HBAR

Most recent update: [June 26, 2023]   

What is the Hedera hashgraph? 

Hedera (HBAR) and its blockchain, the Hedera hashgraph, is a public crypto network which serves as a platform where anybody can create and transact decentralized applications (dApps). This includes any organization, where multinational or even a start-up, to build and deploy their own scalable dApps. What sets the Hedera hashgraph apart from its decentralized platform peers is that it has a lightning quick transaction time, along with being one of the most sustainable networks in the industry with a drastically reduced energy footprint. The tradeoff is that its consensus mechanism relies on a set of specially approved nodes or validators. Additionally, Hedera hashgraph is owned and governed by a slew of corporations, including Google, IBM, Boeing, LG, T-Mobile, and more. 

The Hedera hashgraph is powered by its derivative token HBAR; this token doubles as both being the fuel for executing functions on the platform, including smart contracts, file storage, and regular transactions, while also being used towards the network’s security as part of its proof-of-stake (PoS) consensus mechanism. 

Who is behind Hedera? 

The Hedera hashgraph was created by Dr. Leemon Baird, a computer scientist, and Mance Harmon, a tech executive. Dr. Baird has over a decade of experience in various computer science and research roles, including acting as the senior research scientist at Cyberspace Research’s Academy Center. Harmon on the other hand has over two decades of experience as an executive at prominent firms. Together, they founded a company called Swirlds in 2015 – this would eventually become Hedera. 

Originally launched as a private network, Hedera plans to allow more entities to join the network until it is finally made public at a later date. 

How does it work? 

Although we referred to the Hedera hashgraph as a blockchain, it is a different form of technology. Like a blockchain, a hashgraph is a consensus mechanism where the community of users agree on a transaction. Where a blockchain discards duplicate blocks during consensus, a hashgraph takes care to ensure that all blocks are used, resulting in fewer wasted cycles for the network’s nodes. Furthermore, transaction fees cost one-thousandth of a cent, and Hedera claims that it can process 10,000 transactions per second. Some of the major network services that it provides includes an efficient token minting service of fungible and non-fungible tokens, smart contract tools to develop dApps, and a decentralized file storage mechanism. 

Powering this network is the HBAR token, Hedera’s native cryptocurrency, and it is used towards dApp development as well as to maintain security. There is a maximum supply of 50 billion HBAR, of which 20 billion are currently circulating as of April 2022. Hedera releases reports on the distribution of HBAR every quarter, which you can find here, and it is planned that the tokens will be released regularly over the course of 15 years. 

Like many other projects that feature a PoS consensus mechanism, HBAR holders are free to stake their tokens in a few ways on the network to help with its functionality. One of these is called “process staking,” in which a user can stake their tokens to one of the approved nodes on the network. By staking HBAR with another node, users are granted the potential of earning a slice of the rewards and fees these nodes receive from processing a transaction on the Hedera hashgraph. Any transactions that happen on the network, either through the use of dApps or the minting of tokens, require network fees that are paid in HBAR. 

HBAR can also be used for governance, mainly in the form of voting on transactions upon reaching consensus.  

Security 

Hedera uses a variation of the proof-of-stake consensus mechanism known as the hashgraph to secure the network. We’ve mentioned that users can stake their tokens with an approved node to help with the validation of the network. Unlike other PoS-based networks, however, these nodes are run by major organizations like Google and IBM, part of a governing council consisting of 39 members. There are two types of nodes: consensus nodes determine transaction ordering and history, and mirror nodes relay this information to other stakeholders in the network. As of the time of writing, Hedera’s nodes are managed by either Hedera itself or the governing council members, but a permissionless system is planned for the future.  

The goal of utilizing the hashgraph and relying on major nodes ensures that Hedera achieves asynchronous Byzantine fault tolerance, meaning that the network is able to guarantee timing and the order of a set of transactions, even if some of the data is delayed or partially lost.  

Drawbacks & Risks 

The hashgraph and its consensus mechanism ensure that the network can achieve 10,000 transactions per second at a fraction of the resource usage of other competitors. The issue is that this means the network is highly centralized, as consensus must be gained through a set of nodes approved by Hedera themselves. Not only that, but the governing council of the network is comprised of some of the largest corporations on the planet, some of whom, such as Google and IBM, are premier technological organizations with a major monopoly on data services. For many, this can be seen as a negative as it is less decentralized than other competing platforms. HBAR itself only holds value for its utility on the network; like other coins, its price is beholden to the perceived usefulness of the network. Although Hedera is well-secured and offers some of the quickest transaction times of any platform, it faces stiff competition from well-established decentralized platforms like Ethereum or Cardano. As usual, it is recommended to ensure you understand the full utility of Hedera so that you can make an educated investment.  

Further reading 

To learn more about Hedera, the hashgraph, and what is achievable on its network, take a look at some of these useful resources: 

Hedera’s official whitepaper: https://docs.hedera.com/guides/ 

Hedera on Kraken: https://www.kraken.com/en-us/learn/what-is-hedera-hashgraph-hbar 

Hedera on Decrypt: https://decrypt.co/resources/hedera-hashgraph 

Hedera on TheBalance: https://www.thebalance.com/hedera-hbar-explained-5196834 

Hedera on SwissBorg: https://swissborg.com/blog/what-is-hbar 

Hedera on CoinMarketCap: https://coinmarketcap.com/currencies/hedera/ 

Due Diligence  

Prior to listing Hedera Hashgraph on the VirgoCX Platform, VirgoCX performed due diligence on Hedera Hashgraph and determined that Hedera Hashgraph is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:  

• The creation, governance, and location of Hedera Hashgraph and/or its primary development team; 
• The supply, demand, maturity and liquidity of Hedera Hashgraph; and 
• Legal and regulatory risks associated with Hedera Hashgraph.  

Statutory Rights under Securities Legislation 

VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.