Is Hashgraph Centralized?

by | Apr 22, 2019 | Hedera Hashgraph

Hashgraph Centralized? Hashgraph a Scam? Hashgraph is a Centralized, Closed-Source & Patented Platform?


Discussion: There is nothing more disparaging to hear about one’s beloved cryptocurrency then the claim that it is nothing but an imitation of the real cryptocurrency of bitcoin. Calling Hashgraph a scam coin is an easy thing to do, as with any altcoin. However, the majority of the time ‘sh*tcoin’ is simply an ad hominem, or name-calling tactic, to downgrade the public opinion of a coin that may claim to rival the original cryptocurrency of bitcoin. However, if a person is open-minded enough to consider that many limitations exist with the original digital currency of bitcoin as well as all other blockchains, they may be interested to hear what the falsely titled hashgraph scam coin really has to offer.

Decentralization may be a new term in the past decade within the bitcoin community, but the concept is as old as civilization. After a prolonged age of monarchs and irrational tyrants, the ancient Greeks were able to develop a system of government that decentralized, or distributed the power of decision making to the people. It would still take another 2000 years for this distributed governance system to reach all citizens, such as women and minorities, but it eventually succeeded. In the end, democracy initiated a rebellion against power abuse in all kinds of ways including commerce, governance, land ownership, personal property rights and much more.

The decentralized movement originating from the Greeks is the same philosophical movement we see today in the blockchain revolution. The key difference is that the central monetary supply once issued and managed by the state is now being decentralized by the people. Just like the movement to separate church and state, as well as markets and state, we are seeing in distributed ledger technology the separation of currency and state. People are now reinventing the money supply in a novel, technological way that would certainly have amazed ancient Greek thinkers.


Hashgraph a Scam?: The concept of a scam coin arose in the early bitcoin versus altcoin debate when alternate approaches to the blockchain were first conceived. Bitcoin was an open-source project, meaning that the software code behind it was available to be downloaded, modified and used for an alternate project. The fact that an open-source project like bitcoin even allowed for the development of altcoins demonstrated that potential rival projects were built into the design from the beginning. This latent potential of open-source philosophy would have its consequences for the original blockchain.

Claiming that an alternative blockchain or direct acyclic graph (DAG) is a scam just because it is different than bitcoin commits a common logical fallacy known as an ‘ad hominem’. An ad hominem is an unjustified pejorative insult used against projects like Hedera claiming that it lacks decentralization and open-source principles original to bitcoin. If one fully investigates this assertion, they will find that Hashgraph is not a scam nor a fool’s coin, but quite possibly the next greatest cryptocurrency platform by specs and design than 99% of other crypto projects. Decentralization does not have a clear definition but has many features that should be used in comparison of Hashgraph and blockchain before finalizing one’s judgement.


Hashgraph not Decentralized?: In order for a cryptocurrency to be considered decentralized, an assessment should be made into the consensus mechanism of the platform, the amount of total participating nodes at full deployment and the governance mechanism used to initiate code updates and enforce basic rules of network compliance. Other features of a truly distributed ledger technology, or DLT, include the fact that it is not controlled by a small group or cadre of miners, has sufficient coin supply and distribution and that the platform source code is inspectable by all participants. Most important to decentralization is the absence of a single controlling authority with reasonable transparency of actions.

Many critics today judging a coin’s degree of decentralization find it difficult to judge a digital asset platform due to the lack of a formal definition. By most standards though, decentralization should lend itself from other distributed power systems such as democratic governments. For instance, in the United States Government, three separate divisions of power exist so that no one party can make unilateral decisions that would be in the disinterest of the majority of the nation. Within the judicial and legislative branches, a larger distribution of power though multiple term-limited elected officials is present, also offsetting the possibility of a small minority of control that could be corrupted.

However, in the cryptocurrency community an extreme notion of decentralization has gained mass popularity without criticism of its downsides. In that approach, decentralized platforms are favored that use near complete anarchy in construction and allow competition in market and contentious forking to vet out the winning cryptocurrency. Unfortunately, this form of decentralized control effectively believes in a maximalist position without considering the risks inherent in the process.
hashgraph governance

The dominant community point of view today is that no single or group party should ever control a digital currency platform and that any one should be able to divide the platform at will if it disagrees with the majority opinion in design or principle. This level of maximalist anarchy has yet to be successfully expressed in any single crypto project without some major unspoken downsides. Every platform requires an active developer community as well as a set of influencers that actively engages the community with ideas and software development directions to improve the digital asset. However, the idea persists in social media that an anarchical system of competition and collaboration is the greatest ideal to achieve.


Decentralization: Decentralization by the simplest definition is the replacement of a central authority of an organization. In the cryptocurrency ecosystem this has a large spectrum of definitions, none of which that have been formalized by academics or majority expert opinion within the distributed ledger space. However, in regard to society, markets and politics the concepts of centralization versus decentralization have been thoroughly published in academic literature. In the social media world, the definitions of decentralization are often misunderstood or misrepresented by advocates of a digital asset platform without a comprehensive investigation or rational justification of opinion. The degree by which a central authority is removed from control has a wide spectrum of solutions, many of which are exemplified by various blockchain projects.
distributedIn the case of the Hedera public DLT, many crypto enthusiasts have labeled Hashgraph a scam because it does not fit their arbitrary definition of a distributed network. However, with careful review of the Hashgraph whitepaper, investigation into the novel form of Hashgraph governance and the open-review but closed-source approach to the hbar coin, one may believe otherwise. Moreover, an assiduous review of the Hashgraph network design will reveal that it not only meets all of the definitions of a decentralized network, but actually far exceeds the greater majority of top cryptocurrency platforms.


Decentralization of Bitcoin & Ethereum: In cryptocurrencies such as bitcoin, no central authority or set of governors is set in place of the platform since the network is in implementation a software-as-a-service (SaaS) with a participating community of nodes and users. In reality, there is nothing to govern except the source code and its updates. Nodes in the system can add and subtract without any licensing agreement or disclosures. Users likewise have no legal requirements and no expectations to do anything but exchange coins and earn fees if hosting as a miner. Likewise, the Ethereum platform has no central governance and is only managed at the source code level by an open-source development community and a foundation of influencers. Additionally a mining community has developed to both coins that has its own characteristics as well. However, as will be shown, these miners have a form of consolidation into mining pools that lowers their decentralization by a significant factor below what is commonly believed.

What is also left unspoken in these conversations about decentralization in the bitcoin and Ethereum communities is the degree by which power and governance are distributed. The knee jerk response is that no single person is in charge of either platform and no one group has absolute control of the network. However, a deeper analysis of the chief influencers, foundations, and mining communities of these top crypto platforms paints a much different picture of decentralization than what is typically presented.

From a software standpoint, it appears that the bitcoin core source code is safely managed by a small community of developers, but the design of updates are not compulsory, and nodes are free to implement changes made by the developers if they so choose. The fact that the bitcoin core software is not forced on the community is a benefit in one way, however, it is also a limitation to network compliance of new changes in another way.

For each proposal by the community, the bitcoin hosting node must either accept the upgrade or not. This leads to network heterogeneity and lack of adoption by the total network has its downsides as well.  In a traditional software company an update receives near immediate compliance throughout a network. However, in the bitcoin core community there may be significant lag in update throughout the network.

REF: https://medium.com/@lopp/who-controls-bitcoin-core-c55c0af91b8a


No Governance- Bitcoin & Ethereum: The current controls in the Ethereum community appear to be the chief developers and influencers of the platform, which include people such as Joseph Lubin, Vitalik Buterin and others. These are founders that have significantly profited from the platform development, (Lubin near $1 billion USD, Buterin ~$100-300 million USD) and continue to exert major influence on the direction of the platform through conferences and social media. The influence of these few individuals is so profound that some media outlets have even labeled Buterin ‘benevolent dictator’. Joseph Lubin has also been attributed the title of the second richest man in all of the cryptocurrency ecosystem. This financial stake in a platform certainly comes with key man risk and influence on the network.

What is important to note is that although these chief influencers are not the official controlling agent of Ethereum, they are clearly the ‘de facto’ leaders. For clarification, ‘de facto’ in this sense means that ‘by effect’ the small cadre of influencers and founders has a significant role of authority and act as a centralized agent. By calling Ethereum decentralized, but still having a central controlling group is a contradiction between semantics and pragmatism. This topic has finally risen to a social media point of complaint and is verification that no extremely decentralized system can exist without incurring some set of problems.

REF:https://medium.com/@lopp/who-controls-bitcoin-core-c55c0af91b8a

https://medium.com/blockchainspace/Ethereum-governed-by-a-benevolent-dictator-2a2be8aa331a

https://medium.com/futuresin/Ethereum-governance-isnt-decentralized-da449da430f4

The absence of strong governance is actually considered a form of anarchy, which has demonstrated through contentious forks of both bitcoin and Ethereum to degrade user confidence and lead to reduce market value in both platforms after the split. Here is a quote from the Medium article posted above,”Ethereum has been faulted for having only a few core developers determining what happens on the network.” The key people in Ethereum are usually male and are comprised of early investors and developers.
etherium governance

There is very little diversity or distribution of the decision-making power behind these platforms because of the absence of a robust decentralized governance structure. The fact is that bitcoin and Ethereum have no governance at all. Everything is de facto and anarchical. This critical concern with the platform is likely what is keeping major enterprises and institutional investors from finally adopting the blockchain networks according to some sources. What is also a major concern for commercial enterprises that would like to take advantage of the security features of distributed ledger technology is the risk of platform splitting, or forking.


Problems with Forking: A chief ‘feature’ of the majority of blockchain networks is the option of total platform bifurcation, or ‘forking’. In open-source projects like bitcoin and Ethereum, any individual with enough technical expertise in cryptography and database architecture design could go to github, copy the software platform and redesign any feature they desire. This ‘freedom’ to manipulate a networks source-code has led to thousands of other blockchain derivatives enmassing billions of dollars of newly minted cryptocurrencies. In the process, the total marketcap of bitcoin and Ethereum have suffered by the loss of market share, dominance and brand awareness due to the incredible amount of copycat projects. This ‘tragedy of the commons’ occurred because ‘if someone can do it for financial gain, then everyone will do it’ (referring to forking).

The open-source community has believed up to now that the ability to bifurcate a network is advantageous because it allows a democratic process of selection. In this process, a cryptocurrency can be split, have added features not present in the prior one and be put to an open market of choice. If the miners or node supporters agree with the updated fork of the previous network, they could switch their node to the new one and mine from there. This sounds like a fair open-market, open-source philosophy, however, the facts of today are that most forks have not improved any network to a significant degree. Instead, each fork (i.e./ bitcoin cash, ethereum classic, etc) have only reduced market share of each platform, confused general users and diluted brand awareness. Global market adoption is still lacking despite hundreds of bitcoin forks.

Other consequences of forking is the fragmentation of the small developer community into even smaller camps, as well as the sudden selloff by insiders of the original cryptocurrency, in order to fund their new forked project. This occurred with bitcoin cash in fall 2017, when many of the bitcoin cash community sold off their bitcoin holdings in order to fund and manage the new fork. Additionally, each cryptocurrency exchange had to immediately add the new currency to their networks, issue the new coin in the same distribution as the previous network’s ledger stated and help educate the new or naive investor about the difference. In this contentious affair, many lost faith that a united community could ever stay together as developers and investors were split over and over again into competitive platforms with minimal software improvements.

If this kind of action occurred with any Wall Street SaaS corporation or organization during any significant upgrade of network or major board disagreement, mayhem would occur. Stocks would have to be issued in parallel with the old network,with equal ownership rights to both networks after the split for any investors, brand awareness would have to be clarified and generated anew, and much market confusion would lead to a lack of consumer confidence.

REF: https://thenextweb.com/hardfork/2018/11/15/bitcoin-cash-hard-fork/


Scam Coin Fork?: The entire process of forking in the cryptocurrency has been a protracted experiment with no significant benefit to any network leading to adoption. What has been created with each fork is a form of wealth by allowing the two networks to have parallel account owners at the fork effectively doubling one’s holdings. This very strong economic incentive to split a cryptocurrency is by far the most dangerous element in the bifurcation experimentation of the open-source crypto community.

By allowing anyone the ability to double their coin holdings by merely doubling the number of digital currencies on market, a wild mayhem of forks have occurred. Although the majority of newly forked coins end up losing immediate value and trade at a small fraction of the original network, there is still enough profit gain for the insiders that it ends up being akin to a scam. Hence, the concept of a scam with most altcoins is the impression by most true cryptocurrency developers, investors and enthusiasts because of this deleterious forking ability.

REF:https://ambcrypto.com/john-carvalho-calls-bitcoin-hard-forks-scams-expects-jpm-coin-to-remain-behind/

https://www.ccn.com/warning-crypto-scammers-are-taking-advantage-of-ethereum-hard-fork-concerns


Hashgraph No-Fork Guarantee: The Hedera Hashgraph public DLT has made a first-in-class decision to put away with the entire concept of forking in order to provide an enterprise-ready stable network. In this design, full transparency is still clearly evident in the open-review process of the underlying source code. Anyone will be able to download, inspect, and review the Swirlds SDK or Hashgraph algorithm. The Hashgraph No-Fork guarantee is a control that required a patent on the Hashgraph algorithm in order to legally force compliance and thwart any opportunistic fork of the new distributed ledger.

This strikes a particular nerve with open-source developers because of the Hashgraph closed-source nature, however, the crypto community has demonstrated that something is necessary to prevent the mayhem, market confusion and opportunism with forking. The belief amongst the Hashgraph administration is that market clarity, brand awareness and network stability are mission critical features for any public DLT before any major enterprise would consider developing on it.

The truth is that this is already occurring with over 300 announced dapps on the Hashgraph platform with many multinational, multisectoral, megacap corporations actively building on Hedera. Time will tell if this decision was the right one, however, based on current market practices, such as at Apple,Inc., Microsoft and Google, it is certainly what works over time.

Additionally, a technical control outlined in the Hashgraph white paper states that a Genesis Address Book will be a feature that prevents a fully fledged fork from routing the network away from the original platform. Since a competing fork will not be able to make an Address Book History that connects to the Genesis Address Book of Hashgraph, the fork will be unable to route activity to the hostile new network. In addition, the legal controls are simply another layer of protection from patent infringement of the Hashgraph algorithm which is the only public implementation that will be allowed.


Hashgraph Patent:  The Hashgraph patent of the underlying distributed ledger algorithm used in the Hedera public DLT is a protective mechanism against the hazards, scams and dangers of forking. This will be a major requirement for enterprise and global mass adoption according to the Hashgraph administration. Understanding that the sole purpose of the patent was not to profit from the control, but to use it effectively to create market stability and network predictability is vital. The Hedera public DLT has an irrevocable license to use the Hashgraph algorithm from the originating company that patented it, called Swirlds,Inc., which was also founded by the same management.

For example, imagine one of the Governing Council members, like the multinational, megacap Deutsche Telekom corporation decided to build a few dapps on the Hashgraph network without patent protection from forking. In the research and development phase, early beta testing and then final dapp implementation with legal consultation, Deutsche Telekom could spend over $10 million USD to deploy it. Then imagine that an opportunistic fork of the Hashgraph network was announced the day after Deutsche’s dapp debuts. They would have to retrofit their dapp to the next platform for full deployment, which could take months of testing, legal consultation, etc.. They would also have to educate the masses in another advertisement campaign about the new network, speak about delays and many other market confusing issues.

Or perhaps, imagine that DLA Piper, another Hashgraph Council member, built a new distributed property ownership certificate platform on Hedera that replaced conventional land and property claims. And then imagine a platform division that created two alternate networks, both with the same non-fungible assets and two possible owners of the same properties. How could this problem ever be avoided without a strong governing control?

no hashgraph forks

The truth is that it cannot and will only be possible with Hedera Hashgraph through its patent-stabilizing platform. Distributed ledger technology is still evolving, and many believe that this critical step in the process of the fourth generation of DLT with proper network controls will be necessary for network stability that can lead to mass market adoption.

REF: https://cryptobriefing.com/legal-analysis-can-patent-law-protect-hedera-hashgraph/


Hashgraph Decentralized Governance: In the design of the fair, fast and secure Hashgraph network, Dr. Baird developed a novel governance structure with the help of his colleagues, Mance Harmon and Paul Madsen (all Hashgraph whitepaper authors). The Governing Council of the Hedera Hashgraph platform is a robust and distributed control in place, modeled after the globally successful Visa network. In the Hashgraph Governing Council, a multinational, multisectoral approach of 39 Fortune 500 megacap corporations and organizations are being assembled to act as stewards of the hbar cryptocurrency.

The Hashgraph Council’s role is to found the original nodes of the network (with general users later added as nodes), manage network upgrades, set base pricing of network fees, and to use a voting structure where no more than 2.56% voting control is held by any governor. Each Governing Council member is term-limited to a 3-year interval, with a second term allowed if voted by majority in a standard re-election. These Hashgraph Council members will be only rewarded for running nodes in the network, but will not own any of the profits of the system otherwise and will only be stewards of the Hashgraph Treasury of hbars.

REF: https://www.hedera.com/council

This distributed governance structure is nearly the model that the Visa network assembled in the 1970’s when they set to develop a globally-distributed payment system that turned into the multibillion dollar a year credit card industry it is today. Using a winning model such as this, with the added innovation of a Decentralized Governing Council could also make Hashgraph a globally-distributed cryptocurrency with mass adoption like Visa’s. Compared to anything in blockchain, the Hashgraph Governing Council and its amount of reasonable decentralization sets it apart from all other digital currency coins.

In contrast to bitcoin and Ethereum, who have no strong governance controls to combat mining pool cartels, cadres of wealthy invested insiders of influence or anarchical fragmenting groups bent on opportunism, Hashgraph is light years ahead in vision. Time will tell if the Governance mechanisms and design are suited for the cryptocurrency ecosystem, however, it is clear that Hashgraph has what will be necessary to gain enterprise global adoption.

The fact is that the Hashgraph patent and network will be under the management of a novel distributed governance model with a stable and decentralized architecture not present in any current DLT or blockchain. This is what may be necessary for any reputable large enterprise to finally enter the decentralization revolution and create a fairer, faster and more reliable global network with the new trust layer of the internet, powered by Hedera Hashgraph.


Hashgraph Decentralization: Since the Hedera public DLT built on the Hashgraph algorithm was built de novo, or bottom-up with no reference to design of blockchains, a curious thing occurred. The discoverer of the algo, Dr. Leemon Baird is truly unrivaled in the cryptocurrency space based on his mathematical, cryptographic and enterprise experiences as well as his high-level government intelligence contributions in machine learning and artificial intelligence. Based on his personal studies and holistic approach to the distributed ledger problems at the time, a comprehensive architecture of a 21st century DLT with maximal speed, scale, security, stability and governance was created.

In the process, a fully decentralized governance mechanism was set in place in stark contrast of the weak ‘de facto’ management of open-source networks, such as bitcoin and Ethereum. There is literally nothing stopping someone from entering malicious code into the bitcoin or Ethereum source code, although some controls are present. There are no rules for managing the Ethereum platform, it is simply a common agreement of certain developers and founders that influence its updates and hope that the market adopts its ideas.

There is no way to prevent a single fork of bitcoin or Ethereum. This is an anarchical and uncontrollable approach to a system meant to whole an entire nation’s currency or digital assets. The governance model of Hashgraph at least creates the strong controls for network security and stability, but then puts that power into a democratic, distributed Governing Council unlike any other cryptocurrency.


Hashgraph Decentralized Nodes: The nodal architecture of the Hashgraph network in Phase 1 is initially set to involve the 39 Council members until the platform reaches a threshold of stability, coin distribution and value that will ensure its security. In the meantime, having 39 founding nodes is far more than the rival EOS network that relies only on 21 nodes total. This means that Hashgraph is more decentralized than the top 5 cryptocurrency EOS by over 85% just in the nodal distribution. Considering that the nodes are also managed by a large distributed governance mechanism is yet another level of decentralization.

In Phase 2 of the Hashgraph node distribution, additional nodes will be onboarding to expand the network distribution, far greater than the EOS network, until Phase 3 when widespread global node contribution will occur to a full open access for all users. This will likely allow mobile phone users to join the network, secure the network with more decentralization and earn fees in the process. The addition of Phase 3 users in the node topology of Hashgraph should ultimately lead to greater distribution of hbar coins since all users can earn equally. With these developments, there is no doubt at all that the Hedera Hashgraph public network will be as widely distributed as possible for a DLT.
Hedera Nodes


Hashgraph is a Private Network: In August 2018, the hbar coins of the Hedera network were minted and the first public distributed ledger technology built on the Hashgraph algorithm was initiated. Before this time, the small private company of Swirlds, Inc. had patented and developed the Hashgraph algorithm. The confusion of Hedera and Hashgraph was also born and will be explained. Many media outlets in  2017 and 2018 completely misunderstood this two-part distinction and gave much negative press about the ‘fact’ that Hashgraph is centralized and private and not a worthy competitor to bitcoin or Ethereum. However, it is clear that Hashgraph represents the consensus algorithm and that Hedera is the public implementation of Hashgraph with an irrevocable license in perpetuity.

Swirlds, Inc. on the other hand is the private company that developed Hashgraph and has even implemented the Hashgraph in private use for corporations that do not wish to use a public DLT. The confusion of this should be dispelled in understanding that a common algorithm can be deployed in public and private settings without infringing upon one another. Hedera is the public DLT of Hashgraph, and Swirlds, Inc. is a private entity that can deploy private ledgers for industries not requiring a public-facing distributed ledger.


Conclusion: The fact remains in the discussion above that decentralization in cryptocurrency is an evolving term with a spectrum of possibilities. In order to be truly decentralized, all a system has to have is no single central authority. However, the degree of decentralization is much harder to determine and, in the absence of rigorous analysis, is merely subjective. By all objective standards, Hashgraph is a decentralized, distributed ledger technology with a multinational, multi-sectoral governance structure with nodal topology greater than some of the top cryptocurrencies in coinmarketcap.

Moreover, Hashgraph is also patent-protected as a network stabilizing feature in order to permit large enterprise adoption, in light of the market-confusing dynamics of network forks. The easily demonstrable problems of network bifurcations with bitcoin and Ethereum have shown the large-scale adoption risks that are incurred by the dilution of coin market share, brand dilution, user confusion and enterprise fears of additional expenses with each new platform split. In the design of Hedera is a fourth generational distributed ledger technology that has incorporated all the trials and errors of the cryptocurrency market into one solid composite solution.

Hashgraph is fast, fair, secure, stable and governed. This combination of technical superiority with first-in-class governance appears worthy to hold all the world’s wealth and intellectual property. It will take time to prove the claims of the Hashgraph whitepaper and governance. However, successful execution of a DLT network with these features could not only disrupt the cryptocurrency market as a whole, but the world and all its public and private sectors of commerce as the dominant future internet layer of trust.

Ħello Future.