Hedera: Tech, decentralization, governance, myths, FUD, use cases and future of public DLTs

This article was originally published August 5, 2023 on the Plech's Medium blog.

Background and reasons why I write this

I decided to create this blog to combine general info about @Hedera and along the way I will counter some common myths and FUDs that I have encountered on social media over last two years. Some of the following lines will be based on my personal opinions and observations, which I gathered while studying public DLTs, their fundamentals and adoption. I hope this blog will be a good entry level for new guys who are trying to get into this project as it won’t be too nerdy. My biggest wish is this will convince communities from other L1 projects to dig deeper into the fundamentals of Hedera and make them understand why Hedera is most likely on its way to become the most used public network in the world. There is probably room for more L1s, but I am skeptical we will need more than 2–3 public networks in the future (apart from Bitcoin). I won’t be comparing Hedera with other L1 public networks, although I might mention some other projects, which I believe have flawed fundamentals. In the end these flaws convinced me that Hedera is by far the best public network suitable for basically all types of decentralized applications.

Hedera’s whitepaper can be found here.

This post is not a financial advice!

Overview

Hedera is a public distributed ledger technology. This network consists of several servers (nodes) which are decentralized over whole globe. To reach consensus Hedera uses an open-sourced Hashgraph algorithm that uses the Proof of Stake principle. Technically, Hedera is not a traditional blockchain, but DAG instead.

Hedera was founded by two guys :
Dr. Leemon Baird - https://www.linkedin.com/in/leemon-baird/
Mance Harmon - https://www.linkedin.com/in/manceharmon/

They both have experience in various industries. They helped to build several start ups and mission critical apps. Read about them!

Hashgraph uses Gossip about Gossip protocol — imagine that you send a transaction to a node, which then sends it to nearby nodes, which then send it to other nearby nodes and so it spreads over whole network. Each event contains following information: Timestamp, Two hashes of two events below itself, Self-parent, Other-parent, Transaction, Digital signature. Each node in network can create a history of how given transaction traveled through the network. A transaction is confirmed when it is approved by nodes whose combined value of staked HBARs (native cryptocurrency) is sufficient to do so. Nodes need to reach consensus on stuff like order of transactions or overall state of network itself. Hashgraph orders transactions fairly!

$HBAR

The native cryptocurrency of Hedera is $HBAR. HBAR is an utility asset which is used to pay for each transaction on Hedera’s mainnet. Also, as in other PoS systems, when HBARs are staked to a node they have a weighted influence on consensus for validating transactions.

Services

Hedera currently offers several services, that can be utilized: Hedera Consensus Service (HCS), Hedera Token Service (HTS), Hedera Smart Contract Service (HSCS), Hedera File Service. Initially, Hedera offered only one service — HCS. Then, with the help of community they introduced native token service and smart contract service in order to allow Hedera to be used for broader type of applications. If you want to use any of these services (YES, EVEN HEDERA CONSENSUS SERVICE!) then you need to pay for these transactions with HBARs.

Hedera Consensus Service (HCS)

HCS is very cheap service that can be used to log auditable immutable events for your web2 or web3 apps. This service has low demands for HW as it carries only limited number of information, however arguably it is one of the best services in whole crypto sphere, because it can be used for such a huge variety of use cases that it makes Hedera de facto the only option to build some of the most demanding decentralized apps out there including IoT, DAO voting, supply chain tracking etc.

Hedera Token Service (HTS)

Native token service allows you to create, send and swap tokens at the speed of hashgraph. Using API calls you can achieve some on-chain programmability for stuff like atomic swaps, configuration of custom royalties and other complex programming. This service can communicate with smart contract service if your app requires to do so.

Hedera Smart Contract Service (HSCS)

As other L1 networks Hedera also offers smart contract service based on EVM. Hedera initially didn’t pay much attention to Smart contract service as there is an idea that combination of HCS and HTS can cover most of the stuff that your decentralized app might require. However, as many devs from crypto community are familiar with smart contracts, Hedera introduced its version 2.0, which (imho) offers suitable throughput for apps that require to use smart contracts. There is still room for improvement if world decides that smart contracts are a way to go!

Additionally, Hedera offers plug-in service for widely used private DLTs R3 Corda and Hyperledger:
https://hedera.com/blog/hedera-consensus-service-permissioned-blockchain-networks

Hedera can act as a public consensus layer for private DLTs. I will share some hybrid usecases later.

Fees

Transaction fees are stable — each type of transaction has known price in USD, which is then paid in HBARs at current rate — so this is dynamic and calculated every few moments. This is arguably one of the most important principles of Hedera, because you can imagine that enterprises and governments probably need to understand how much they are going to pay for each transaction.
https://docs.hedera.com/hedera/networks/mainnet/fees

Speed

If you read about gossip about gossip protocol, then you must understand that Hedera consensus algorithm is blazing fast, because, as I mentioned earlier, transactions travel across network exponentially, like a virus! Network can theoretically handle thousands of transaction per seconds (TPS) because of how efficient this algorithm is. With implementation of sharding only bandwith is a limitation for this groundbreaking algorithm. Hedera achieves finality of transactions in about 5 seconds. This makes Hedera suitable basically for every kind of application.

If you check whitepaper you will find more detailed performance stats.

Currently all services on Hedera are throttled, but throttle can be adjusted once needed.
https://docs.hedera.com/hedera/networks/mainnet

Security

Hashgraph has highest form of security that DLT can achieve — asynchronous Byzantine fault tolerance (aBFT). When a decentralized network is Byzantine fault tolerant, it means that the honest members (nodes) of a network can be guaranteed to agree on the timing and order (consensus) of a set of transactions. The ‘asynchronous’ property of Byzantine fault tolerance overcomes a challenge of fault tolerance, which is that of timing. Many forms of Byzantine fault tolerance assume there is a maximum threshold of message latency when coming to a consensus. An asynchronous byzantine fault tolerant (ABFT) network eliminates this assumption and allows for some messages to be lost or indefinitely delayed.
https://hedera.com/blog/coq-proof-completed-by-carnegie-mellon-professor-confirms-hashgraph-consensus-algorithm-is-asynchronous-byzantine-fault-tolerant

Sustainability and environmental impact

Hedera is carbon negative:
https://hedera.com/blog/going-carbon-negative-at-hedera-hashgraph

As per UCL Hedera is the most efficient public DLT network. It uses least amount of energy per transaction:
https://ledgernomic.com/hedera-uses-the-least-energy-per-transaction-ucl-study/

Governance and decentralization

Initially, I wanted to split these two topics, but to understand Hedera’s approach and highlight flaws of other public networks, I have to keep them combined.

Aim of Hedera is to be governed by a council made of 39 entities such as Fortune 500 companies, banks, universities or nonprofit organizations. The idea is to have council members as decentralized as possible spread accross different industries and continents. Each council member (apart from permanent member — Swirlds) has a term limitation, so after few years they leave council and they must be substituted by a new entity.

Currently there are 29 members in council. They meet monthly to provide guidance and decide the future of this network — they need to vote and reach consensus to approve changes. There are huge entities like Google, IBM, UCL university, Standard Bank, LG, Chainlink Labs etc. present in the council at the moment.

Network is permissioned and only council members are allowed to own a node and participate in consensus. However, in the future Hedera will allow community nodes — currently it is planned for Q1 2024. (Fingers crossed, it’s about time!) The idea is to have network fully permissionless where (probably dynamically based on usage) new nodes, even anonymous, are allowed to join the network.

Common lazy FUD — network is not decentralized, corporations are bad, we want community to vote on things etc.

You have to ask yourself — what does your favourite L1 network aim to achieve? Does it want to be a sustainable business with hundreds of nodes? If so (which is obviously the main idea of any business lol), then you have to realize that corporations and governments NEED to use that network. There is no chance that 1000-node network will be used by only ordinary people and it will have cheap transactions that these ordinary people can afford to pay. L1 networks have been around for several years and when you check their usage it is just….. far from enough. Popular public networks like Cardano, Algorand, Avalanche etc. are averaging at 3–15 tps while they already have tens or hundres of nodes participating in network and essentially just wasting energy and HW. For such low usage you hardly need so many nodes. Transaction fees which are generated on these network can’t cover operating costs of network validators and project itself. Therefore projects use preminted coins to pay validators and stakers. This is very important to remember, that these networks are far away from being sustainable and they often have fixed total supply of coins and many of them will have them all in circulation quite soon. Time is ticking ladies and gents! This is the reason why every PoS public network actually needs high-scale enterprise/government apps in order to be sustainable in long run. Banks, Fortune 500 companies, governments — they all see benefits of public DLTs, don’t worry. There is no point in gatekeeping your fav project. YOU NEED THEM!

This is where Hedera comes with their unique approach. They decided to re-use VISA model and allow only known big entities to build and govern the network that can be trusted. You could argue that corporations can’t be trusted, but it would be silly to think that they would risk their reputation and act maliciously, create a gang with other members to steal assets, compromise transactions etc. Council members don’t need to trust each other, they can check themselves and hold them accountable. And term limit ensures they are not going to be there forever!

I personally think that corporations are more likely to govern network properly, than few random nerds who own particular cryptocurrency. I am happy to be proven wrong, but I know people and I don’t live in fairytale world.

Now regarding decentralization of nodes — I like Hedera’s careful approach of allowing only few trusted nodes running a network as it ensures that network is safe to use since beginning. Unless Hedera or any other networks don’t make hundreds or thousands of TPS, then it’s pointless to have too many nodes in PoS system. PoW systems like BTC are a bit different as there are self-balancing principles that make these networks sustainable — however transaction fees are therefore high and make them unstustainable for high-scale apps. It’s not like Hedera will be permissioned forever, you just have to understand this safe and logical approach to build a strong and resilient public network. Especially, if you anticipate that your network is going to be used for mission critical apps. (more on that later)

Hedera’s utilization up to this date

Hedera (at this moment) processed over 13B real transactions, which is more than any other public network has processed so far. It’s currently processing around 1400 TPS, which is more than ALL PUBLIC NETWORKS ARE PROCESSING TOGETHER at this time. Common FUD is that these are mostly just Hedera Consensus Service transactions, which are ‘meaningless’. When I read this argument I just know that I encountered lazy person who haven’t find few minutes to actually read and understand HCS and what these transactions actually are and why they are important. You need to pay for HCS transactions. Yes, they are cheap and might not bring so much revenue, but network is just heating up and the idea is that network will be processing hundreds of thousands of HCS transactions which will eventually bring high revenue.
https://app.metrika.co/hedera/dashboard/network-overview?tr=1d

I believe in the future there will be more public networks, but I find it hard to believe there will be more than 2–3 of them. Enterprises in general utilize DLTs, but private ones, not public ones. Often you find arguments, they are not willing to fully switch to public DLT. (yet)

Enterprise/government use cases

Even though I often think about wether the biggest organizations will truly utilize public networks and ‘buy my bags’, the links below keep my hopes really high. Here are some of the enterprise/government use cases that are either online on mainnet, or are in PoC/pilot state. It’s hard to track what is and isn’t live on mainnet as you have to deeply investigate what all these transactions on mainnet really represent. What you need to understand is that this technology is still new and it often takes years to utilize new technology from scratch to production.

The main use case which is pushing 1k+ TPS on mainnet at the moment is http://atma.io — app made by governing council member @AveryDennison, which is used in supply chain. To put this into perspective — this one enterprise app is doing more transactions per second than ALL PUBLIC NETWORKS COMBINED. It doesn’t matter if these are ‘only’ HCS transactions. They clearly see the value in them:
1. https://rfid.averydennison.com/en/home/products-solutions/iot/faq-atma-io-hedera.html…
2. https://twitter.com/MWalkerWilliams/status/1615022137441669127?cxt=HHwWjsDS6fiE2-ksAAAA…

Tokenization platform created by one of the largest firms in the world — another governing council member @DLA_Piper: https://dlapiper.com/en/about-us/law-and/toko…

Guardian is an open-sourced solution for ESG stuff, used by various companies, including huge enterprises:
https://guardianservice.io

TCB is a nonprofit organization which created a new standard for digital coupons offered by merchants. Basically every coupon you use in a shop will be indirectly using Hedera’s network which is pretty huge. There are rumours that shops such as Walmart are already preparing for this digital standard.
https://hedera.com/users/coupon-bureau…

Hedera x Hyperledger x another GC member. An hybrid public x private DLT use case by @IBM:
https://ibm.com/blog/creating-a-more-interoperable-blockchain-future/…

GC member @ServiceNow IS building on Hedera:
1. https://prnewswire.com/news-releases/servicenow-and-hedera-enable-cross-organizational-digital-workflows-301423550.html…
2. https://youtube.com/watch?v=9LWlh2pySDw&ab_channel=NicolaAttico…

Hedera is conquering middle east as we speak:
1. https://hbarfoundation.org/blog-post/difc-courts-launches-tijouri-the-global-digital-vault-built-on-hedera…
2. https://hbarfoundation.org/blog-post/ras-al-khaimah-digital-assets-oasis-rak-dao-joins-forces-with-the-hbar-foundation-to-accelerate-hedera-in-the-uae…

The largest user of Mastercard Provenance and a partner of Commonwealth Bank, has migrated from the private Mastercard blockchain to Hedera:
1. https://cryptowisser.com/news/fresh-supply-co-migrates-to-the-hedera-network/…
2. https://www.hbarfoundation.org/blog-post/fresh-supply-co-fsco-payment-trigger-api-connects-hedera-to-mastercard-network

Australian CBDC used in construction industry: https://medium.com/notcentralised/world-first-construction-contract-settled-using-pilot-cbdc-294e86eb891c…

Banks are also bullish, why aren’t you??
1. https://ledgerinsights.com/shinhan-standard-bank-trial-stablecoin-cross-border-payments-on-hedera-dlt/…
2. https://hedera.com/blog/shinhan-bank-scb-techx-successfully-pilot-stablecoin-remittances-on-the-hedera-network…
3. https://forbesindia.com/article/cryptocurrency/bank-of-korea-outlines-future-path-for-payment-systems-and-cbdc-development/86837/1…

GC member @Wipro and their decentralized device identity: https://wiprotechblogs.medium.com/decentralized-device-identity-at-scale-fe9b62cadcc8…

IP assets on Hedera? @BBC will be using Hedera! https://info.lse.ac.uk/staff/divisions/research-and-innovation/assets/Documents/PDF/Annual-Report-FY21-22-RI-Final.pdf…

GC member @abrdn_plc is tokenizing assets on Hedera: https://investmentweek.co.uk/news/4117523/digital-asset-exchange-tokenises-stake-gbp16bn-abrdn-money-market-fund…

Hedera used in aerospace applications:
https://sbir.gov/node/1882711?fbclid=IwAR3PsVoyG_OpEX6mPC6eznPd0GfnbwhHWVBhlj268W8DNB7P9cOI3_8GC8U…

Hyuindai and KIA introduced Supplier CO2 Emission Monitoring System (SCEMS) — which ensure data integrity and transparency throughout their supply chains:
https://hbarfoundation.org/blog-post/hyundai-motor-and-kia-introduce-co2-emission-monitoring-system-built-on-the-hedera-network…

@NASA x Hedera:
https://sbir.nasa.gov/SBIR/abstracts/20/sttr/phase1/STTR-20-1-T11.03-6333.html?fbclid=IwAR2-IR3AFLLQRkgCFjMmpKX5XUOeD_sxerk_UKHVDE2Zu9N_EottTg0D9kc…

Some breadcrumbs about GC member @deutschetelekom: https://reddit.com/r/Hedera/comments/14usgu7/deutsche_telekom_and_hedera_deep_dive/…

Hedera is collaborating with some of the biggest corporations in the world in nonprofit group InterWorkAlliance: https://siliconangle.com/2020/06/02/new-interwork-alliance-includes-ibm-microsoft-aims-standardize-distributed-applications/…

How GC member @FISGlobal could leverage Hedera: https://youtube.com/watch?v=SiL7WioCn68&ab_channel=Hedera…

GC member and leading technical university in India @iitmadras is proposing Hedera as a public layer for Indian CBDC: https://blog.techsoc.iitm.ac.in/what-is-the-digital-rupee/?fbclid=IwAR3K3vnZa-9vXYGhTLntVI_0Atv_4jRrKbRBx61DDLIr3CmTWWryGvtmeGg…

GC member @eftposAust is building micropayments solution on Hedera: https://hedera.com/blog/eftpos-pioneers-new-ecommerce-micropayments-solution-using-hedera-hashgraph?fbclid=IwAR2gdP5HIYwgy0q2F1uk-oOiHME6UbQJNk1AmfTC2QCOsoCTAx0EjeqmQLs…

WEF + digital ID + Hedera:
https://biometricupdate.com/202304/world-economic-forum-panel-pushes-for-blockchain-based-decentralized-digital-id…

WEF in Davos 2023. Yep, Hedera was there:
https://youtube.com/watch?v=0oGEvRfkk-s&ab_channel=Hedera…

CBDC infrastructure provided by @emtech_inc: https://coinmarketcap.com/community/articles/64be9da36f41273fdb5ed93b/…

@acoerco is building healthcare apps on Hedera:
https://acoer.com

NFTs in your @LGElectronics TV:
@LGArtLab

Some speculation: https://twitter.com/ParabolicHBAR/status/1534234473369600000?s=20&t=Xd0scpR1xR5RtBMxKQsROA…

More use cases can be found here. When I read all these articles I have hard time investing into other L1 networks.

Startup and community use cases

UK drone infrastructure built on Hedera by @Neuron_World: https://dronelife.com/2022/01/09/neuron-leverages-hedera-network-for-drone-radar-system/…

@HalaSystems is helping to save lifes in Syria using Hedera Consensus Service. Another hybrid use cases that leverages private and public DLT by using HCS:
https://hedera.com/blog/hala-systems-leverages-hedera-hashgraph-to-deliver-early-warning-of-conflict-to-2-1-million-syrians…

Very interesting and important project Startling that helps to fight misinformation:
https://hedera.com/users/starling

Carbon market built on Hedera —

DOVU

Metaverse use case:
https://metavrse.com/hbar-foundation-supports-metavrse-with-grant-to-support-growth-of-the-metaverse/…

Decentralized marketplace for Creators @CalaxyApp

DLT advertising platform https://adsdax.com — these guys pushed so many transactions on Hedera mainnet. Real OGs of Hedera! @AdsDaxPlatform

Karate community built on Hedera — https://karate.com @KarateCombat

Liithos is building AAA game on Hedera — https://liithos.com @LiithosEnt

User friendly and the best Hedera wallet — @HashPackApp

The most popular DEX on Hedera — @SaucerSwapLabs

NFT marketplace — https://hashaxis.com/get-started

And more and more….

Core Hedera resources

Obviously — https://hedera.com/. You have to read through whole page, as I did, before you start building on this network. (Or before you start investing!))

https://www.hbarfoundation.org/
https://www.youtube.com/c/hederahashgraph

These guys are main developers for Hedera — https://swirldslabs.com@swirldslabs

Do you want to build decentralized app on Hedera?

If you are a developer, small smartup or enterprise you should contact @HBAR_foundation. They can provide a guidance and financial support for you!
https://www.hbarfoundation.org/

Accounts you should follow

Apart from already shared accounts, you should follow these HBARBARIANS who will bring you the fresh breadcrumbs, news, tech info and $HBAR price predictions:

@DanyEid_
@ParabolicHBAR
@Zepzi
@BarHBARian
@thehbarbull
@IOV_OWL
@CredibleCrypto
@MWalkerWilliams
@NicholasVottero