Hashgraph White Paper Review – Part 1

by | Apr 16, 2019 | Hedera Hashgraph

Hashgraph White Paper Review or ‘Hashgraph Litepaper’ with Commentary


Summary: The Hashgraph algorithm as described in the sentinel Hedera Hashgraph white paper pdf is a detailed description of a revolutionary distributed ledger technology with a novel approach to the problems with blockchain. Currently, the bitcoin and ethereum networks have a challenging set of problems with regard to speed, scale, security, stability, governance and fairness. In the Hedera white paper, these issues are clearly addressed with assistive graphics to help the basic or advanced reader understand the problems that distributed ledger tech is attempting to solve.

In the proposed whitepaper solution, Hedera outlines the current problems of blockchain in regards to technology and governance. To date, no blockchain-based distributed ledger technology (DLT) has been able to solve the trilemma of uncompromised speed, scale and security in one common construction without off-chain solutions. To clarify, an off-chain solution, such as the Lightning Network for bitcoin and the Raiden network for ethereum, are dramatically less secure databases that act as partial fixes to the underlying limits of blockchain architecture. The fundamental assumption is that the DLT required for mass adoption must meet the demands for global scaling and speed without reducing security. Otherwise, the current legacy system of centralized database infrastructure would not be improved upon.

The Hashgraph or Swirlds white paper states from the outset that no current DLT can theoretically or practically solve this problem without a radical revision to the underlying blockchain design. In the HH white paper, a breakthrough development in consensus algorithms is announced that can solve the trilemma faced by blockchain but also improves on it by creating a novel governance structure and network stability plan that is unrivaled in all of the DLT ecosystem. What’s more, is the HH whitepaper also introduces the concept of fair timestamping of transaction, fairness of ordering and fairness of access; all things completely absent in the blockchain industry.

Hedera Hashgraph details their specifications in the hbar white paper as follows: achievable speed of 100,000 transactions per second (TPS), scale able to reach global adoption with millions to billions of TPS in a simple sharding structure, security that is the best-in-class with asynchronous Byzantine fault tolerance (aBFT), stability through governance to absolutely confirm network updates and hbar price adjustments and fees, as well as much more.

These details are provided in sections below in order to assist the reader in this abbreviated Hashgraph litepaper. In addition, Hedera Hashgraph has made a valiant attempt to remain SEC-compliant with all of its activities in order to reduce the risk of investment by full regulatory compliance.

REF: Full HH white paper: https://www.hedera.com/hh-whitepaper-v1.5-190219.pdf


Focus Point: It may be difficult for investors in hbar coins to read through and understand the complex and often nuanced issues discussed in the Hashgraph whitepaper. However, an abbreviated ‘litepaper’ is available here that summarizes the high-level issues involved in the publication that will easily assist a digital asset enthusiast to understand the problems inherent in current blockchain technology and how HH addresses them.

In essence, the Hashgraph algorithm has made an unbelievable breakthrough in regards to distributed ledger technology by solving all issues with regard to speed, scale, security, stability through governance and fairness of platform access, order and timestamp. There is NO current distributed ledger solution that can claim all of these successes without having compromised one or more of them in their design. There are no off-chain solutions with the Hashgraph hbar coin platform in that transactions are final within seconds with the best level of bank-grade security or aBFT. No additional confirmations are required after a transaction is sent. This fundamental breakthrough is clearly dependent on the gossip-about-gossip protocol combined with the unique virtual voting function.

Predicting hbar price in the near future will be critically dependent on understanding these technical features and how groundbreaking the tech behind Hashgraph truly is compared with all other crypto platforms. Reading through this litepaper should enable any investor new to DLT to make the best future hbar price prediction with a well-informed technical opinion and an understanding of the larger context of fundamental limits of the blockchain industry. Finally, the regulatory compliance of the Hedera Hashgraph team has also significantly reduced the risk of investments in hbar tokens by being SEC-compliant.


Discussion: The beginning of the Hashgraph white paper states a bold vision about the future of the internet. The Hedera network with its governance model has a central goal to simply create the currently non-existent ‘trust layer of the internet’. This is a strong statement of the current state of the world wide web, assuming that the present design of the internet is incomplete and needs an entirely new implementation-stack to create the security that should have been present since the beginning.

The current state of affairs in the public web of commerce and social media is that no reliable or reproducible internet architectural configuration is able to meet the unique problems of the end user. Although blockchain has attempted to resolve these ubiquitous problems, the lack of technical performance in regard to speed, scale, security and stability are still far from meeting the internet’s billions of users on a daily basis. In order to achieve mass adoption of the safest, fastest and most stable kind of distributed ledger technology many problems will have to be overcome. It is a bright and optimistic plan to create the internet 3.0, and ‘Hello Future” is its motto.


PERFORMANCE:

Speed-Performance in a globally distributed ledger will require an amazing level of high speed and low latency with financial transactions, smart contract deployment and secured file storage. The HH white paper makes a firm statement that in order to achieve global adoption of the internet layer of trust, 100’s of thousands of transactions per second (TPS) will be necessary within each division of commerce, government, banking and social media services.

To date, not a single blockchain-based database project is able to even come close to the necessary demand for global real time use of a DLT. For example, the bitcoin network has a current speed of ~7 TPS, ethereum ~15 TPS, litecoin ~55 TPS, EOS ~50-60 TPS (putative 1K), ripple ~1K TPS, and the VISA network ~2,400 TPS. Many of these reported transaction speeds are debatable, dependent on network congestion, and are not officially confirmed by a reliable third party.

However, it is clear that the grand majority of blockchain speeds as well as the VISA network have an average transactional speed under a few thousand per second. Peak usage of a few of these networks has a thoeretically upper limit beyond a few thousand, however, with the exception of the VISA network, none is even close to the amount shown by Hedera Hashgraph in test net and community testing near the upper limit of 100K TPS. What’s more is that the throughput is merely limited by the user’s bandwidth. Implying, that if a user has a faster, broader data plan, more transactions can occur to the limit of the connection speed.

REF:https://cointelegraph.com/news/who-scales-it-best-inside-blockchains-ongoing-transactions-per-second-race

Latency- Latency is another variable in the performance of a distributed ledger technology that accounts for the total time that a transaction takes to not only be broadcasted to the network but also for its confirmed reception by a majority of nodes in consensus. In blockchain this latency period is completely dependent on a probabilistic confirmation of finality, meaning that it never reaches complete finality.

In example with the bitcoin network, after a single block has confirmed a transaction, there is only a ~30% probability that it will not be reversed. After 6 confirmation blocks, which normally takes at least 60 minutes, a transaction has only a probability of irreversibility of ~78%. Finally, after 45 confirmation blocks, which may take hours to achieve, will approach about ~99% probability. However, due to the non-deterministic design of bitcoin, no confirmation is perfectly assured to be irreversible. This pattern of probabilistic finality of confirmations is common to ALL blockchains and leads to a fundamental insecurity of each and every transaction.

In the Hashgraph white paper, latency in the DLT is literally measured in seconds, not minutes, hours or days. It achieves a deterministic finality of transaction in only ONE network confirmation. Yes, that is right. In only ONE network transaction there is complete finality of a transaction with NO chance of reversibility. This is light years ahead of all current blockchain designs and even outcompetes the legacy credit card VISA network, which normally settles finality of payment within 24 hours.

REF:https://hackernoon.com/latency-and-finality-in-different-cryptocurrencies-a7182a06d07a

Efficiency/Cost- The Hashgraph whitepaper fully confirms that the efficiency, or electrical waste of the algorithm is the lowest theoretically possible. In contradistinction, the blockchain cohort of platforms has exorbitant waste of resources in the proof-of-work (PoW) design and wastes a large amount of CPU work on unnecessary blocks that are eventually pruned from each competing blockchain. China has even recently banned all mining of bitcoin because of state research determining the markedly excessive use of electricity to secure the network in PoW.

Hashgraph does not suffer any of these limitations by its direct acyclic graph (DAG) design. It is maximally efficient and uses the lowest possible power in all of DLT. Additionally, since the Hashgraph network can run on a bare minimum of hardware specifications, no expensive or elaborate super computer is required for any node in the network. The opposite is true of bitcoin et al, and is a major barrier to entrance into those systems as a miner.

Node Number and Latency:  In the reported testing phase of the Hashgraph consensus algorithm, up to “32 computers running at 50,000 transactions per second, consensus finality is reached in 3 seconds when the network is spread across 8 regions spanning the globe. Other models are shown that confirm the HH white paper claims that a superior form of DLT to blockchain has been achieved and meets the requirements for a mass-adopted system of commerce.

State Efficiency: The memory requirement currently of the bitcoin network is nearing ~200GB of data per functional node. However, the Hashgraph token network only requires nearly a ~1GB memory load and is constantly trimmed to maximally efficiency so that any device with very basic requirements can enter the network and participate in consensus.

REF: https://bitcoin.org/en/bitcoin-core/features/requirements


SECURITY:

Cryptography: Hashgraph uses the best-in-class encryption with all messages using TLS 1.2 (Transport Layer Security) as well as a level of encryption far beyond all other blockchain systems. It is compliant with CNSA Suite security standard, which is equivalent to US Top Secret government intelligence, “It specifies using AES-256, RSA 3072, SHA-384, and ECDSA and ECDH with p-384 and using ephemeral keys for perfect forward secrecy.” In contrast bitcoin only uses SHA-256 and ethereum uses the KECCAK-256 hashing standard.

In contrast, HH uses orders of magnitude above this in encryption with its first implementation, and with quantum-resistant solutions prepared in the advent of quantum computation for the near future. This is not something that blockchains can easily implement since it will significantly degrade throughput and transaction time to accommodate the much more complex digital signature process, reducing overall performance. Because of hashgraph’s superior performance and throughput, adding a higher level of encryption is an easy update when necessary without compromising TPS.

Asynchronous Byzantine Fault Tolerance (aBFT): If there is any single most important AND distinguishing feature about the Hedera Hashgraph network, it is the security feature of asynchronous Byzantine Fault Tolerance. This is also one of the most difficult aspects of network security in DLTs that lay people have in understanding the algorithm properties. To understand, one must review the founding Byzantine General’s problem in regard to network communication theory.

In order for a network of computers to reach a majority agreement on the state of transactions and account balances, all nodes in the system must be able to finalized transactions, broadcast them to all other nodes and be able to determine if a fault, or failure to communicate has occurred. There are various degrees of Byzantine fault tolerance, ranging from the weakest BFT, to practical BFT (pBFT) and finally to the ultimate achievement of perfect fault tolerance, or asynchronous BFT (aBFT). The latter distinction of aBFT is the only standard that can be referred to as bank-grade, due to the stringent requirements of consensus amongst the national and international banking system.

To begin with, BFT refers to the ability of a system to achieve consensus, or agreement, amongst a group of computers that share transactions in a gossip protocol without being stopped from the process. If a certain number of the computers in the network, or nodes, act in an evil way or drop out of the network, they may prevent consensus in the network. Being ‘fault tolerant’ means that the network can tolerate the failure up to a certain point. By the math, it involves at least a third plus one of all nodes in the network to behave malignantly in order to create this failure. If a system is tolerant up to one third of nodes behaving poorly than it is considered BFT. Bitcoin is claimed to be BFT and avoid DDoS attacks by requiring extensive computation in its costly proof-of-work (PoW) nature. This has the downside of cost, expensive hardware and inefficiency.

In practical BFT (pBFT), a leader-based system of consensus is constructed that allows a chosen leader to manage a transaction, send to all nodes and pass the leadership role to another. In this design, the network is tolerant also up to one third of nodes being bad or dropping out, but more than one will halt consensus. In ethereum and other PoW networks, a cost is associated with each node request, limiting the DDoS potential due to the financial cost.

What’s vulnerable in some of these platforms is the ability of a leader-based system, whereby a DDoS-attack could easily be successful on the leader node. Therefore all leader-bsed pBFT systems are not completely DDoS-resistant. This group includes EOS, ripple and stellar lumens, amongst others. In these leader-based systems, a bottleneck effect occurs that makes consensus vulnerable to targeted strikes and failure. All Proof-of-Stake (PoS) systems must account for DDoS attacks since PoW is not used. Only Hashgraph has a solution that is both efficient, aBFT and resistant to these types of network attacks.

Hedera Hashgraph is the first-in-class to achieve the difficult aBFT status in a distributed consensus algorithm as described in the Hashgraph white paper. Understanding that no other blockchain or DAG has been able to create this in an algorithm is essential. This singulair achievement by a DLT means that Hashgraph is resistant to DDoS attacks, botnet attacks (multiple computers used by one controller to attack a network with DDoS) and malicious firewall coordinated attacks. This is not true of any other platform to date.

ACID-Compliant: This is a basic requirement of databases in regards to atomicity, consistency, isolation & durability. Since each node in the Hashgraph fulfills this property then the network as a whole is also ACID-compliant. Therefore if each node is fully aBFT and ACID-complaint, then the entire network as a whole is also considered aBFT. This is also unique to the Hedera network in all of the DLT ecosystem.


FAIRNESS:

Fairness of Access: The ability of a user to send a transaction to a randomized node for a transaction allows for a fairness of access to the Hedera Hashgraph network. This also means that no individual node can prevent a user from access to the network by design.

Fairness of Timestamp: This is one of the most remarkable features about Hashgraph that distinguishes itself from the pack of DLT. By directly relatively assigning the timestamp of each transaction at each node, dropping the extreme outliers and taking the median timestamp of the entire network a fairness of time is established in the Hedera white paper.

In other systems, such as bitcoin and ethereum, transactions are sent randomly to nodes with a gas, or variable transaction fee, that can be manipulated to ‘persuade’ a miner to change the time of the action relative to others. This is a form of network financial bribery and is not fair in a system that could be undergirding financial markets, such as exchanges, auctions and time-dependent processes of order requests.

Hashgraph avoids this arbitrary system of false timestamping and only allows the entire network to determine the time of a transaction. In the bitcoin blockchain, each block can only occur in a synchronized ~10 minute interval without any honesty or transparency of the actual network time of the transaction. All other blockchains that use blocks to bundle transactions are also guilty of this time faulty design.

Fairness of Ordering: Based on the network median timestamp approach in the Hedera white paper, fair ordering is natural consequence of design.  This allows all users to enter transactions into the network without arbitrary bias or allow bribery to rearrange this order. In all other network designs, including bitcoin, ethereum, EOS and others, there is no fairness of ordering due to the ability to use variable rates of transaction fees to ‘convince’ nodes to up rank higher paying customers.

Only HH can allow for a fair market based on this principle of design by assigning order in a fair way, permitting all kinds of use cases from fair stock markets, public auctions, time-sensitive bidding sales and many more.


GOVERNANCE:

Permissioned Governance: Uniquely described in the Hedera Hashgraph whitepaper is the novel feature in all of the cryptocurrency space of permissioned governance. The structure of this elected governing body is the unification of up to 39 multinational, multi-sectoral businesses and organizations selected for their national reputation in the marketplace to enforce network stability.

Each member of the Governing Council are initially selected by the Hedera Hashgraph, LLC and limited to a 3-year term that can be renewed by majority vote for a total of two terms. Afterwards, new members will have to be elected by the Council for a new 3-year renewable term. Each voting member will only have 2.56% percent influence for no more than 6 years if re-elected to a second term. The selection of the Governors will be diversified over every continent and in every business type so to not allow a majority of business interest from any one sector. This model allows an additional layer of ‘proof-of-reputation-stake’ in that the businesses and organizations contributing to the council will be jeopardizing their global reputation with any kind of malicious network collusion or corruption

The purpose of the Governing Council is to enforce network stability through monitored updates, network fee adjustments, confirming regulatory-compliance, and preventing network forking by patent implementation. In context of the grand majority of the cryptocurrency ecosystem, this is an innovative model with the most diversified and decentralized kind of controls, akin to the original Visa Network model implemented in the 1970’s with the global credit card system.

The design of the Governing Council is largely in response to the unmitigated chaos and anarchy of the current method by which the majority of blockchain and DAG platforms have chosen to lead themselves.

Unpermissioned/Open Consensus: Despite the election of permissioned Governors in the Hashgraph Council, the overall consensus of the Hedera public DLT will eventually be completely distributed in the community in a non-permissioned consensus design, much like the bitcoin and ethereum platforms. In these systems, users can enter and exit as active nodes without the need of an act of the Council to allow them to contribute to PoS consensus, earn fees and secure the network.

An important note to make is that in the short term the Governing Council will be the founding nodes of the network but will permit the process of proxy staking. This is a novel idea in the Hashgraph white paper and comes with many benefits to the common user of the network. In the long term, any one should be able to join the network as a full node, once the network establishes a foothold in the market, distributed hbar coins and achieves consensus.

With proxy staking, individual users can assign their hbar tokens to a full node, such as a Governing Council member, and earn a fee in the voting algorithm of consensus. The surprising design of the proxy staking method is that the staked hbar coins are not bonded to the node and can be freely spent at will by the user without penalty. This is yet another unique innovation by the Hedera public DLT design that is first-in-class as well.

Committee Elections:  Within the Governing Council structure is the provision to form several guiding smaller substructures of governance in the formation of a Technical Steering Committee, a Finance Committee, and a Legal & Regulatory Committee. This flexible, term-limited and election-based management structure may become a new standard in distributed ledger technology and will certainly improve on the current state of blockchain.

Many luminaries in the DLT ecosystem have discussed the lack of a tenable governance solution within the distributed ledger space. In fact, the Hashgraph white paper even states that the failure to create a reasonable control like a governing council in charge of a DLT platform is a chief reason that enterprises have not adopted the technology in the marketplace.

REF:https://news.bitcoin.com/why-governance-is-the-greatest-problem-that-blockchains-must-solve/


STABILITY:

Technical Controls: A controversial but seemingly favorable feature of the Hashgraph algorithm is that the design is under a control by the Governing Council through an issued US patent. This is unlike any other blockchain or directed acyclic graph DLT to date. The decision to pursue such an intellectual property control for the network was born out of the chaos and confusion that the open-source community of blockchains has experienced in the past few years in regards to forks.  

A fork, or database update or split, is a natural consequence of open-source structures like bitcoin and ethereum. Bitcoin itself has experienced over 100 forks since it inception with no significant improvement in performance, security, governance or adoption. This has been identified in the HH white paper as a major barrier to adoption, particularly enterprise acceptance of distributed ledger technology.

REF: https://forkdrop.io/list-of-bitcoin-forks

In the Hashgraph white paper, the need for a control to combat the community confusion of a network split is described in order to generate true mainstream market utilization. However, the only control that could thwart a network wide split is a legal or technical control like an US-issued patent. In effect, the Governing Council would have to take legal action on any competitive platform that unlawfully used the open-review software to create consensus. The hbar white paper clearly outlines that an open-review process of the underlying code source, or software code, will be made available in order for any third party to inspect and verify the claims made by Hedera Hashgraph, LLC. This open-review but closed-source code is a matter of contention in the cryptocurrency community, however, remains a problem that no other network has effectively solved yet.

The final message of the HH white paper in regards to this issue is that network forks create a confusion of ownership of cryptocurrency, smart contract assets or any kind of network-pegged equity. In example, if a network that issues ownership of a real estate certificate underwent a fork, then a dual ownership would be existent with private keys on each network, both the original and the forked platform, confusing the market, regulators and users. This is not a tenable market for any future digital asset class and requires a first order solution.

The solution according the the Hedera white paper is the formation of a technical control, mediated through the Governing Council and enforced through the US government and international courts with jurisdiction on intellectual property. Time will tell if this effective enough to manage the platform’s stability, however, judging from all other legacy industries to date, it is usually easily effective at maintaining service and product purity and stability in an emerging technology market.

State Proofs: A state proof in the Hedera Hashgraph white paper and public network is a signed statement buy a majority opinion of the nodes that states a certain state of accounts in a transaction that is gossiped to the entire network. This can be seen as an update of total consensus on all matters pertinent to the shared ledger and serves several purposes. This can be used as a legally-binding statement of majority vote of the consensus and should be admissible in a legal court based on its certainty of transactions.

State proofs will play very important roles in the near future for legal functionality, inter-database updates and confirmations in fully sharded expansions of the network and will act as a mechanism to ‘trim’ the hashgraph memory of current state to reduce memory requirement of each node. For contrast, in the blockchain database structure, each and every full node is required to download, maintain and have the entirety of the blockchain in active memory for reference of each new transaction and is approaching a 200GB demand.

In stark contrast, the Hashgraph algorithm only requires state proofs, which have 100% certainty of state, to update each node of the present state of all accounts and reduces memory requirements to nearly only 1% of other blockchains. This would eventually allow a mobile phone to participate in consensus and earn fees, which would not be possible with all other blockchains.

Ledger Address Book of IDs:  A requirement in the proof-of-stake system of the Hashgraph algorithm is the necessity to maintain an updated book of public addresses and and the relative stake of hbar coins assigned to each. This is a technical necessity for PoS and will be mediated through state proofs by design.

Hashgraph Algorithm License:  Swirlds, Inc. is a private enterprise of the founders of the Hashgraph algorithm that has licensed in perpetuity the use of the network design and intellectual rights to the Hedera public DLT. This has an associated royalty that is described elsewhere in the Hedera network disclosures. The commitment is that the Hedera public DLT will never be revoked and can be solely used by the network for consensus under the guidance and maintenance of the Governing Council.  


REGULATORY COMPLIANCE:

Opt-In Identity Escrowed Identity System:  In order to conform with all regulations regarding Know-Your-Customer (KYC) and Anti-Money Laundering (AML), the Governing Council will require that all users of the platform conform to traditional banking system norms of identity. This process will include the use of acceptable and legal identifiers to enter the network through the formation of an account that will be digitally-escrowed into the hashgraph in a way that if necessary could be referenced at a later time.

A legal Certificate Authority (CA) will assist in the process with users uploading an ID, signing with a private key and a CA to the graph in order to assign it to a ledger account. This allows regulatory compliance with KYC and AML rules and regulations. However, this is an opt-in process and users could choose to remain anonymous. This may have consequences to the user that prevent certain levels and/or kinds of transactions based on balance or transaction frequency.

In the end, the user will be able to decide to use the identity service association with their account. It may come to past in the near future that this become a strict regulation of all public distributed ledgers, however, to date no regulation is otherwise clarified by US regulators. Hedera is a member of the DLT Foundation and through the Governing Council will maintain compliance the governments and the DLT community while maintaining user privacy and security.


Conclusion: The Hedera Hashgraph network has a unique directed acyclic graph approach to consensu and database structure. It identifies in its first part of the Hashgraph white paper that compromises in speed, scale, security, stability of governance and regulatory compliance are the limiting variables preventing DLTs from experiencing mass global adoption. Many unique structures in the Hedera Hashgraph public DLT include: a novel Governance model, proxy staking consensus without bonding, aBFT finality of transactions, highest throughput of all DLTs and full regulatory compliance.

With these features as well as legal and technical controls, Hedera Hashgraph, LLC expects to bring global adoption of the tech sector that has languished by ineffective and noncompliant legal design. Understanding these points will be necessary to further understanding in Part II of the Hashgraph white paper in regard to Architecture of the Hashgraph Network.

Ħello Future.