What Is Hedera Hashgraph and How Does it Work?

What Is Hedera Hashgraph and How Does it Work?

There are a lot of blockchain and cryptocurrency-related projects out there, but they aren’t all cut from the same cloth. Hedera has a cryptocurrency, and it isn’t exactly a blockchain, but it’s something that you might have heard of or might be hearing about soon. Either way, it’s definitely worth getting to know.

What Is Hedera?

Hedera is a public network with its own cryptocurrency, but it doesn’t use a blockchain. It also supports non-fungible tokens (NFTs) but doesn’t use smart contracts. It is “decentralized” like Bitcoin, but it also has a public governing body like Ethereum.

Hedera strives to be secure and scalable while being faster and more energy and cost-efficient than other solutions. Hedera is owned and governed by twenty-five companies, including Google, IBM, LG, and Deutsche Telekom. It calls itself a “third-generation public ledger” that builds on the ideas and technologies of those other systems and has its own features.

Related: How Does Cryptocurrency Work and How Can You Invest?

What Is Hedera Hashgraph?

So, how does Hedera work without using a blockchain? It uses a consensus algorithm called a “hashgraph.” The hashgraph is a public ledger that tracks time-stamped transactions between nodes on the network. That sounds a lot like a blockchain, but there are a few key features that make it different.

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Related: What Is Distributed Ledger Technology (DLT)?

How Hedera Hashgraph Works

In the hashgraph system, transactions are contextualized by their place in order among other transactions. That’s compared to a blockchain where transactions are contextualized by their place in relation to the blockchain, meaning that the blockchain needs to be in perpetual production regardless of the traffic happening on that blockchain or with that cryptocurrency.

Further, on the hashgraph, these transactions are only sent out for confirmation by active nodes instead of all nodes on the network. This makes for a more scalable network, but it also saves energy and time. Transactions are prioritized by “proof-of-stake” meaning how much of the HBAR cryptocurrency the users hold.

Related: Proof of What? Key Crypto Mechanisms Explained

What Does Hedera Hashgraph Do? What Companies Use Hedera Hashgraph?

Like all crypto protocols, the hashgraph supports transactions made with the protocol’s native token. In the case of some cryptocurrencies, like Bitcoin, that’s all that the protocol does.

If you’re up-to-date on NFTs, you know that crypto projects can be used to track anything associated with a digital identifier. Avery Denison is a materials science company that has used the Hedera hashgraph to create a “connected products cloud” by applying these digital identifiers to physical items allowing them to be tracked as they move through supply chains.

Hedera is also used for NFTs. The Hashgraph enables the ARIA Exchange, a carbon-negative NFT platform run by the ARIA network, which is also partially backed by IBM.


ServiceNow uses the Hedera hashgraph in the cloud infrastructure that enables the company’s digital workflows. Instead of tracking physical items like Avery Denison, or digital items like the ARIA Network, ServiceNow uses the hashgraph to maintain a record of correspondence between entities that may be in direct competition with one another.

Similarly, Safe Health Systems Inc. uses the Hedera Hashgraph to safely and privately store patient information for users of its platform which is trusted by Mayo Clinic, Arizona State University, and others. Further, while Hedera doesn’t use smart contracts, smart contract systems like Chainlink can use Hedera to make the platform even more versatile.

Related: What Is a Non-Fungible Token (NFT)?

How Do I Invest in the Hedera Hashgraph?

You can purchase Hedera’s native token, HBAR, through a Hedera account or from a number of other wallets and exchanges. However, most people who benefit from the hashgraph may never interact with HBAR directly.

Hedera’s tokenization services mean that many applications built on the Hedera network use their own coins, including NFTs and utility tokens that are never traded like regular cryptocurrencies.

Please remember that crypto investments can fall just as they can rise and that you should never invest more money than you can afford to lose. Always research before investing any amount of money, crypto or not, and remember that MUO is not a financial advisory service.

Can You Mine Hedera Hashgraph?

Right now, you cannot mine Hedera as all nodes are run by the Hedera Governing Council. Once that council reaches thirty-nine members, non-council members will be able to run nodes and they will be rewarded for that work with HBAR similar to mining on other cryptocurrencies.

So, is the Hedera hashgraph decentralized? The answer is “sort of.” It is decentralized in so far as no one person runs the show. However, it is not currently at the state of being entirely run by its users, though that is Hedera’s end game.

Can You Stake Hedera Hashgraph?

Yes. Even though you cannot currently mine Hedera, you can use HBAR purchased on exchanges to stake—to increase the weight of your transactions on the hashgraph.

Hedera also has a “proxy staking” system that allows holders that don’t operate their own nodes to stake their HBAR to someone else’s node. Proxy staking isn’t currently available, but it is on Hedera’s roadmap.

Will Hedera Become an Ethereum Competitor?

The Hedera network has more to it than that, and the project continues to grow and evolve. But, as you continue to follow Hedera, you should have enough info and understanding to get you started.

Whether or not Hedera and the Hedera hashgraph will eventually compete directly with Ethereum isn’t yet clear. However, the scalable technology is impressive and allows for a much higher rate of transactions than currently available to the Ethereum blockchain. All of that could change with the rollout of the Ethereum 2.0 upgrade (scheduled for 2022), which will see Ethereum switch from proof-of-work to proof-of-stake. The move should drastically increase Ethereum’s transaction potential while reducing its gas fees.



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