Cryptocurrency startup Hedera announced plans to launch a new virtual currency platform in the second half of this year. So far, Hedera has raised $18 million in funding from accredited investors, including cryptocurrency holding company Digital Currency Group.
The Hedera Hashgraph Platform, formerly known as Hashgraph, is not built on a blockchain, the technology that underpins most crypto networks. It uses a different mathematical approach called a directed acyclic graph (DAG). CEO Mance Harmon says it will be able to process hundreds of thousands of transactions per second. By comparison, Bitcoin typically processes less than 10 transactions per second, and Ethereum usually processes less than 25.
Hedera cofounders Mance Harmon and Leemon Baird first began working together in 1993 as part of a five-person team that built machine learning algorithms for the U.S. Air Force. Harmon went on to manage a U.S. government software program for missile-defense systems before founding two cyber security startups. In 2015, he and Baird cofounded Swirlds, which builds private blockchains for large companies, and they started working on Hedera hashgraph last fall. Baird, who completed his computer science Ph.D. at Carnegie Mellon in less than three years, invented Hedera’s algorithm.
For Bitcoin and Ethereum, slow processing speeds and high transaction fees have prevented them from being a viable option for handling everyday payments. It can take 10 minutes for a bitcoin transaction to settle, although experts argue that Bitcoin and Ethereum’s speeds will improve dramatically with new technologies that will be layered on top, such as the Lightning Network. They compare the current state of Bitcoin with the early days of the Internet, when dial-up access was slow, but additional technologies were added to make improvements.
Hedera thinks it can reach that destination faster and with very low transaction fees. While Bitcoin’s software is structured as a string or chain of transactions, Hedera hashgraph is a graph of transactions that “can process in parallel, as opposed to linearly,” Harmon says. “That means we can natively support micro transactions or micropayments.” Hedera will also support smart contracts—code that triggers an action if certain requirements are met, and that serve as the lifeblood of crypto networks like Ethereum—and file storage.
Other crypto platforms that use the DAG mathematical approach are Byteball and IOTA. Last year, researchersfound security issues with IOTA, which led to a software update. Since then, IOTA has contested some of the researchers’ claims. Harmon says Hedera takes a different approach to consensus—the way transactions are finalized—compared with IOTA. He says Hedera has achieved “asynchronous Byzantine fault tolerance,” a security characteristic that means a network will still work properly even if some of its participants try to maliciously attack it. “We’ve achieved the gold standard for security,” Harmon claims.
Emin Gün Sirer, an associate professor at Cornell and co-director of the Initiative for Smart Contracts and Cryptocurrencies, isn’t sure how much trust can be put into Hedera’s platform. “The correctness of the entire HashGraph protocol seems to hinge on every participant knowing and agreeing upon N, the total number of participants in the system,” he tells Forbes. “This is a difficult number to determine in an open distributed system.” Hedera cofounder Baird disagrees, saying, “All of the nodes at a given time know how many nodes there are.” Until Hedera’s algorithm has been battle-tested in the real world, it’s likely too early to tell if its security will meet a gold standard.
Another unique aspect about Hedera is its approach to corporate oversight. Harmon says he has recruited 39 companies from a wide range of industries, including big technology companies and law firms, to serve as Hedera’s “global governing council.” Each of the 39 companies, including Harmon and Baird’s startup Swirlds, will own 2.6% of Hedera and will help the startup make strategic decisions. Harmon declined to name any of the other companies that will be on the council, but says they will be “global blue chips.” He thinks this council will add legitimacy to Hedera and help it gain mainstream adoption.
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