We have already heard the term blockchain and cryptocurrency which caught up real quick this past year through word of mouth just to earn money at an exponential rate. But what’s actually behind it and how hashgraph will continue the legacy of blockchain in the future? Let’s find out. But before we talk about hashgraph, a brief about blockchain and its working will help in better understanding of the hashgraph and how hashgraph can improve the drawbacks of the current blockchain platform on which cryptocurrency are based.
When Satoshi Nakamoto was creating the first ever cryptocurrency, bitcoin, he had to find a way to transact between people without involving a third party. For example, if A wants to send money to B, the bank will debit the particular amount from A’s account and credit it to B’s account. Here, the bank is the third party. To remove the involvement of the third party, he created proof of work (POW) system.
Proof of work is a method to determine how the blockchain reach consensus. In other words, how can the network be sure that the transaction is valid or not? POW system is based on the advanced form of mathematics called ‘cryptocurrency’. Cryptocurrency uses mathematical equations to validate transactions. In the Bitcoin network, every time a transaction is sent, it takes about 10 minutes for the bitcoin network to confirm it and ‘block’ is created. This block is encrypted with a cryptographic hash equation. For the Bitcoin network to achieve verification without a third party, somebody must use their computational power to solve a cryptographic hash equation, otherwise known as Proof of Work. However, Proof of Work is not a fair system, because those with the most powerful and expensive hardware devices will always have the greatest chance of winning the reward.
As a result, other consensus mechanisms have been created, with one of the most popular being the Proof of Stake model. Proof of Stake was first created in 2012 by two developers called Scott Nadal and Sunny King. Proof of Stake model uses a different method to reach consensus in the network. It still uses cryptographic hash equations to verify transactions in the block but instead of getting a reward by solving equations first, the person who staked more coins in the network has chances to earn more. POS is faster than POW but POS makes rich richer because those who have more money will always have the best chance of winning the reward.
To counter the disadvantages of POW and POS models, new technology has been discovered which is way faster than blockchain and is fair to everyone participating in the network – Hashgraph.
Hash graph has got a lot of attention recently. They claim to be very fast, secure, fair and be able to handle over 250,000 transactions per second. It is a new way of reaching consensus in a decentralized network through a voting algorithm in opposite to proof of work and proof of stake algorithms. The whole idea with a voting algorithm is that we have different nodes in the network and they all tell each other what they think has happened. This also means that transactions will be handled asynchronously as it doesn’t have to wait for a bunch of other transactions for validation. The issue with the voting algorithm is bandwidth because each node is sharing their thoughts for every transaction i.e. a two-way communication between nodes. So, voting algorithms are very good in theory as it is fast, secure but in practice, it is impossible because it is just so many messages that the network has to handle.
However, Hashgraph really wants to be a voting algorithm because of its potential. So, Hashgraph is built in such a way that it has all of the advantages of voting algorithms without consuming large bandwidth which led to the development of something called a gossip protocol. Gossip Protocol simply means every node is just randomly picking a neighbor node and telling them everything they know. Eventually, all the nodes in the network will get the information. Mathematically, this will converge and the information will spread. Note that the shared information not only talks about the transaction but also about when and which node told about the transaction. So, when we have a situation going on stated above, something called virtual voting can happen.
In Virtual Voting, a node can deduce vote for another node because the other node shared its viewpoint. The node knows exactly what the other node is going to vote for. Therefore, information spreads faster than the voting algorithm, everyone will have the entire set of information that is on the network and this is how Hashgraph claims to have 250,000 transactions per second.
It is clear that there are numerous benefits, such as speed, fairness, state efficiency, and advanced performance but everything has its demerits too and one of the demerits of hashgraph is that it is volatile to possible corruption. If a bad node passes on the wrong information about the other node or deduces a wrong vote for other nodes deliberately, it can make the whole network corrupt. Also, One of the major demerits of Hashgraph is that it is a patented technology and is developed by Leemon Baird – Founder and CTO of Swirlds Inc. (Link – https://patents.google.com/patent/US9646029)
It’s interesting that it’s disguised as a “distributed database”. This is why I consider Hashgraph to be decentralized centralization. What it means is that the algorithm Hashgraph uses is decentralized in theory and in practice, but there certainly will be bad actors trying to control the technology, simply because they own it. It’s their software by law, and no one else has access to it or can see into it. This opens a whole slew of undesirable corruption.