What Is Hedera Hashgraph and How Does it Work?

Updated Time : November 6, 2023
Hedera Hashgraph

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Over my years in tech, I’ve researched various decentralized platforms, noticing their stark differences. The best systems offer unparalleled security, efficiency, and innovative features that set them apart. 

Hedera Hashgraph stands tall in this league, promising a revolution in the decentralized space. 

Here, we’ll unravel the ins and outs of Hedera Hashgraph, contrasting it with its peers. 

Whether you’re a tech enthusiast or a business visionary, this guide will shed light on the importance and functionality of Hedera Hashgraph. Let’s dive in!

What is Hedera Hashgraph?

Hedera Hashgraph is a distributed ledger technology (DLT) and public network platform designed to offer a more scalable and secure alternative to traditional blockchain systems.

Think of it not just as another name in the ledger technology space but as a groundbreaking system that redefines how we understand consensus algorithms and decentralized applications. 

Born from a vision to overcome the challenges faced by conventional blockchains, Hedera Hashgraph offers a fresh take on achieving scalability, security, and fairness in the digital world. 

It’s a next-gen platform that seeks to propel the decentralized revolution to greater heights. 

Features of Hedera Hashgraph

While many systems have many features, Hedera Hashgraph stands out because it has special features that solve today’s problems and prepare for future needs. 

Here’s why it’s different:

  • Fast Transactions: Where traditional blockchains might stumble with scalability, Hedera Hashgraph excels, ensuring that high-speed transactions don’t compromise security.
  • Robust Security: Built on the pillars of cryptographic techniques, Hedera offers a level of security that’s a cut above the rest, resisting a plethora of cyber threats.
  • Fairness in Ordering: One of the standout features is its commitment to fairness. Transactions are time-stamped, ensuring no participant can unduly influence the order of records.
  • Low Fees: In a world where transaction costs can be exorbitant, Hedera Hashgraph offers a cost-effective solution, making it an attractive choice for businesses and developers alike.
  • Eco-Friendly: Given the global push towards sustainability, Hedera’s energy-efficient consensus mechanism is not just a feature – it’s a statement.

Purposes of Hedera Hashgraph

Hedera Hashgraph isn’t just about its cool features. What’s really interesting is the many ways it can be used. It’s more than just a tool; it’s a plan for a future where things work in a shared and open way. 

Here are the purposes that it  serves:

  • Decentralized Applications: From finance to gaming, Hedera is the backbone for a new generation of applications that demand speed, security, and scalability.
  • Transparent Governance: With a council comprising diverse organizations, Hedera ensures decisions are made with transparency and global representation.
  • Secure Data Verification: In an age where data integrity is paramount, Hedera stands as a beacon for verifying data without compromising on privacy.
  • Global Collaboration: Beyond borders and barriers, Hedera facilitates collaborations, fostering a global community of developers, businesses, and enthusiasts.
  • Tokenization: Whether it’s assets, goods, or services, Hedera’s platform allows for seamless tokenization, paving the way for innovative financial solutions.

The Role of Blockchain Analytics 

Blockchain analytics is a crucial tool for monitoring and ensuring transparency in distributed ledger networks. 

When it comes to Hedera Hashgraph, its unique consensus mechanism sets it apart from traditional blockchains, making blockchain analytics especially relevant in tracking transaction data and network performance. 

How Does Hedera Hashgraph Work?

Hedera stands apart in the world of public ledgers by employing the unique hashgraph consensus. This innovative approach, devised by Leemon Baird, Hedera’s co-founder and Chief Scientist, is a leap beyond traditional blockchain consensus methods. It’s not only faster but also more secure. 

The hashgraph mechanism is adept at verifying transactions, ensuring top-notch security against malicious activities. 

The system’s efficiency is evident, with an impressive throughput of over 10,000 transactions per second and the ability to finalize transactions in mere seconds. 

This is primarily attributed to the ‘gossip about gossip’ protocol and virtual voting. And once the consensus on a transaction is achieved, it’s set in stone – or, in this case, on the public ledger – for everyone to see.

Hash graph’s Transaction Process 

Let’s break down how Hedera processes a transaction:

Hash graph's Transaction Process 

Step 1: Creation 

The transaction process is initiated when a client decides to create a transaction. It’s the foundational step, setting the stage for the subsequent phases of the transaction lifecycle.

Step 2: Signature Application 

Once the transaction is created, it requires cryptographic signatures. The primary signatory is the account that agrees to bear the transaction fees.

Additional signatures may be called for Depending on factors like the specific account settings, the topic involved, or the token in use. It’s crucial to note that clients have the liberty to define their upper limit for the transaction fee. 

They can also set the maximum gas they’re willing to expend for actions involving smart contracts.

Step 3: Submission 

With all the necessary signatures in place, the transaction is now ready to be introduced to the Hedera network. It’s directed to any node within the network, marking its formal submission.

Step 4: Validation 

Upon receipt of the transaction, the node has a crucial responsibility – validation. The node must ensure the transaction’s legitimacy. 

A key part of this check involves verifying that the paying account possesses sufficient funds to cover the transaction fee. 

Successful validation leads to the next phase. The transaction is attached to an ‘event’, which is then shared or ‘gossiped’ to another node in the network.

Step 5: Consensus Timestamping 

The event, carrying the transaction, spreads rapidly across the network, reaching all other nodes. Every node, upon receiving this event, has a task to perform. 

They independently ascertain the consensus timestamp for the event. This timestamp is derived by calculating the median of the times at which the nodes in the network acknowledged the event.

What is the Public Ledger?

A Trustworthy Repository At its heart, Hedera is a public ledger – a decentralized, highly secure database accessible to all. This ledger, only preserving the most recent state, is replicated across each node. 

The decentralized consensus and distribution combined make public ledgers like Hedera the gold standard for storing verified information and assets.

What are the Network Nodes?

The Backbone of Hedera The public ledger resides on the mainnet, consisting of consensus and mirror nodes. Currently overseen by the Hedera Governing Council, consensus nodes will, in the future, be open to anyone. 

These nodes play a critical role:

  • Consensus Nodes: They determine the validity and sequence of transactions while maintaining the network’s latest state.
  • Mirror Nodes: Designed for developers, these nodes are an economical option for storing and querying past data, aiding in analytics and exploration.

What Are the Benefits of Hedera Hashgraph for Businesses?

Hedera Hashgraph is gaining traction in the business world and for good reasons. Its unique features position it as an advanced platform for enterprises, providing both security and scalability. 

Here are some of the primary benefits it offers to businesses:

1. HBAR Cryptocurrency 

HBAR is the native cryptocurrency of Hedera Hashgraph. It stands out for its exceptionally low fees, making transactions cost-effective. 

Moreover, it offers customizable transaction options, granting users flexibility tailored to their specific needs.

2. Smart Contracts 

Smart contracts on Hedera Hashgraph are designed with logic-driven execution, enabling the creation of DeFi apps suitable for a plethora of purposes. 

This provides businesses with a dynamic tool to automate processes and create decentralized applications that meet diverse requirements.

3. File Service 

Hedera’s File Service is a testament to its commitment to user control. It offers granular management of file storage, enabling users to perform detailed operations like file deletion and appending. 

Such features empower businesses to have precise control over their data storage needs.

4. Consensus Service 

At the heart of Hedera Hashgraph is its Consensus Service. It’s designed to ensure every transaction is conducted securely, fairly, and rapidly. 

This promises businesses a reliable platform for their operations, free from inconsistencies and delays.

5. Advanced Security 

One of Hedera’s standout features is its use of asynchronous byzantine fault tolerance (aBFT). This advanced security protocol effectively eliminates any malicious intent on the platform. 

For businesses, this translates to a secure environment for their transactions, devoid of vulnerabilities.

6. Speed and Scalability 

Hedera Hashgraph isn’t just about security; it’s also about performance. It addresses the scalability issues that plague many cryptocurrencies, ensuring fast transaction speeds without compromising the network’s capacity to handle increased loads.

5 Best Practical Uses of Hedera Hashgraph

Hedera Hashgraph is revolutionizing the decentralized platform landscape with its unique technology. From tokenizing assets for streamlined trading to bolstering supply chain transparency, Hedera offers businesses unparalleled speed, security, and scalability. 

It’s also a vanguard in fraud detection, ensuring real-time insights with data protection. Because of the benefits it has to offer, businesses are rooting for Hedra Hashgraph. 

Here are 5 best practical uses of Hedera Hashgraph.

1. Asset Tokenization  

Its consensus algorithm revolutionizes the domain of asset tokenization. Through tokenization, physical and non-physical assets like real estate, artworks, or photographs are transformed into digital representations known as tokens. 

These tokens, whether fungible or non-fungible (NFT), can be traded, transferred, and stored on distributed ledger technologies. 

The Hedera Token Service streamlines these tokens’ creation, management, and control. It provides quick, fair, and secure transfers at a minuscule cost—less than a cent in USD. The configurability and predictable fees enhance the user experience, ensuring both flexibility and cost-effectiveness. 

With Hedera’s robust governance model and backing by world-renowned organizations, businesses have the assurance of stability and adherence to global regulations.

2. Supply Chain Track and Trace  

For businesses, the integrity of the supply chain is paramount. With its unique attributes like fair transaction ordering and consensus, timestamping emerges as a preferred choice for creating enterprise-grade supply chain applications. 

Crucial features like ‘fair access’ and ‘fair ordering’ ensure that time-sensitive tasks, such as supply chain traceability, remain uncompromised. 

With Hedera, businesses can monitor their supply chains in real-time, ensuring authenticity and promptness, which are vital for operations like stock markets and auctions.

3. Fraud Mitigation

Fraud is a persistent menace in the digital age, with global implications exceeding $600 billion. Hedera Hashgraph addresses this challenge head-on. 

By offering high-speed, verifiable logging of transactions and adhering to W3C Decentralized Identifier standards, Hedera provides businesses with tools to detect and counter fraudulent activities preemptively. 

It empowers businesses to maintain transparent, tamper-proof logs, enhancing trust among customers and stakeholders. By adhering to data privacy standards, Hedera ensures that while businesses gain real-time insights, customer data remains secure.

4. ERP, CRM, & EAM Integration  

Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), and Enterprise Asset Management (EAM) systems are the backbone of modern businesses. 

Hedera Hashgraph’s architecture facilitates the seamless integration of these systems into the Hedera Consensus Service. By doing so, businesses can enhance the trustworthiness of transactions, ensuring improved security, transparency, and efficiency. 

The decentralized nature further reduces costs by minimizing intermediaries and streamlining operations.

5. Identity and Authentication 

In the digital age, identity verification and authentication are of paramount importance. Hedera’s compatibility with open DID specifications provides businesses with tools to manage identity credentials securely. 

It offers a platform to store and verify identity data, from government IDs to biometric details, ensuring it remains tamper-proof. 

By recording key events, such as issuance and revocation, in a credential’s lifecycle, Hedera ensures transparency and certainty for every stage. The adherence to open standards, like the W3C’s DID, ensures widespread acceptability. 

Hedera’s design empowers users to control their personal data, define its use, and share parameters.

Hedera Hashgraph Vs Blockchain

Blockchain, the underlying technology for many cryptocurrencies, operates on a Proof-of-Work (PoW) consensus mechanism where miners compete to add blocks in a linear chain. 

On the other hand, Hedera Hashgraph introduces a fresh approach to decentralized ledgers. 

The table below shows how they are different from one another:

Feature/CriteriaBlockchainHedera Hashgraph
Consensus MechanismProof-of-Work (PoW)Gossip-about-gossip and virtual voting
Transaction Speed100 to 1,000 transactions per second (varies by implementation)Up to 500,000 transactions per second
Transaction CostFluctuates (e.g., Bitcoin’s average is around $14.84)Under $0.01 per transaction
Computational Power & Energy UseHigh (especially for mining in Bitcoin)Low (more environmentally friendly)
Fairness in Transaction OrderingMiners can choose to order, delay, or prevent transactionsUses consensus timestamps, ensuring fairness in transaction order

Final Words

Hedera Hashgraph stands out as a starlight of innovation in the sky full of stars of decentralized platforms. 

Its unique consensus mechanism, paired with its emphasis on speed, security, and fairness, positions it as a formidable contender in the digital realm. 

As we journey further into an era dominated by decentralized technologies, Hedera Hashgraph’s potential becomes increasingly apparent. So travel safely on your exploration of this cutting-edge technology!

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