Welcome to Hedera ($HBAR) by SEVO

This article was originally published October 23, 2022 on SEVO's Medium blog.

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Introduction

Hedera is the most used enterprise-grade public network in the world with over 2.5+ billion transactions processed on the mainnet. The underlying technology is called a hashgraph, which is not a blockchain, but instead is a directed acrylic graph (DAG) structure. The hashgraph is a third-generation, proof-of-stake (PoS), public, distributed ledger technology (DLT). The hashgraph is a layer-1 (L1) network with unique consensus mechanism called Hedera Consensus Service (HCS), which functions as a layer-0 (L0). Hedera also offers Hedera Smart Contract Service (HSCS) 2.0, which utilizes the Besu EVM (Ethereum Virtual Machine). HSCS is open-source, integrated with Solidity, carbon-negative, and allows services to move to Hedera without any code change and run at the native layer speed without bottlenecks [1].

The native cryptocurrency of Hedera is called HBAR, which functions as decentralized fuel for the network. The University College of London (UCL) found Hedera beats DLT competitors (including the Visa network) and is the lowest overall energy consumption of all L1s [2]. Hedera is also the most secure L1 that is theoretically possible with asynchronous Byzantine fault tolerant (aBFT) security (bank grade), which has been COQ verified by Carnegie Mellon University [3]. Hedera is also Distributed Denial of Service (DDoS) resilient, Sybil attack resistant, post-quantum secure, ACID (atomicity, consistency, isolation, durability) compliant, TLS 1.2 (transport layer security), and complies with the CNSA (Commercial National Security Algorithm) Suite standards, which is the requirement for protecting U.S. government Top Secret information [4].

Hedera was originally patented, but became open source in early 2022, as part of their path to decentralization roadmap [5]. Hedera also has the best in class governance, which was modeled after Visa, and is owned and governed by the world’s leading organizations [6]. Hedera is enterprise-ready with use cases in entertainment, ESG, supply chain, network interoperability, traditional finance, payments, decentralized identity, security and more. Hedera also has a vibrant DeFi community with decentralized exchanges (DEX), wallets, non-fungible tokens (NFT), gaming, and most recently HBAR native staking with upwards of 6.5% staking rewards [7].

Additionally, DLA Piper (TOKO), ServiceNow (TOKONow), AveryDennison (atma.io), LG Electronics (NFTArtLab), Tymlez, The Coupon Bureau, AdsDax, and many others are enterprise-grade applications that have already adopted Hedera technology and deployed use cases live on the mainnet. Hedera also has integrated many interoperability solutions and bridges to allow bilateral movement of digital assets between networks via Alliance Block, Lime Chain, and Hashport along with private-DLT plug-in solutions with Hyperledger Fabric, Corda, and Quorum[46–47]. Stable coin, payment rails, and standards have also been built for digital token infrastructure and interoperability [47]

Hedera has predictable fees, as the native HBAR token is pegged to USD, rather than a volatile cryptocurrency, which makes API calls easy for widespread adoption [8]. Hedera offers finality in 3–5 seconds with 10,000 TPS (transactions per second) while the network is “throttled” on a single shard. The network is capable of up to 500,000 TPS per shard while maintaining aBFT security. As the network grows and the market demands higher TPS, Hedera will implement sharding, which allows unlimited TPS, while remaining bank-grade secure, carbon negative, final settlements within 3–5 seconds, and decentralized without forking [9,10,11]. This blog aims to show the crypto community why Hedera will be the underlying “trust layer” for Web 3. The hashgraph’s underlying technology has solved the “blockchain trilemma” while combining high-throughput, low fees, and finality in seconds, which is also mathematically proven by multiple, objective, world class third-parties.

Founders

Hedera was founded by the hashgraph inventor Dr. Leemon Baird and Mance Harmon. Dr. Leemon Baird has over 20 years of technology experience, and was Professor of Computer Science at the US Air Force Academy. He has also served as chief scientist in several labs and the co-founder of several successful startups, which were acquired. Baird received his PhD in Computer Science from Carnegie Mellon faster than any student in school history (2 years, 9 months). He has multiple patents, and over 100 publications in peer-reviewed journals on computer security, machine learning, artificial intelligence, cryptography, and mathematics [12, 13]. His co-founder, Mance Harmon, is an experienced technology executive and entrepreneur with over 20 years of leadership experience in multi-national corporations, governments, and start-ups. He previously served as Head of Architecture and Labs at Ping Identity, and senior executive for product security at a multibillion dollar revenue organization. Additionally, he was the Program Manager for the Missile Defense Agency and Course Director of Cybersecurity at the US Air Force Academy, and research scientist in Machine Learning at Wright Laboratory. Harmon received his MS In Computer Science from the University of Massachusetts [14].

History

In 2015, Dr. Leemon Baird solved the mathematical problem of achieving distributed consensus at scale with the hashgraph algorithm. Shortly after, Dr. Baird and Harmon, formed Swirlds, Inc. and commercialized the hashgraph for private, permission environments. In 2017, Swirlds and CULedger, a credit union consortium joined forces and implemented the Swirld’s hashgraph technology as a permissioned, distributed, shared ledger platform for multiple credit unions. Credit unions used the hashgraph because it was the only DLT in the market that achieved all four criteria for bank-grade security, which included immutability of transaction history, Distributed Denial of Service (DDoS) resilience, fair access and fair ordering [15]. Late 2017, the founders used seed investment rounds to form Hedera, LLC to launch a public DLT. On August 24, 2018 the Hedera mainnet went live and 50 billion HBAR were minted by Dr. Leemon Baird and Mance Harmon at their favorite Starbucks in Austin, Texas. In 2019, the Hedera Governing Council (GC) was formed and began onboarding the first members to own and govern the Hedera network. Throughout 2019 to 2022, the HBAR Foundation, Swiss Hashgraph Association (partnership with Swiss Digital Assets Institute), Outlier Ventures, and many other partnerships were formed to bootstrap the network by offering large grants to build on the network [16]. The HBAR Foundation has the largest growth fund of any crypto ecosystem with 10.78B HBAR ($5 billion at the time) allocated to ecosystem growth & development for Web 3 infrastructure, decentralized finance, NFT, mataverse, gaming, and interoperability [17]. On August 5, 2022 the hashgraph consensus algorithm became open source, making the entire Hedera network, which includes the code base and developer tools [5].

Hashgraph Algorithm

The hashgraph does not bundle data into blocks or use miners to validate transactions like blockchain technology. It also does not require pruning of network “forks” or rely on high energy requirements like many blockchains. Instead the hashgraph incorporates all transactions into the ledger, which mathematically guarantees it to be fast, fair, secure, aBFT secure, cost-effective, energy efficiency, and DDoS resistant. The hashgraph accomplishes this aBFT consensus via virtual voting by never querying the network, but instead referencing the randomized gossip (nodes gossip transactions) and its metadata (gossip-about-gossip)[4,11]. This algorithm has been mathematically proven using a computer model called COQ proofing by Carnegie Mellon University, which proved the hashgraph’s 100% accuracy, finality, and security [3].

Governance

Hedera is owned and governed by the world’s leading organizations. The governing council (GC) model consists of up to 39 organizations that lead the Hedera network and are committed to network innovation, stability, and ongoing decentralization. The Hedera GC structure was modeled after the Visa network. At the time of this publication, there are 27 GC members that govern Hedera and are distributed fairly across time, region, and industry [18]. Hedera’s GC structure of using large, well-endowed companies to steer the direction of the network also promotes trust, as they have big reputations to uphold so that their actions do not negatively influence their primary business. This structure incentivizes good behavior, accountability, and would ultimately be bad press for any GC member that acted maliciously.

Hedera GC ensures decentralized governance by separating governance from consensus, so no single entity has undue influence or control over the network. The GC members share an equal vote in the direction of the codebase, services, and roadmap. Hedera GC members are required to run a node on the network and use technical controls via state proofs to guarantee network stability. Hedera GC have a three-year maximum term, with up to two consecutive terms. GC embers have equal network votes. Swirlds, the creator of the hashgraph, is the only GC that has a permanent seat on the GC without term limits [18]. There is an LLC Agreement, which defines the GC rights and responsibilities. The Hedera GC publishes their meeting minutes within 30 days of approval by the Council, within a few weeks of GC meetings to ensure transparent governance [19]. It should be noted that if the GC members fulfill their obligations they are eligible for a fair market value up to $250,000 USD per year, which incentives ongoing participation and ecosystem development [20].

Transactions

Hedera is the most used used, enterprise-grade, public DLT in the world [1]. At the time of this publication, the Hedera mainnet has processed over 2.5+ billion transactions [21,22]. Far beyond, ethereum and bitcoin’s total transactions, despite bitcoin (2009) and ethereum (2015) having a 10 and 4-year first-mover advantage, respectively [23–27]. Other networks like Solana boast higher transaction counts [28,29], but the metric calculations are disingenuous as they include consensus voting in the count, which is unlike any other network [30].

Scalability

Hedera currently only has one shard in operation, which is capable of processing 10,000 TPS per shard (in the current throttled state) and up to 500,000 TPS (according to LeewayHertz) with some minor network configurations. Hedera is able to achieve this high throughput without requiring a leader node (algorithmically leaderless) with finality in 3–5 seconds. Hedera accomplishes this without sacrificing security. The network is currently “throttled” because todays market does not demand anywhere near 10,000 TPS at this time. When it does, Hedera will implement sharding, which allows it to scale infinitely. Throughput can only be limited by bandwidth. Hedera’s aBFT security enables sharding with finality and it does not need to wait for block confirmations like blockchain technology. This is because of the algorithms underlying gossip protocol where every node receives identical information instantaneously and is virtually voted on [9,10,11]. This is why Hedera doesn’t need a L2, zK rollup, or side chain because the L1 itself is inherently performant. No other public DLT can do this.

Security

Hedera is asynchronous Byzantine Fault Tolerant (aBFT), which is the highest security mathematically possible. This means no single node or small group of nodes can prevent the network from reaching consensus or alter consensus once consensus is finalized. Blockchains cannot guarantee this agreement. Some other PoS blockchains claim high security by being BFT, but it is the asynchronous component that puts Hedera in a league of its own due to the underlying algorithm’s mathematics.

Hedera is DDoS & Sybil attack-resistant as well. Since Hedera is leaderless it subverts the possibility of being inundated with data packets that can overwhelm the network [9,10,11]. Using proxy staking, Hedera uses the votes of Hedera nodes in the virtual voting algorithm weighted by the stake of that node, by doing this the stake of the nodes mitigate Sybil attacks by making it cost prohibitive for a “bad actor” to buy up enough HBAR to expand their stake and influence consensus in a malicious way [4,31].

Hedera is post-quantum secure for hashing and encryption, but not for key agreement and signatures. However, the consensus itself is post-quantum secure if a post-quantum signature is utilized. Hedera is fully capable of adopting changes to allow a post-quantum signature schema when quantum computation becomes a threat [32,33].

The hashgraph is also ACID (atomicity, consistency, isolation, durability) compliant, which is a database term that applies when Hedera is used as a database. This basically means that the database guarantees data validity despite power, equipment, and other network errors or failure. Since the hashgraph guarantees consensus is final there is no risk for double-spending, which is a feature of ACID compliance. In blockchain, there is probabilistic finality and never a moment where you known consensus has been reached, so blockchains are not ACID compliant [4,34].

Node Cryptography

All Hedera network communications are encrypted with transport layer security (TLS) 1.2, which is more secure than previous cryptographic protocols like SSL. TLS 1.2 keeps data transferred across the Hedera network more secure by using cryptographic hashes. The hashgraph algorithm is also compliant with The Commercial National Security Algorithm (CNSA) Suite security standard. This is the standard required for protecting U.S. government Top Secret information. The nodes use TLS 1.2, DH RSA 3k keys and SHA-384 to secure node communication [4,32–37].

Decentralization

“Decentralization in blockchain refers to the transfer of control and decision-making from a centralized entity (individual, organization, or group thereof) to a distributed network.” [38]. Over the past few years, Hedera was subject to FUD by many in the crypto community for being “centralized” or a “corporate coin” because Hedera used to be open-review, patented, and not open-source. Since 2022, this has changed and Hedera is now open-source without a patent. Hedera is leaderless and does not have miners controlling the network or early whales that can alter consensus or transaction order, which prevents concentration of power among small node groups. Unlike Bitcoin, which is controlled by 13 prominent mining pools today and ethereum 2.0 having 67% of the stake controlled by just 7 entities [39] Hedera is decentralized in geography, as there are nodes on every continent with the exception of Antartica. Hedera is also decentralized in its governance via term limits and organizations from different socio-political-eco climates and sectors [40].

Cost

Using the Hedera network is inexpensive and predictable due to fixed, stable fees. Hedera accomplishes this by pegging the cost of transaction to USD, rather than a volatile token. Hedera transactions are set in USD, but paid in HBAR. Fees for service vary based off the services being requested and are comprised of the service, network, and node fee [8]. This makes API calls easy to estimate, which is imperative for mainstream, global adoption. A network that derives its network fees based off a wildly fluctuating cryptocurrency and network congestion is not sustainable for adoption.

Fairness

Hedera is the most fair public DLT in all of cryptocurrency due to its leaderless algorithm. Most blockchains are leader-based networks. As such, the leader (block producer) decides the ordering of transactions. Hedera does not have a leader that decides the order of transactions. Instead transactions are submitted to the network and given timestamps. Transactions are then put into order and submitted to the network based off these timestamps. The hashgraph is fair because no individual node can stop or significantly delay a transaction from entering the network. Blockages or congestion is avoided because of the random nature of the underlying gossip protocol. These fair timestamps give each transaction on the hashgraph a consensus timestamp based on when the majority of the network receives a given transaction. As such, the hashgraph mathematically guarantees fair access, timestamps, and transaction order all while remaining performant, carbon negative, and aBFT secure [4]

Regulatory Posture

Hedera is owned, advised, and operated by the Hedera Governing Council, which includes global giants in international law such as DLA Piper and Denton’s. Hedera is also registered with the SEC, filed Form D, and did a SAFT over an ICO. Hedera has ongoing communication with regulators [41–45].

Sustainability

According to University College of London (UCL), the hashgraph is an energy-efficient, PoS consensus mechanism that uses less energy than any other L1 networks and even the VISA network [3]. Hedera’s core values are to be environmentally sustainable and even though its carbon footprint is small, Hedera has taken sustainability to the next level by purchasing enough carbon offsets quarterly from Terrapass to make the entire network carbon-negative. At Hedera’s current state, the average amount of energy consumed per transaction is 0.00017 kWh (0.0000205494552 kgCO2). Today, Hedera is processing 10 million transactions for the same amount of energy it takes Bitcoin to process 1 [48–49]. Hedera is building Guardian v2.0, which is a next generation ESG marketplace built on Hedera with Envision Blockchain. The Guardian is a modular, open-source solution that allows creation of ESG assets, such as carbon offsets and credits. Along with discoverability and traceability of ESG assets and token provenance, which will act as an enterprise ESG plug-in solution. Additionally, Electricite de France (EDF) serves as a GC member and has stated that they plan on integrating the Guardian into their workflow [50]. You can learn more about the Guardian from my previous thread by looking at reference [51].

Network Services

Hedera offers many services, which includes token service to mint and manage fungible and non-fungible tokens for payments, governance, and digital collectibles. They offer consensus services via HCS for immutability, audibility, and fair ordering for event data or to track assets on a supply chain, IP rights, or identity credentials. They offer smart contract services with Solidity and Vyper support to create decentralized applications and protocols. Hedera also has file services to store smart contract code, addresses, credentials and other files on the network [52]. Swirlds Labs is also working on another service called “DeRec”, which allows account recovery that is secure, even if you misplaced your private keys, while remaining decentralized [53].

Developers

Hedera supports developers whether it’s a single person, group, or large organization via the HBAR Foundation ecosystem grant. If you are a developer, I encourage you to check it out and consider applying at https://www.hbarfoundation.org/apply-form. You can checkout the Hedera tools and SDKs at https://docs.hedera.com/guides/docs/sdks. If you have an improvement proposal you can submit a Hedera Improvement Proposal (HIP) at https://hips.hedera.com/. If you would like to checkout the Hedera Github repository you can do so at https://github.com/hashgraph and https://github.com/hashgraph/hedera-services. Hedera also offers many network explorers from Swirlds Labs, LedgerWorks, Acoer, and Dragonglass [54].

Stable Coins & X-Border Settlement

Hedera has USDC support from circle.io [55] along with stable coin infrastructure developed by QuantStamp, which has secured over $5 billion of digital securities and worked with over 140 start-ups. They developed and verified the Hedera stable coin standard known as the “K framework” to verify that stable coins are secure on Hedera [56]. Recently OpenZeppelin announced support for the Hedera Network by securing ANZ Bank’s A$DC stablecoin on Hedera. Additionally, a proof-of-concept between Shinhan Bank and Standard Bank, demonstrated the power of the Hedera network with intercontinental settlement [57].

Partnerships

Beyond the Hedera Governing Council, Outlier Ventures, Swirlds Labs, The Hashgraph Association, Swiss Digital Assets Institute, and the HBAR Foundation have partnered with Hedera to accelerate adoption of the Hedera network. Also, Hedera is partnered with industry leaders such as ChainLink, FileCoin, LCX, and Hex Trust. CBDC research between EmTech, Microsoft, and Hedera led to Project New Dawn, which developed a published paper called “A Digital Cash Infrastructure for All”, which leverages the hashgraph for interoperability [58]. Hedera is also actively involved with the Global Blockchain Business Council (GBBC), InterWork Alliance (IWA), Texas Blockchain Council, Envision Blockchain, W3C, and the World Economic Forum (WEF).

Hedera has also been research advisory vetted by Constellation, which is a Silicon Valley Tech Research Firm, and was named “Top 8 Tech Solutions to Know” on their Constellation Short List [59]. Hedera also has a NCAGE Code registered with NATO for doing business with international governments [60] and is working with Neuron World, which is a drone company that has partnerships with UK Government. They also have a partnership with Tymlez that is using the Guardian that has a partnership with Australia’s Queensland Government for ESG solutions [61]. Institutions are also invested, which includes DCG digital currency, which owns CoinDesk and Grayscale, the world’s largest digital currency asset manager [62]. CMCC Global, Asia’s venture capital fund, also were early investors in Hedera and have HBAR in their portfolio [63].

Conclusion

This blog aims to educate on the basics of Hedera and its underlying technology, it is in no way comprehensive. Hedera is growing at a rapid rate and it is nearly impossible to keep up with all the new dApps, partnerships, and community projects. Hedera currently has a very strong crypto community and with innovative technology that is future proof like the hashgraph, I have no doubt that its ongoing growth will continue.

References

1. https://hedera.com/
2. http://blockchain.cs.ucl.ac.uk/blockchain-energy-consumption/
3. https://www.cs.cmu.edu/~crary/papers/2021/hashgraph.pdf
4. https://hedera.com/learning/hedera-hashgraph/what-is-hashgraph-consensus
5. https://hedera.com/open-source
6. https://hedera.com/council
7. https://hedera.com/users
8. https://hedera.com/fees
9. https://www.leewayhertz.com/hedera-hashgraph-development-company/
10. https://sbir.nasa.gov/SBIR/abstracts/20/sttr/phase1/STTR-20-1-T11.03-6333.html
11. https://hedera.com/hh_whitepaper_v2.1-20200815.pdf
12. https://www.topionetworks.com/people/leemon-baird-59bf6fc31dedae0cbb89794b
13. https://hiddenforces.io/podcasts/leemon-baird-hashgraph-consensus-whitepaper/
14. https://www.topionetworks.com/people/mance-harmon-59bf711c843bac1ae5fff926
15. https://www.swirlds.com/swirlds-culedger-collaborate-deliver-high-performance-secure-distributed-applications-credit-unions/
16. https://hedera.com/journey
17. https://hedera.com/blog/hedera-governing-council-to-allocate-5-billion-in-hbar-to-independent-foundation-and-ecosystem-development-initiatives
18. https://hedera.com/council
19. https://hedera.com/council/minutes
20. https://help.hedera.com/hc/en-us/articles/5196502252573-Board-Compensation-at-Hedera
21. https://www.hederatxns.com/
22. https://messari.io/asset/hedera-hashgraph
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28. https://explorer.solana.com/
29. https://messari.io/asset/solana/metrics/all
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31. https://hedera.com/blog/proxy-staking-on-hedera
32. https://hedera.com/blog/post-quantum-crypto
33. https://help.hedera.com/hc/en-us/articles/360000764318-Is-Hedera-post-quantum-secure-
34. https://mariadb.com/resources/blog/acid-compliance-what-it-means-and-why-you-should-care/
35. https://docs.hedera.com/guides/mainnet/mainnet-nodes/node-requirements/faq
36. https://hedera.com/blog/facilitating-adoption-through-cryptographic-standards
37. https://media.defense.gov/2021/Sep/27/2002862527/-1/-1/0/CNSS%20WORKSHEET.PDF
38. https://aws.amazon.com/blockchain/decentralization-in-blockchain/
39. https://decrypt.co/109901/big-firms-dominate-post-merge-ethereum-validation
40. https://hedera.com/hh-decentralization-of-consensus.pdf
41. https://sec.report/CIK/0001747972
42. https://www.sec.gov/Archives/edgar/data/1747972/000174797218000002/xslFormDX01/primary_doc.xml
43. https://help.hedera.com/hc/en-us/articles/360002542738-Will-regulators-deem-hbars-to-be-securities-
44. https://projects.propublica.org/represent/lobbying/301034665
45. https://texasblockchaincouncil.org/blog/hyland-and-hedera-present-blockchain-poc-for-records-verification-to-texas-secretary-of-state-press-release
46. https://hedera.com/blog/hedera-consensus-service-permissioned-blockchain-networks
47. https://hedera.com/integrations
48. https://hedera.com/blog/going-carbon-negative-at-hedera-hashgraph
49. https://hedera.com/carbon-offsets
50. https://hedera.com/blog/guardian-v2-0-the-next-generation-of-esg-marketplaces-built-on-hedera
51. https://twitter.com/ParabolicHBAR/status/1483563754700873734?s=20&t=BizhBB6RCFyECVeGTvW7ow
52. https://hedera.com/services
53. https://swirldslabs.com/
54. https://hedera.com/explorers
55. https://www.circle.com/en/usdc-multichain/hedera
56. https://quantstamp.com/blog/quantstamp-stablecoin-case-study-formally-verifying-hedera-hashgraphs-stablecoin-framework
57. https://hedera.com/stablecoin-settlement
58. https://emtech.com/wp-content/uploads/2021/01/PND_WORKINGPAPER_V2_6.12.20.pdf
59. https://www.constellationr.com/research/constellation-shortlist-blockchain-technology-services-0
60. https://www.act.nato.int/innovation
61. https://tymlez.com/projects/queensland-government
62. https://dcg.co/portfolio/
63. https://www.cmcc.vc/funds