The spotlight on the distributed ledger space to-date is primarily focused on blockchain. Yet, blockchains come with limitations by design. Consensus mechanisms using proof of work (POW) are by their nature slow, so the community can come to agreement and throw away the blocks they don’t agree on. This design also includes inherent inefficiencies such as electricity consumption discarded on stale blocks.
Distributed ledger technologies envision a new, better peer-to-peer compute model that could help us harness compute power like never before. As we move away from the client-server compute model, we move closer to realizing a new trust layer for the internet. This transition is still limited by challenging problems yet to be solved around efficiency, scalability, and interoperability.
The hashgraph algorithm, invented by Leemon Baird, the co-founder and CTO of Swirlds, is a consensus mechanism based on a virtual voting algorithm combined with the gossip protocol to achieve consensus quickly, fairly, efficiently, and securely. Today, the founders of Swirlds, a permission-based ledger that uses the hashgraph consensus mechanism, launched the Hedera Hashgraph Platform, a separate venture dedicated to developing a public ledger based on the hashgraph.
“Hashgraph is an alternative to blockchain — a first generation tech with severe constraints in terms of speed, fairness, cost, and security,” explained Mance Harmon, Co-founder of Swirlds and Hedera. A fundamental bottleneck has been the performance — how many applications are there that can run on a database that can just do 5 transactions per seconds.”
Hashgraph aims to provide the benefits of blockchain as a distributed ledger technology without the limitations. While many ledgers use the gossip protocol, Baird combined the gossip protocol in the form of “gossip about gossip” with a voting algorithm to reach consensus quickly and securely without proof of work. The gossip protocol shares new information that other nodes don’t know, and the gossip about gossip includes where that new information originated.
When the new messages include the hash of previous messages into one, then you have the entire history of who talked to who in the network and in what order.
Baird attests, “So I can guess how you would vote, but you don’t need to vote, so you reach consensus for free. It’s the fastest way known to humanity to send information.”
Last year, hashgraph released speed tests of hundreds of thousand transactions a second on Swirld’s permission-based ledger. While impressive, it couldn’t be fairly compared with public ledgers, because the number and identity of nodes in a permission-based network are known. Today, Hedera Hashgraph shared their public ledger test results.
Large companies across sectors like financial services and supply chain management are increasingly testing blockchain proof of concepts, yet their adoption is constrained by limitations such as transaction speed.
“We can process hundreds of thousands of transactions per second on Hashgraph Hedera, compared to proof of work blockchains like Bitcoin or Ethereum’s blockchain that can do 5-7 transactions per second,” Harmon said.
Since time is a tradeoff between throughput, latency, number of computers, and geographic distribution, the tests demonstrate these tradeoffs. For example, the results show 30 computers can achieve 50k transactions a second across 8 global regions in 3 seconds, or merely 1.5 seconds across 2k miles, or .75 seconds in a single region.
If the Hedera network can achieve consensus on transaction order and timestamps for instances distributed across five continents, and at a volume of hundreds of thousands of transactions per second within a few seconds, then they’ve surpassed Visa’s current network transaction speeds.
The Hedera Hashgraph platform is architected to address the market of distributed applications. The founders’ vision provides an initial three sets of services as the platform evolves: cryptocurrency as a service for support for native micropayments, micro-storage in the form of a distributed file service that apps can use, and contracts — there is support for Solidity on top of the platform.
“Developers don’t need a license to use this platform — they need the platform coin — when they make an API call to one of these three services, they make a micro-payment to the company, ” Harmon explained. “The revenue model here is receiving micro-payments for the APIs as they’re used. The way your compensated is by taking these micropayments for the use of the API and dividing it across the nodes.”
Hedera’s governance structure is modeled after Visa’s strategy for bringing competing banks together to create a schema to benefit them all, while making sure no member has any more influence than any other member. The Hedera Hashgraph Council will comprise 39 members, including Swirlds, with equal voting power. The council is designed to ensure that the network never forks.
The council members are yet to be announced. Mance says, “We are pulling together a governing council from the set of the global 100 largest enterprises by sector to provide governance of this public platform — meaning they will elect a board and subcommittees that manage aspect of the platform according to their expertise.” While Swirlds doesn’t have greater voting power than other council members, its irrevocably licensed the hashgraph to the Hedera Hashgraph platform and retains a licensing fee of 10% of the revenue.
The Hedera platform’s existing technical framework is capable of anti-money laundering and know your customer compliance to abide with government regulation in the present banking system. The Opt-in Escrow identity mechanism allows you to bind verified identities to cryptocurrency wallets. Regulatory compliance combined with enhanced security and speed could signal a big win for financial industries seeking to adopt distributed ledger technology.
With a secure, fast, public ledger, the future could include micropayments and massive-scale distributed gaming emerge in the near future, and the intersection of distributed ledger technology and AI intersect in new ways. MZ, the creator of Game of War, will be one of the first to build distributed applications on top of the Hedera Hashgraph platform.