Is every cryptocurrency based on a blockchain? In fact, no. Today, there are at least two technologies that are as decentralized and secure as blockchain but aim to improve it to make it more stable and scalable. Hashgraph is one of these technologies, and the first company to implement it was Hedera Hashgraph. The other tech is DAG — directed acyclic graph, implemented by IOTA.
Hedera Hashgraph crypto allows creating decentralized applications that take benefits of the hashgraph technology. Let’s take a look at how it is different from the blockchain.
Firstly, let’s see how hashgraph and blockchain are the same. These are both distributed databases that consist of blocks. Anyone can create transactions that are then put into blocks and distributed across the network.
In a blockchain, there is only one single chain of blocks. If two blocks are mined at a time, one gets discarded by the nodes, and the other one gets included in the blockchain. The network has to agree on only one chain of a given blockchain.
A hashgraph doesn’t look like one single chain of transactions. Its nodes don’t discard any transactions, so its history looks somewhat more like a stave in sheet music: a few connected lines where many kinds of events may happen. Such architecture is more flexible and allows for faster, cheaper, and timestamped transactions.
The project defines itself as the “trust layer of the Internet.” Hedera Hashgraph was designed to introduce a decentralized, secure, fair, and fast public distributed ledger that could be massively adopted. Any kind of company, startup, creator, or a general user can benefit from the technology. Hedera-based dApps consume little bandwidth, have high throughput, and ensure great speed. The network is built on the PoS consensus algorithm.
In Hedera, there is a Consensus Service (HCS) that allows developers to build decentralized applications on Hedera’s hashgraph. With HCS, dApps leverage the speed, security, and fair ordering guarantees of Hedera’s infrastructure.
With HCS, clients can send messages to the hashgraph for time-stamping and ordering. These messages can contain information about payment settlement, user engagements in an ads service, or the origin verification in a supply chain. Once sent, these messages achieve consensus in the network and get time-stamped. This creates tamper-proof and verifiable logs of transactions, allowing network participants to track the activity in an application in real-time.
Hedera Hashgraph token, or HBAR, is the internal cryptocurrency of Hedera Hashgraph. It serves two purposes: fuels the transactions in the network and ensures its security, which is achieved through HBAR staking.
- Fuel. In Hedera Hashgraph, the HBAR token serves as a medium of exchange. Developers leveraging the advantages of Hedera pay to the network with HBAR tokens. The services paid include running smart contracts, file storage, money transfer, and building businesses with peer-to-peer payments.
- Security. Hedera users staked HBARs to maintain the integrity of the network. Staked HBARs give a voting right, and through weighted voting, malicious agents are stopped from affecting the hashgraph consensus. To have such influence, an agent would have to possess over a third of all HBAR tokens, which is close to impossible.
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As you have seen from Hedera Hashgraph’s example, not all cryptocurrencies are based on blockchains. However, hashgraph is not the only alternative to the most widespread type of distributed ledger. The other one is DAG — Directed Acyclic Graph.
One of the most well-known projects that leverages DAG is IOTA. With acyclic graph technology, IOTA aims to build a truly scalable internet of things.
A directed acyclic graph is a distributed ledger in which there are no blocks: the structure of data is fundamentally different. In a DAG, there are separate transactions (vertices — the circles) connected with edges (arrows).
One transaction builds on top of another: it’s validated by the network and gets added to the ledger. Each transaction contains information about the previous one, like in blockchain, where each block has the hash of the previous one.
DAG was proposed as a scalable alternative to blockchain. Look at the Bitcoin or Ethereum blockchain — they frequently get congested to a level where fees rise enormously and much computer power is needed to process transactions. In DAG, the network’s throughput is much higher.
IOTA is built on top of a DAG that is called the Tangle. Its speed and scalability provide appropriate infrastructure for building a high-throughout internet of things. Without miners and fees, IoT finally has a chance.
In IOTA’s internet of things, machines of all kinds can exchange information with each other, making a human’s life more seamless. Cars can pay themselves for parking and communicate with other cars. Supply chains and smart manufacturing are the industrial aspects of IoT — on a smart factory, all machines can work coherently and hence efficiently by leveraging DAG. In healthcare, there’s also a place for IOTA — the Tangle can monitor a person’s health, allow for immutable databases for clinical trials.
Each of the technologies shows potential, and it seems that it’s more to its concrete implementation than the technology itself. For instance, the Ethereum blockchain has been widely criticized for its low throughout and high fees, but with the transition to Eth 2.0, it’s about to become hundreds of times more efficient. The same blockchain technology put differently shows significantly better results.
We’ve seen hundreds of blockchain-based cryptocurrencies, but only a few leverage hashgraph and DAG. We’ll keep track of the field, and maybe the alternative distributed ledgers will broader show their potential in the future.