin in the last couple of years, but that has not turned into a reality. With new projects like Hedera Hashgraph, unless the technology for micro-payments is 10X superior as compared to Bitcoin’s Lightning Network, there’s a low likelihood that it could become predominant.

The journey of Hashgraph has just started. But it will be worth to keep track of. To see whether it can deliver on its promise in the present form, or even through pivots, or it was just another hype.

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The KoinOK Blog

KoinOK aims to provide a one-stop solution to trade cryptocurrencies in India in a quick, easy and secure manner.