Hashgraph for dummies.
An Introduction.
This blog is mainly about NFT art projects in the Hedera community and I thought it would be important to touch on how hashgraphs are different from blockchains and how they enable every artist to participate in what we call the emerging metaverse.
You might be an artist thinking about uploading your own works on a decentralized network or just someone, who is curious about Bitcoins and why there’s suddenly art on it. This is a crash-course, so tighten your seatbelt.
Understanding Granddad - Bitcoin
Generally speaking, all these hyped crypto coins are tied to their own network of computers, like a software that runs on a lot of processors simultaneously. The Bitcoin network was the first, and after that a lot of developers programmed and launched their own networks, split off from Bitcoin, or just ‘recycled’ Bitcoin’s code. There are hundreds of these first-gen crypto projects, the majority of which died, but some still exist and you might have heard of them, like Dogecoin, Litecoin, Bitcoin Cash etc.
These networks, regardless of whether you think Bitcoin is worthless, have one purpose: bookkeeping without trust. Bitcoin and similar networks are gigantic lists of who has ‘paid’ whom how much. This is what we call a ‘ledger’.
Instead of entrusting an accountant or a bank to honestly continue this ledger, Bitcoin uses ‘proof of work’ where computers race to calculate difficult cryptographic numbers to attach another ‘block’ to the ledger. Everyone else validates this calculation and in this way, the network reaches consensus on how the ledger should be continued.
The advantage about proof of work is that it’s very resistant to tampering, because you have to compete with physical hardware. The disadvantage is, that proof of work is very slow and it’s very difficult to bring through a lot of transactions.
Currently, Bitcoin can natively push through 7 transactions per second (TPS).
How consensus became a problem.
Naturally, developers tried to overcome the disadvantages they were facing with proof of work, first by modifying the original consensus algorithm to make it faster, then by creating networks that relied on proof of stake instead.
Proof of stake validates the continuation of the ledger not through calculations, but by letting coinholders of this network vote. The guy who owns a lot of a currency has everything lose if the network becomes corrupted, so he gets the most votes to decide how the ledger should be continued - he is a stakeholder.
This issue is at the bottom of every discussion about which blockchain is best at solving the blockchain trilemma of security, scalability and decentralization.
For hundreds of years we recorded transactions by bookkeeping in chronological order and such systems are error-prone as well as tedious to verify by nature. Still, to keep everything running, we are more or less forced to trust institutions and private entities (like banks or the state) to keep our records correctly.
If I had an apple tree in my garden and you were to take an apple from there, even though this apple would be in your possession, the whole village would agree that you did not have ownership.
With this in mind, you might have realized that unchangeable decentralized ledgers are a powerful idea, since they make it possible to provide a perfect certificate of ownership without relying on trust.
Ethereum and smart contracts.
The next generation of blockchains went even farther than that and developed smart contracts. These smart contracts are like dormant programs you execute by paying a fee. Every interaction, too, will be forever stored on the ledger. Now everyone can take a look at the chronological events and verify your interaction with that specific smart contract happened.
I hang out a sign: “$1 per apple.” You come along and drop $1 in my bucket. An apple falls from the tree. It’s delicious. “Did you pay for that apple?”, the neighbors might inquire. “Go ask the tree.”
Ethereum (Vitalik Buterin) was one of the first decentralized networks to roll out this feature and as such captured a lot of the crypto market share.
There’s still a huge problem here. Ethereum is running on proof of work consensus. While the tree will tell everyone with 100% honesty that you paid for that apple, the story actually goes more like this:
I hang out a sign “$1 per apple”. You come along and drop $1 in my bucket.
The tree bewilderedly looks at the $1 bill. “This is not even enough to pay for my water, please throw in a couple more dollars, kind ser.”
Fair enough, you think, $1 really is cheap for a fresh apple, and you haven’t eaten all day! So - you top it off with a $5 bill.
Half-heartedly the apple tree shakes a branch, but the thud of a falling apple is nowhere to be heard. ”I’m so sorry”, the tree smirks, and continues with an innocent voice: “Your transaction didn’t go through. Maybe try it with twenty dollars more and I can guarantee you an apple.”
As you head down the street, you take an angry bite from your overpriced fruit. “What an idiot.” you hear the neighbor’s kids shout after you. You should have bought it from the supermarket, where they don’t have talking trees keeping the books.
The blockchain networks are nowhere up to par with centralized competitors. It’s cheaper to send money from one bank to the other, compared to sending US-Dollar pegged tokens on Ethereum or a similar network, for example.
There’s more problems. Some networks shut down from too many requests, some succumb to attacks, some are outright scamming you and others are still relying on human trust. Even Ethereum’s founders have realized that proof of work isn’t going to cut it and want to move over to proof of stake, which in this case will make Ethereum more scalable, but also less secure.
If you’re the one to have this kind of money tree in your garden, though, you’re most likely hesitant to get rid of it.
To recap:
Blockchains are decentralized ledgers that record and store transactions.
Historically, the idea of ownership is tied to trusting someone else to keep the books.
The fees and the blockchain trilemma make it difficult to use blockchains in any setting and exclude a lot of people, who would otherwise be interested in using decentralized ledgers.
Everyone thinks you’re stupid for paying Ethereum fees.
Blockchains and Hashgraphs
So, we’ve had it about greedy trees, let’s go back to being a little more technical.
We want a decentralized ledger that is reliable, secure, decentralized, scalable and fair. This is where the hashgraph comes in.
A hashgraph works with proof of stake, but it doesn’t have blocks it has to link together expensively. Instead the nodes are sending messages to each other. This is the gossip-to-gossip protocol, and like a rumor, it spreads (exponentially) faster and faster.
If I say ‘pink elephant’ to ten of my friends and they each tell ten other people, 111 people will know about the pink elephant!
Now, instead of just saying ‘pink elephant’, the node broadcasts “Account 0.0.1234 wants to send ‘pink-elephant-coin’ to account 0.0.5678. It’s 6.48pm.” Additionally, it includes your signature, a cryptographic guarantee that it was you who composed this message, as well as another two crypto-guarantees (hashes) of a message the node has sent and of one it has received.
These small packets get randomly relayed in the network and if we were to show when which messages were sent and received graphically, we will end up looking at a hash-graph.
With this information the nodes can now do ‘virtual voting’, which will make it possible to reach consensus on the chronological order of messages “for free”. I will not explain this further, except for pointing out that this method of reaching consensus is faster, safer and more energy efficient than what has been implemented with blockchains so far.
It also is fair in the sense, that whoever sends the message out first, comes first. A lot of users are familiar with front-running. It’s also a thing in the stock market, called high-frequency trading. That’s when someone pays more to come first. That’s not really fair, is it?
Just like a blockchain, the hashgraph is a distributed ledger technology, but the way we arrive at the agreement of ordering and storing information is different and so this decentralized ledger has different properties too.
Blockchains and hashgraphs both utilize cryptography, but have different means of reaching consensus.
Blockchains and hashgraphs both are distributed ledger technologies (DLTs)
Ethereum and Bitcoin are blockchains.
Hashgraphs also use proof of stake but it is implemented differently.
But: Hashgraphs are not blockchains.
As a consequence, this innovative method of reaching consensus enables a hashgraph to push through a lot more data much faster, as opposed to blockchains where the next block is added with a lot of computational effort. It also is asynchronous byzantine fault tolerant. (big words for saying it’s hard to hack or corrupt)
You might have seen server farms and computer setups to ‘mine’ fractions of Bitcoins (or any other blockchain really), which is not a thing with a hashgraph. In fact, currently a transaction on the Hedera hashgraph uses even less energy than a VISA transaction. Even with the little energy Hedera hashgraph uses, it makes the effort to be carbon negative.
In short: Leemon Baird invented the hashgraph and solved the ‘blockchain trilemma’.
How much for a metaverse?
Without going deeper, just think of NFTs as coagulated or commodified art that can be sold. It’s the apple story all over again. Up to now, a lot of artists were barred from participating in this marketplace, simply because they lacked the money to mint their collection. The costs to mint on Ethereum can be wildly different. Cheaper on the weekends, more expensive during the week— 70$ for one mint are not unheard of, sometimes touching mid-three figures. The fees to put them for sale on an online market place are not included.
As you can imagine, minting and selling an NFT collection on Ethereum costs a fortune compared to some other blockchains.
Still, Hedera hashgraph establishes itself as the most accessible network to do this, where creating a collection ($1.00) and minting ($0.05) becomes affordable to almost anyone living in industrialized parts of the world. You can already find small artists getting their toes wet in this emerging metaverse.
You spot a sign in the orchard. “Five cents for an apple.” As you reach for your wallet, a breeze awakens the leaves.
A dollar can go a long way.
None of this is financial advice. There is no guarantee that links to other sites are correct. Please check for yourself to avoid scams.