Hedera

What is Hedera (HBAR)?

Hedera is an open source public distributed ledger that uses a novel consensus mechanism called hashgraph.

Created for the building and deployment of smart contracts and decentralized applications, Hedera is fast, highly secure, and energy-efficient.

Hedera is notable for its use of a governing council structure that is decentralized and yet highly limited. It features 39 institutions from 11 different industries, all with equal voting rights.

Each of these institutions shares an equal vote across the protocol, with 2.6% influence each. Among these members are some of the largest companies in the world, making Hedera one of the most corporate-friendly cryptocurrencies in the industry.

That said, anyone can use Hedera, not just industry titans. It is also transitioning toward a public permissionless model where applications can be deployed freely and nodes can join the network anonymously.

However, it currently remains a public permissioned network where applications can be deployed by anyone, but the nodes that run them can only join by invitation.

When Was Hedera Launched?

The Hedera mainnet went live on August 24, 2018, with a mint of 50 billion HBAR. The following quarter, Hedera held its first developer conference and gave devs as well as users the ability to test the network.

However, the mainnet launch was the culmination of a six year-long journey, with initial research beginning in 2012 and hashgraph technology being developed in 2015. Seed investments bootstrapped the project’s development through 2017 and, early the following year, the company name and brand Hedera came into being.

Who are the Founders of Hedera?

Hedera, or rather the hashgraph distributed consensus model, was created by Dr. Leemon Baird following three years of research into distributed consensus at scale.

Dr. Baird, along with friend and business partner Mance Harmon, formed Swirlds Incorporated to develop proofs of concept and begin testing and commercialization of hashgraph.

Dr. Baird and Harmon wanted to use hashgraph in order to enable a decentralized, fast, fair, and secure public distributed ledger that could achieve mass adoption and serve as the “trust layer of the internet.”

However, their focus was to prove the benefit and value of hashgraph for enterprise use. They first published the Hashgraph whitepaper in May 2016.

Swirlds Inc., a portmanteau of “shared worlds”, raised its seed investment in 2017 and serves as the Original Member with a permanent seat on the Hedera Governing Council.

While raising seed financing, Hedera’s founders were developing the strategy to prevent forking and educating the public on how hashgraph differs from blockchain.

How Does Hedera Work?

As mentioned, Hedera—or rather its hashgraph—is not a blockchain. Rather, the community of nodes running hashgraph comes to an agreement on which transactions to add to the ledger as a collective.

Hashgraph uses gossip-about-gossip and virtual voting to reach consensus on the validity and timestamps of transactions. If the transaction is valid and within the appropriate time, the ledger’s state is updated with 100% finality to include said transaction.

What Makes Hedera Unique?

Hedera’s creators are quick to differentiate it from standard blockchains and tout the perceived advantages of hashgraph over standard blockchain. One of these is resistance to forking.

In a blockchain, the protocol defines that blocks settle into a single chain that is agreed upon by the community. If two blocks are created at the same time, the network chooses one chain to continue and discards the other. This is known as a fork.

In the hashgraph, no transactions are discarded. Instead, all transactions are incorporated into the ledger and woven together, with no possibility of a fork being created.

This sets it apart from most blockchain protocols, but Hedera also offers several functions that are more common on popular blockchains. Among others, Hedera offers smart contract services and token services.

Smart contracts are pieces of code that execute predefined actions when certain conditions are met and do not require centralized intermediaries. They are used to power decentralized applications and were made popular by Ethereum.

In fact, Hedera’s Smart Contract service features programming in Solidity and uses an optimized version of the Ethereum Virtual Machine. This optimization for hashgraph allows for a theoretical throughput of hundreds of transactions per second and low, predictable fees.

The Hedera Token service, meanwhile, allows dApps to configure, mint, and manage both fungible and non-fungible tokens. On the Hedera network, these tokens achieve 10,000 transactions per second, settle immediately, and always cost $0.0001, paid in HBAR, to transfer.

How is the Hedera Hashgraph Network Secured?

Hedera’s hashgraph consensus model, developed by Dr. Leemon Baird, secures the Hedera network.

It is an asynchronous Byzantine Fault Tolerant (ABFT) algorithm, mathematically claimed to be the highest possible level of security for distributed systems.

Byzantine Fault Tolerance comes from a famous hypothetical scenario called the Byzantine General’s Problem. Here, the actors in a distributed system must agree on a concerted strategy to avoid the failure of the system, but some of them are unreliable.

Nodes on a decentralized network are equated to the actors in such a system. When the network has a mathematical guarantee of consensus despite some of the nodes (up to ⅓ of them) having the potential to fail, the system is Byzantine Fault Tolerant.

The “asynchronous” in hashgraph’s ABFT adds a dimension of timing to its robustness. Most forms of BFT assume a maximum threshold of message latency when reaching consensus. In ABFT, this assumption is eliminated and allows for some messages to be lost or delayed infinitely.

Put simply, ABFT assumes that at some point, an honest node’s messages will eventually get through. It is difficult for an honest node to identify whether another node is not following the rules if that node’s messages keep getting delayed.

What is the Use of HBAR?

HBAR is the native token of the hashgraph network, and it has two primary uses. First, it is used to pay for Hedera services like smart contracts and transactions, just like most other gas tokens.

Secondly, HBAR is used for staking in order to secure its asynchronous Byzantine Fault Tolerant network. This token staking ensures that the majority of nodes follow the protocol.

Who Controls HBAR?

Hedera is controlled by its Governing Council, which is structured to fulfill Hedera’s vision of decentralized, stable governance of the network. Governing Council members have taken partial ownership of Hedera LLC by signing its agreement. It must be noted that, as per Article 3 of the agreement, the initial capital contribution made by Council members amounts to only $100. Further capital contributions are pursuant to approval of 80% of the members.

These Council members run the initial set of nodes on the Hedera network, but Hedera anticipates thousands of public nodes joining the network at scale.

Members have a three-year maximum term with up to two consecutive terms, but Swirlds, the creator of hashgraph, has a permanent seat. Swirlds appointed the initial 25 governing members, but the process changed to one of nomination in April 2022.

Among the current Hedera Governing Council members are Chainlink Labs, Boeing, Deutsche Telekom, Tata Communications, Google, IBM, Ubisoft, Nomura, IIT Madras, and the London School of Economics.

The Hedera Governing Council is responsible for overseeing the direction and codebase of the industry and managing the network’s treasury to foster Hedera’s growth and development.

The Council also elects a Board of Directors to oversee corporate governance. There are seven voting board members and one non-voting chair, all serving two-year terms.

Going forward, Hedera has laid out Decentralized Network Governance goals for the Council to consist of:

• 1+ members from each of the 11 GICS (Global Industry Classification Standard) sectors and companies in the Fortune 500 for their region
• 1+ members that are universities ranked in top 10 for their region either overall or in Computer Science
• 1+ members that are leading international NGOs
• 3+ members from each global region: North America, South America, EMEA (Europe, Middle East and Africa), and APAC (Asia-Pacific)

How Much HBAR Is In Circulation?

Hedera minted 50 billion HBAR at genesis, with over 20 billion HBAR in circulation as of July 2022.

Out of these 50 billion, project founders Dr. Leemon Baird and Mance Harmon each have two billion HBARs with a six-year vesting period. Other senior executives that joined the project shortly after its launch were granted between 250 and 300 million HBARs.

Hedera published an economic whitepaper in 2020, detailing the HBAR token’s distribution and release plans, along with detailed insights into Hedera’s economic model.

According to this whitepaper, almost 55% of the HBAR supply went to its Treasury, 14.5% went to investors, and 5% went to Swirlds Inc.

In 2020, Hedera raised additional funds to support ongoing operations by selling HBARs to a number of institutions.

These coins are to be delivered after a multi-year lockup period consistent with Hedera’s published release schedule. In precise terms, the HBARs are delivered in 12 monthly instalments beginning 2 years after the sale.

These HBARs were sold to institutions at the rate of $0.015 per HBAR, according to their economics whitepaper.

How Do You Buy HBAR?

HBAR is a popular token and has spent plenty of time among the top ‘market cap’ coins. As a result, it is available for purchase on many major exchanges. It is often paired with top cryptocurrencies and stablecoins.

Depending on the exchange, you might also find HBAR paired with fiat currencies like the US dollar or the Korean Won.

Is It Possible to Buy HBAR Instantly?

Using the Hedera network itself, transactions are extremely fast and reach finality in seconds. This means that instant purchasing is very much a thing.

Purchases are instant on exchanges as well, although withdrawing them to a non-custodial wallet might take some time. That’s because exchanges often have to observe Know Your Customer and Anti-Money Laundering protocols.

Once the HBARs are released, however, they’ll hit your wallet in no time at all.

How Do You Store HBAR?

HBAR can be stored in wallets, which come in a great variety. Cold wallets keep the wallet’s keys offline for greater security, while hot wallets work online for more convenience.

Hedera doesn’t have its own native wallet, but it can be stored in various third-party wallets. Some are hot wallets, others are cold wallets, and they can come in different forms like hardware, software, browser extensions, and mobile wallets.

Most of the supported third-party HBAR wallets are listed on Hedera’s website.

Hedera Energy Consumption

Hedera advertises that its network is carbon negative, suggesting an extremely efficient operating structure.

Since there aren’t many of them, Hedera nodes are audited and have powerful specifications. For example, nodes need to have a 24-core or better processors, 256 GB high speed memory, 2x240GB RAID 1 SSD operating system storage, and 5TB NVMe solid state usable storage.

While energy-intensive, the small number of nodes that secure the Hedera network means that its energy consumption is very small compared to proof-of-work blockchains.

Hedera’s carbon negativity comes thanks to the quarterly purchase of carbon offsets.

Is HBAR a Good Investment?

Hedera is an exciting project that has been around for a while and is backed by some serious industry names.

The fact that it is attached to massive corporations and is often regarded as a corporate coin is a red flag to some. Nonetheless, it is undeniable that Hedera comes with strong backing and solid technology.

If Hedera can continue to grow adoption, its HBAR token may appreciate in price as it continues to be used to pay for activity on the network.

If it is to be considered an investment rather than simply a network currency, then you might want to keep in mind the vesting and distribution schedule along with institutional investment terms.