Hedera Hashgraph is a distributed ledger technology that uses a directed acyclic graph (DAG) architecture, designed as a scalable alternative to a traditional blockchain. Hedera aims to offer distributed ledger technology as a secure, scalable infrastructure layer for enterprise applications. This architecture can theoretically process 500,000 transactions per second (TPS) but for now, it is throttled at 10,000 TPS for transactions and just 10 TPS for other services. Hedera is secure against DDoS and collusion attacks through asynchronous Byzantine Fault Tolerance (aBFT) guarantees. To increase network stability for dApps, Hedera uses a form of permissioned governance designed to minimize forking.
Hedera achieves such transaction speeds and security through a novel form of consensus. At a high level, DAG nodes work together to achieve consensus through asynchronous transaction ordering instead of competing to produce identical blocks, as in other blockchain networks. With Hashgraph, transactions are rapidly propagated between nodes through a ‘gossip about gossip’ protocol that mirrors the exponential spread of information in social networks. The Hashgraph consensus algorithm facilitates agreement in transaction ordering and the timestamp, as a directed flow between individual transactions, as opposed to batches of transactions in a traditional blockchain.
Hedera has permissioned governance, yet open consensus input. This means that, while applications built on Hedera may be open source, the underlying codebase is closed source and cannot be altered or forked except by a vote of the Hedera Hashgraph Council (HHC), a governing body of 39 organizations and enterprises. A key design goal of Hedera is to minimize the number of network forks in order to maximize stability and consistency for dApps built upon it. Hedera uses an open-access Proof of Stake (PoS) model, where nodes with a token stake can participate in the Hashgraph consensus process to confirm transactions. Hedera nodes can also facilitate proxy staking for other token holders, and accrue transaction and service fees for applications such as file storage. Hedera uses an opt-in KYC model to facilitate compliance, whereby third-party providers may verify wallet addresses, and users can selectively disclose details to applications. It also supports smart contracts and dApps written in Solidity, the Turing-complete programming language of Ethereum, and meta-token creation and governance.
The Hashgraph algorithm was invented by Leemon Baird, the founder of Swirlds, a Delaware software development company. Swirlds provides a license to Hedera to use the Hashgraph algorithm, owns 5% of the Hedera token supply, accrues 10% of Hedera’s revenue, and is the sole permanent member of the HHC. The Swirlds software development kit (SDK) is the permissioned network implementation of the Hashgraph architecture. Hedera is the public ledger that implements Hashgraph in a permissionless environment, where auxiliary applications and services may be built without a license from Swirlds. Hedera was funded through a private token sale in mid-2018, raising $120 million through accredited investors in a SAFT offering.
HBAR, Hedera’s native token has two primary functions; namely as payment for computational resources such as storage, bandwidth, and computation, similar to the use of Gas on Ethereum and secondly as a security mechanism through staking. At some point with the introduction of proxy staking, holders of HBAR will be able to delegate their tokens and partake in securing the network without active participation. Hedera has a highly inflationary monetary design with just 3.8% of tokens released at the network’s inception in September 2019, with the remainder being released over a 15-year period.