Hashgraph vs Blockchain
Summary: Understanding the basics of distributed ledgers is essential to forming wise and prudent investments in the cryptocurrency space and in determining accurate price prediction of the hbar coin or token. Hashgraph is an alternative distributed ledger technology (DLT) to blockchain. It uses a data structure called a directed acyclic graph (DAG), which allows for improved speed, scaling and security with mathematical certainty, over and beyond any achievable metrics of blockchain DLT. Hedera is the public DLT of Hashgraph and has similar features to blockchain, such as open-access, open-review of code and uses a utility token, called an hbar to both power and secure the network.
Hashgraph is an algorithm undergirding the Hedera public DLT and uses the greatest efficiency of bandwidth, has very low memory requirements and the least amount of CPU demand. Blockchain suffers from high-energy, large memory and CPU demand, inefficient use of bandwidth, very low throughput, but secures a ledger in a better way than legacy centralized data services. Blockchain cannot achieve mass adoption due to these limits but has inspired a later generation system, the Hedera Hashgraph network, which can achieve all the original goals of the seminal whitepaper of Satoshi Nakamoto on bitcoin: a peer-to-peer electronic cash system.
Understanding the disparities between these two database designs will allow an investor to make informed choices with cryptocurrency investments and accurate predictions with regard to hbar price in the near and distant future.
Introduction: Before investing, anyone new to the distributed ledger technological revolution will want to know with exact precision what the difference between blockchain technology and its latest rival, the Hedera Hashgraph network. In order to make the best prediction of token price, coin market cap analysis and long term coin value, one will have to consider the underlying technologies of both systems and place them in light with the current cryptoeconomic environment. In this article, we will compare the two competitive and diverse database technologies and assist the reader in formulating the best investment strategy for the upcoming years. It is important to note, that despite being radically different in computer scientific design and database architecture, the two cryptocurrencies of bitcoin (blockchain) and hedera hashgraph still have very equal value propositions: to revolutionize the financial world.
The underlying structure of blockchain has had at least ten years of slow market adoption and use in the public financial and computer scientific world. It has achieved an uncanny amount of success and individual user adoption. Millions of people are now aware of the claims of the blockchain revolution and have invested heavily into the ecosystem. However, in the growing awareness of bitcoin and its revolutionary whitepaper on peer-to-peer electronic cash, a certain number of roadblocks have prevented its adoption from going completely mainstream. The most challenging aspect of blockchain in its original whitepaper design is the inability to rapidly scale to a user base of at least 10 million people or more without congesting and overwhelming the blockchain network. There are many reasons for this problem. This is only one of several fundamental limits to the database design that require consideration before an investor can ever hope to make an accurate price prediction of any blockchain token. Analyzing these limits is the purpose of this section of the article in order to gain a deeper understanding of the technology and lend confidence to investors in the space.
Blockchain Requirements: Blockchain has a recursive, or retrograde data structure, that references prior transactions, or ‘blocks’ of data to confirm that users have the funds they require to make new financial transactions. Unfortunately, this data structure is very memory dependent and requires a very expensive hardware investment to earn income as a mining contributor while securing the network. The network is made of thousands of computers that act as nodes which send and receive financial exchanges. Each node has a large memory requirement in order to store the entire history of transactions demanding expensive hardware.
The bitcoin network also relies heavily on random-access-memory for the transaction mempool, or collected data from users and their daily transactions. With each transaction, the entirety of the blockchain has to be accessed and pooled into active computer resources for efficient use. This cannot be achieved by hard storage devices without significantly reducing transaction time.
In summary, the nodes in the bitcoin network require expensive, high-speed central processing units, high capacity random-access memory devices and utilize a large amount of electricity. At the time of writing this article, bitcoin’s main chain is approaching nearly 200 gigabytes of recorded data. Here is a bitcoin core requirement list including daily bandwidth necessities and RAM requirements.
In order for a participant to enter this network, a large capital expenditure is required to both support the system as well as to benefit from it in the form of earned coins. Every new node in the system helps distribute and decentralize the network, thereby forming a more secure global database. However, to join a participant must hurdle over a monetary barrier that is rapidly improving and allowing the wealthiest in the economy to maintain the dominant lead. This is due to the fact that the blockchain architecture relies on repetitive and non-productive computation which is easier to do with the most novel and expensive hardware components. This effectively creates an arms-race in the community of nodes as well as a regression to centralization by the consolidation of groups or miners into large factory-like warehouses in regions of the world that require an enormous amount of electricity, cooling mechanisms and software/hardware updates to remain competitive.
Investors in cryptocurrency need to know the basics, including the strengths and weakness of the blockchain design to make wise moves. Knowing that blockchain is bad for the environment at global mass adoption, requires expensive supercomputers and favors an arms race that favors centralization in mining pools, should be firmly understood before making significant price predictions and capital speculations.
Proof-of-Work: Although the original idea by Nakamoto in designing an economically incentivized community of nodes with coin rewards was enticing for many, it has over time led to a less than ideal state of hardware and resource competition. The biggest and richest end up winning this arms race, which leads to greater centralization and electrical energy waste as will be explained further. In order for a node to confirm transactions in the network, all blockchains that use a proof-of-work (PoW) mechanism of security have to solve a complex mathematical puzzle before submitting a batch of coin exchanges. In this design, the puzzle is in human terms like solving a Rubik’s cube as fast as one can before ‘winning’ the chance to send out the next block and receiving the current prize of 12.5 bitcoins, valued at the time of this writing at nearly $50,000 US dollars (12.5 bitcoin x ~$4,000 per bitcoin at spot price value = ~$50,000). This is a substantial reward but is only awarded rarely due to the feverishly competitive arms race amongst miners. Unfortunately, this system design has long reduced the probability of a common user to ever earn bitcoins with its home-based node without that individual spending a large fortune in computer resources.
Because of this lucrative daily reward system, bitcoin has thrived but at a large electrical cost, nearly utilizing as much power as the entire countries of Hungary and New Zealand at 42 Terawatts (TWh) per year. This is nearly equivalent to a million transatlantic flights on a commercial airliner. Global warming is only exacerbated by this security design. Proof-of-stake (PoS) systems are an alternate to this design and are immensely less in energy use as will be explained in the Hashgraph analysis. This problem of PoW blockchain will never go away and only further place demands on electricity and hardware with progressive global scaling. This is not currently sustainable nor will be for the foreseeable future unless multiple technological breakthroughs can assist in lowering hardware costs and environmental effects.
Proof-of-Work requires an expensive supercomputer to solve a wasteful puzzle process, just like a Rubik’s cube before even having a chance to send a block and receive a reward in bitcoin. Common users with limited resources, like in the developing world will not have fair access to this economy and will be left behind. The environment cannot sustain this much power use at scale even if the majority of power was renewable in origin.
Proof-of-Stake: An alternative strategy to secure a network of distributed databases can be explained in reference to the Hashgraph public DLT, named Hedera. In this design, all contributing nodes avoid the costly PoW method by allowing a voting mechanism to replace the proof-of-work technique. There is no need to solve a complex problem before confirming a transaction in this network. All that is required is a certain threshold of CPU power, which is much much less than bitcoin’s network, relative amount of bandwidth, low amounts of power and a staking token called the hbar.
In this design, the staking node assigns its collection of hbars, or hashgraph tokens, to the node IP address and each coin is counted as one vote. This is just like Satoshi Nakamoto’s whitepaper discussion of bitcoin in that each CPU in the system should be entitled to one vote. So, in the PoS implementation, each hbar casts a vote with each transaction signature, verifying that it is being honest and that if not, it could jeopardize the value of each hbar. A bad actor is punished for voting falsely because the network effect supporting the hbar price would effectively lower the network value and the price of the hbar token. Without the use of any elaborate, high-speed nor high-memory requirements the proof-of-stake structure in Hedera Hashgraph secures the network and promotes good actors. The reward then given to each contributing node for its work is a determined amount of hbar coins per transaction, paid once within every 24 hour cycle. There is no environmental concerns of power usage, no feverish arms-race of computational or hashing power, and no operational inefficiencies of the distributed system.
In summary, the Hashgraph PoS system, its utility token the hbar, and the staking mechanism of 1 hbar = 1 vote, makes a substantial improvement on the economics and hardware demands of DLT. Moreover, in this network, any user with any kind of small computer device (e.g./ a raspberry pi, ~$35 USD kids educational computer in the UK) and basic bandwidth service can contribute to the system in a proxy staking reward process as well. This individual user could use their mobile phone with future 5G networks and completely avoid ever having to buy another expensive device to participate in the network and earn hbar rewards by assigning its ‘votes’ to the full nodes in the network.
This has an amazing value proposition for the developing world, where many people are left outside the rewards programs because they simply cannot afford a supercomputer nor the electrical power to join. An entirely new global economy could arise from this much more efficient, distributed and fair-access program, as demonstrated in Hashgraph. Unfortunately, bitcoin will only become less and less distributed with more centralized mining pools and leave the simple user completely ousted from this system. Hashgraph solves all of these issues by allowing common users, with everyday common objects like inexpensive mobile phones to proxy stake their coins and earn rewards for securing the network. We will go into much more detail on these technical achievements in another article.
Proof-of-Stake is a substantial improvement compared to PoW models. It is inclusive of even the poorest people in the world who can proxy stake their hbar coins to a full node and earn token rewards. In future growth of the system, individuals with mobile phones can also be full nodes and create a new global economic model, well beyond the dreams of Nakamoto.
Focus Point : Future DLT’s will be migrating to this economic model for its superior performance and economic incentive structure. PoS is the future of most platform coin networks and should be thoroughly understood before investment. Understanding what the nature of the staking protocol is based on and its long term sustainability is critical for wise investments. Ethereum, Cardano and many other platform networks are hoping to reconfigure themselves into PoS or migrating to it the long term. Ethereum may take until 2020 to even begin this process.
Micropayments & Fees: The bitcoin development team has achieved its goal by reinventing peer-to-peer financial transactions, but in the process has generated additional problems by design. In the blockchain incentivized network of CPU miners, each are rewarded for block production but also earn additional transaction fees, called ‘gas’. This is a variable, individually determined amount that a miner will charge a user to submit a transaction into the next block underproduction.
In this competitive fee system economy, an unfair system of bribery has arisen. If a person would like to speed up their rank order in the next block, they can attach a higher amount than average of extra bitcoin to ‘bribe’ the miner to alter the order. Although this practice in the blockchain economy stimulates healthy competition in the mining communities, its downside is its unfair ordering of user settlements. Prices can be brought lower by more competitive offers from mining pools with greater equipment and less demand of remuneration. However, due to the low transaction and low throughput of the bitcoin network (~7 transactions per second/TPS for bitcoin core), network fees can experience wild swings in cost to even submit a low amount of cryptocurrency.
At the height of the last bitcoin bullrun, when millions of feverish crypto traders were making minute-by-minute transfers all over the globe in a 24 hours-7 days a week trade network, large sums were submitted in transaction fees. The peak of those fees even approached $50-60 USD. This fee structure and incentive program of bribing nodes for priority is fundamentally flawed and favors the wealthy. What’s more is that it also favors large financial transactions in lieu of the small ones. It is at this bottleneck of design, with low transactional throughput and high fee competitions at peak usage that forces bitcoin into high payment transactions only.
Any small bitcoin settlement below the average fee, which is currently near $0.50 USD per transfer, is impossible. In order to send $0.01, a user would have to also send 50 times more of the same intended transfer value at LOW peak usage for it to be accepted by the nodal network. However, at high usage rates, the fees are completely prohibitive of a reasonable transfer (recall $50-60 USD at last bullrun per coin exchange). In summary, the bitcoin core network completely fails to achieve the greatest hope in all cryptocurrency: the use of micropayments.
The current state of cryptocurrencies requires a fundamental breakthrough in technology in order to overcome this limitation of fee incentives. Despite many crypto coin platforms claiming to have achieved the coveted micropayment capability, only one has clearly solved this holy grail of cryptographic achievements. It is a long-standing dream amongst enthusiasts and developers to solve this micropayment dilemma.
In the final development of the public DLT, known as Hedera Hashgraph, debuting this summer of 2019, community testing has confirmed that the ability to make micropayments has been achieved. There is much to say about how this remarkable feat of computer science was achieved by the founders, Dr. Leemon Baird, Mance Harmon and Paul Madsen. This is an extraordinary win for developers, cryptographic science, speculative investors and future users of the burgeoning micropayment economy.
Focus Point : It is strongly recommended that as an investor and future hbar price prediction speculator that one understanding the immense gravity of this breakthrough. It is astonishing how this was achieved and will be the subject of a separate article in this series. Any distributed ledger system that is able to scale to global levels while maintaining low fees will take majority market share in the growing micropayment economy.
Killer Dapp: Many use cases will be described in separate articles around this magnificent payment structure. To date, no single cryptocurrency platform has achieved this with such a large and globally distributed potential with high throughput (100,000 TPS in test net and real time in community public testing Phase 1, during Q1 2019) apart from Hedera Hashgraph. Community members were able to earn micropayments by using novel decentralized games, prediction contests and reading published articles with the use of a Chrome wallet extension integrated with Google’s internet browser.
The micropayment capability using hbar utility tokens should not be underestimated. The development of the first beta test ‘hot wallet’ in the Hedera community testing Phase 1 was a stunning success. The ability to send peer-to-peer electronic cash throughout the world in less than 2-3 seconds with no significant latency, no need for additional confirmations and low fees ($0.00072 USD, or ~1/1000th of a US penny) is the exact dream of Satoshi Nakamoto.
The Hedera wallet extension browser fulfills the dream of micropayments and is the full embodiment of the famously predicted ‘killer dapp’ in the digital currency community. This is the first major use case that has been described ad nauseum amongst platform developers and enthusiastic investors in cryptocurrency. The Hedera wallet will open up a new global economy to every possible participant in the world with the least amount of technological requirements. It will allow micropayments for things as small as a US penny through a frictionless and lightning fast dapp. Investments in this particular coin could even lead the next digital currency bullrun. It would be wise to sign up for notifications regarding live hbar price, price charts, where to buy and what exchanges will list hbars in the near future.
Digital currency micropayments are the true vision of Satoshi in the original bitcoin whitepaper. The Hedera Hashgraph (HH) wallet extension for use in the Google Chrome browser is the first ‘killer’ dapp that bitcoiners have dreamed about, but have been unable to achieve. HH represents a quantum leap into a new world micropayment system where peers can send to peers with minimal fees (~1/1000th of a US penny e.g./ $0.0007) and form whole new shared worlds of financial technology.
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