The possibilities that distributed ledgers present have overwhelmed many industries. Distributed ledgers solve many problems that fundamentally constrained the current system. This has led people to hail distributed ledgers as tools for ushering in a new era of growth and transacting.
Distributed ledgers are a method of recording and storing data using cryptography to ensure the safety of the data. It is a system where a group of computers come to an agreement on the order of transactions. Distributed ledgers are characteristically decentralized, secure and immutable. When compared to a centralized database, they are faster and cheaper. They work in way where two parties that transact don’t need to trust each other as the system is tamper proof. Unlike a centralized database, a distributed ledger is less vulnerable to failure should there be an attack as multiple parties are coming to a consensus on the transaction order.
There are essentially four types of distributed ledgers: Proof-of-Work, Proof-of-Stake, Leader Based and Voting based. The essential difference between them is around how they ensure everyone knows of the transactions that have taken place and are on the same page. Each of these use a distinct mechanism to help attain consensus.
There is a fifth type of distributed ledger that has emerged called Hashgraph. It is developed by a company called Swirlds. Unlike Blockchain, which creates an immutable version of history through blocks, Hashgraph relies on the ‘gossip protocol’ to ensure that members sync with each other. In the gossip protocol, each member calls another member at random to sync with them. The diagram below illustrates how the sync happens. The first line from B to D shows B syncing with D, thereby updating itself with everything D knows. D then syncs with B, updating itself. As this process goes on, everyone knows everything as transactions are time stamped. This is faster than the Blockchain which requires lot of computation. Security is ensured by adding a hash of recent events, there by linking the whole system. Blockchain uses the protocol to disseminate information regarding blocks.
The Hashgraph Advantage
Blockchain is the most famous distributed ledger, but is an example of a type of distributed ledger. Bitcoins is one of its use cases. We now have banks, stock markets, insurance companies and others in the financial services space exploring how to harness this technology to become more efficient. A previous article by the same author on Blockchain could be referred to get a deeper insight into its workings in the financial space. Other industries have also been actively exploring the use of Blockchain to enable faster, efficient and economical transaction. It is based on the Proof of Work mechanism where transaction ordering is agreed upon based on solving certain mathematical problems that require large computational power. It is estimated that the average energy used by the bitcoin network surpassed the annual power consumption of almost 159 countries. There are many other disadvantages present in the system.
Since consensus is arrived at by randomly syncing with others, Hashgraph doesn’t require large computation power unlike Blockchain. This lowers transaction cost significantly as investment and cost are reduced. As there are no delays caused by computation and other steps, this is also significantly faster. It is also Asynchronous Byzantine Fault Tolerant (Ascynchronous BFT) in the strong sense that it can overcome internal attacks as well as external attacks on the network. No one can influence the transaction order as there is no mining. Hashgraph also has significantly larger transaction capacity than Blockchain. Blockchain can process 7 transactions per second, whereas Hashgraph can process over 250,000 transactions per second. This enables scalability.
Is it the end of Blockchain?
Hashgraph is a really amazing advancement in technology. But does it spell the end of Blockchain? Perhaps not. Hashgraph is a significantly superior distributed ledger. It is a system without the shortcomings of Blockchain. Many have already invested heavily in developing Blockchain solutions to many of their bottlenecks. We must also remember that with all the imperfection, the Bitcoin network continues to work without being compromised. It goes to show that Blockchain is a tested and proved technology. While those who have developed Blockchain solutions will continue with it, the ones who are still exploring are likely to actively explore Hashgraph.
-Contributed by Bhargav Dhakappa
Picture Credits: jabil.com