Hashgraph Technology Use Case for Financial Services

by | May 18, 2019 | Use Cases

Introduction: With the advent of distributed ledger technology (DLT), a quantum leap occurred in computer science from old legacy database designs to a new 21st century layer of trust on the internet.  The Hashgraph algorithm is able to create in its public DLT, Hedera and its private form with Swirlds, Inc., a new type of server-client system that can allow for a whole new world of safer, more secure and speedy internet transactions.

Upon, the Hedera Hashgraph platform, myriads of use cases are possible in nearly every business sector, public and private, where trust is possible in an immutable and incorruptible manner. However, before this revolutionary network can thrive, it must have an associated mechanism for exchanging value.  That medium of exchange is the hbar. This is a utility token that is used to secure the network, but also to achieve real-time financial settlement.

Hashgraph Technology: Unlike the legacy banking system that delays finality of settlement in either 24 hour, weekly or even monthly billing cycles, hbar transactions occur in seconds and are immediately final.  The latency from submission to completion, meaning that all nodes in the network reach the same conclusion on every transaction, occurs for small transfers of cryptocurrency in a range of 2-7 seconds.
hashgraph transfer speed 
This is a massive improvement in financial technology.  Having a global currency that is fair, fast and secure, without unnecessary middleman layers of settlement and is incorruptible is the greatest achievement a public network could provide. The Hashgraph technology that runs the Hedera network is capable of disrupting many business and financial sectors.

It is the firm opinion of this article that the Hedera Hashgraph will rival all legacy financial systems, including the US government fiat currency, the distributed global gold and silver commodity sector and even the international banking system. An innovative new financial payment industry based on this cryptocurrency technology could even compete with the multibillion dollar international credit card industry through the incredibly low fees offered in Hashgraph.

Legacy Financial Systems: If you have ever attempted to send money to a friend, family or a business in the form of a wire transfer or ACH (Automated Clearing House) payment, you should know that it takes a long time and takes many steps. It also includes fees that may be from $1-3 USD if an ACH is used, but may be as high as $15-50 USD if a regular wire transfer is used. The time of transmission of the wire transfer is often unknown and considered normal if it takes days to a week to finalize. Considering how fast the world operates in the digital age of smartphones, this has become ridiculous.

The opportunity cost of having funds frozen in an ACH transmission of Electronic Fund Transfer (EFT) is antiquated and unfit for 21st Century commerce. A new system of financial remittance services is required in order to let currency flow as fast as the internet.

Blockchain Technology: The Bitcoin network was an open-source cryptographic project developed by a group of pseudonymous programmers and collaborators in 2009. This blockchain network was deliberately made in response to the banking crisis of 2008 in order to create a bank-free currency solution of peer-to-peer electronic cash. The Bitcoin network has not only grown into a global cryptocurrency payment system, but has even rivaled all global currencies, holding the 6th position in value of all global currencies.

Link:https://www.topdowncharts.com/single-post/2017/12/06/Crypto-Charting-5-fascinating-charts-that-put-the-rise-of-Bitcoin-in-perspective

In the process of forming a more secure transparent ledger than national and international banks, the Bitcoin network suffered from some basic design flaws. The Proof-of-Work consensus model that determines the ledger, is quite expensive and exhaustive in electricity, using more power than the entire nation of Ireland per year. Remaining hack-proof for the past 10 years is extraordinary for a public currency network like Bitcoin, however, the cost of security has fallen on decreased network speed and scalability.

Blockchain Trilemma: All blockchain-based platforms suffer from an ‘impossible triangle’, or ‘trilemma’ of compromise amongst 3 main variables: decenltralization, scale and security. In order for Bitcoin to achieve anything faster than 7 transaction per second (TPS), it will have to compromise security with 2nd layer or off-chain solutions. If Bitcoin is ever to globally scale as a daily payment service it will need to increase speed and scale, also while reducing security by not utilizing the central blockchain mechanism.

In any direction the Bitcoin platform goes for improvement, it reduces its other features to compensate in the ‘impossible triangle’. All blockchain is subject to this fundamental limitation, which makes many in the industry believe that Bitcoin will only remain as a digital store of value, but will never become a universal global currency or a global reserve currency. The trilemma is an inevitable limit on blockchain adoption.

Additionally, the mining fee structure also makes bitcoin fees variable based on traffic and network congestion, where fees skyrocketed to levels as high as $50 USD at peak usage. These features make Bitcoin and all other blockchain unfeasible payment international remittance services.

Link:https://www.ccn.com/bitcoin-fees-skyrocket-250-as-transaction-volume-nears-2017-peak

Hashgraph Technology: In the midst of the blockchain revolution, an alternative data structure called a directed acyclic graph (DAG), appeared in the form of the Hashgraph algorithm. This graph-based data structure is not based on a ‘block’ of chains, but is built as a mesh of independent transactions that are free to be recorded without grouping into a block. The ‘parallel’ nature of transactions in the Hashgraph network flow more freely into the distributed ledger unlike the bundled blocks of Bitcoin. Increasing more natural throughput of transactions in the Hedera network is what separates Hashgraph technology from all other cryptocurrencies.

The Hashgraph whitepaper is an excellent resource to use in order to understand the amazing breakthrough the Gossip-about-Gossip and Virtual Voting really are. These two features of a novel gossip mechanism and non-actual voting in order to achieve consensus is completely unheard of in blockchain.

These novel inventions are the work of Dr. Leemon Baird and are clearly intellectual insights worthy of the hashgraph patent he was awarded. In most distributed networks, consensus is achieved in a relatively certain manner, over time and with a good probability of finality. However, in Hedera the certainty of transaction is 100% with the greatest speed and highest level of security in the entire cryptocurrency sector.

Link:https://www.hedera.com/whitepaper

Hashgraph Speed, Scale, Security: With Hashgraph technology, consensus is based on the simplest amount of data achievable, is limited in speed only by bandwidth and uses less than 1% of the electrical energy of any proof-of-work (PoW) blockchain to date. Additionally, the Hashgraph whitepaper even published testnet experiments of the hbar coin in transactions with multiple nodes recording speeds in the 100,000 transactions per second (TPS) range.

The Hashgraph technology that undergirds the hbar token has even been formally-proven mathematically, by a third-party University, demonstrating 100% finality of transactions, or aBFT. Asynchronous Byzantine Fault Tolerance (aBFT) is the highest level of security in financial transactions in a network and was thought previously to be impossible.

However, the Hashgraph whitepaper clearly explains the method of consensus and the ability to achieve finality in seconds with bank-grade security. This property has a high likelihood of superseding all other decentralized ledgers amongst financial institutions because of the degree of crypto security Hashgraph technology offers.
hashgraph speed scale security 
Hashgraph Technology: In the financial sector of business, many server hacks and data breaches have left our banks vulnerable to privacy data losses as well as direct financial losses. The inability of centralized banking services to avoid the risk of data breaches and digital theft are the chief problems that distributed ledger technologies like Hashgraph strive to solve.

In terms of speed, Hashgraph token transfers are as fast, if not faster than current payment systems, such as the Visa Network. Visa is able at peak to perform approximately 57,000 TPS compared to the more secure and unhackable Hashgraph network, which can do up to 100,000 TPS (within one shard/database). This capability allows Hashgraph to stand apart from the grand majority of blockchain solutions that are 10-100x slower, as well as less secure (non-aBFT).

The 21st century demands that financial transactions occur at the speed of the internet, however, due to legacy payment remittance and cross-border payment services these can take hours to days. The original payment service industry has not been updated or improved in decades. Millions of people have paid exorbitant fees to transmit funds from one country to another, being charged as much as 10-15% of the total transfer amount.

Hashgraph in Finance: Imagine a cross-border financial transmitter service that could transfer money in seconds, charge less than pennies and can do it with 100% security of transaction. This is entirely possible with Hashgraph technology based on the Proof-of-Stake consensus mechanism. What costs dollars today to send cross-border payments to friends and family, will cost less than a US penny in the near future with payment solutions like Hedera Hashgraph. No longer do payments have to occur through a middleman service that may charge falsely elevated fees in their for-profit business model.

Instead, a distributed ledger technology like the Hashgraph network can provide this go-between for peer-to-peer services, reducing fees to pennies and cutting out the needless middleman. In finance, transfer of funds is one of the main services provided. If this could be performed with unhackable security, at faster speeds than Visa and at global scale, how could legacy systems compete with Hashgraph technology?

Hashgraph Technology in Credit Cards: The current credit card industry has a collective marketcap approaching $1 trillion USD based on credit interest rates and fees that have been unchallenged for decades. New payment services such as PayPal and Square have taken significant market share, but have done nothing to disintermediate the customer from the middleman service provider. With the use of Hashgraph technology, a cryptographically-secure credit card could be developed that charges less than 1/1000th of a US penny for each transaction and could even out perform the throughput of any current provider.

The credit card industry charges fees in the 1-3% range and has created a multi-billion dollar global industry of payments that still takes hours or days to finalize, or remit. In the Hedera Hashgraph platform, a cryptocard could be used with greater speed, equal scale and greater security than all current payment services providers and with the lowest fees to date.
hashgraph fees
Hashgraph Future of Payments: The financial technology sector has been ripe for innovation for a while, particularly since the last global financial crisis. However, with new distributed ledger technologies like the Hashgraph network, new methods of cheaper, faster payment transmission are being developed that could assist the entire world in saving billions of dollars in unnecessary fees.

The lower costs, increased security and immediate finality or remittance of transactions in Hashgraph technology will open a whole new arena of fintech services. Peer-to-peer financial transactions that no longer require a bank or regulated financial institution will revolutionize the use of digital currencies. Credit cards based on cryptographic ledgers that are more secure and have lower fees could become a major driving force for adoption of cryptocurrencies like the hbar.

In countries such as Sweden, where a majority of social opinion has voted to move towards a completely digital national currency with the eKrona by 2023, only reinforces the need for a fast, safe and secure currency network. Based on Hashgraph technology, the hbar cryptocurrency could serve as the dominant form of electronic cash for an entire nation, with plenty of throughput and security.

However, it is also possible to issue a financial token on the Hashgraph algorithm in the form of a national currency, with all the benefits of Hashgraph technology with speed, scale and top security. The future of payments may ultimately favor the cryptocurrency trend towards a faster and safer medium of exchange in finance with greater security than any national fiat currency.  Imagining a world, where all currencies are governed by a distributed group of people, within a completely transparent ledger with no ability to be hacked, secures a much better promise than the current state of finance.

Ħello Future.