Hedera Hashgraph vs Blockchain: Choose the Best One for Your Business

Blockchain, the technology behind Bitcoin and other cryptocurrencies, is one of the biggest innovations of the past decade. This revolutionary technology provides a way to securely store data using a peer-to-peer private or public network of nodes otherwise known as a distributed ledger system.

While Blockchain is the most popular distributed ledger technology, it isn’t the only one. Others like Hadera Hashgraph, which was introduced in the mid-2010s offer a different approach to distributed ledgers and promise to solve some of the problems associated with blockchain development such as speed and scalability. In this post, we will explore these two distributed ledger systems to understand their similarities, differences, pros, and cons. 

• Blockchain and Hadera Hashgraphs are two distinct technologies that solve the distributed ledger problem differently. 
• Hashgraph and Blockchain both store data on a distributed ledger database secured by advanced encryption protocols. 
• Hashgraph vs Blockchain differ in terms of their underlying architecture, consensus protocol, and security mechanisms. 

Introduction to Distributed Ledger Technology

Blockchain and Hadera Hashgraph are forms of distributed ledger technology. This is a database system where data are stored across multiple nodes (different connected computers) within a network.

In a distributed ledger system, each participating node stores a copy of the data, and all transactions stored on the ledger are synchronized. This means any changes made to the data must be updated instantly on all the participating nodes after they all collectively achieve consensus.

Overall, distributed ledger technology serves as the foundation for building decentralized applications characterized by peer-to-peer data exchange instead of centralized control. This type of system promotes transparency and limits the chances of fraud and malicious attacks by securing data with cryptography. It also streamlines processes and reduces the cost of database management. 

By adopting these technologies, blockchain companies enable the creation of decentralized applications, secure transactions, and trustless ecosystems, transforming traditional business models.

Understanding Blockchain Technology

Blockchain is a first-generation Distributed Ledger Technology. While the technologies and principles that contributed to its creation have been around for years, Blockchain was officially unveiled to the world with the launch of Bitcoin back in 2009. This technology is a type of ledger system where transactions are recorded in an immutable, public, and distributable way. 

As the name suggests, a blockchain network consists of blocks of data linked together like a chain. Each block contains a list of transactions and information about the previous one in the sequence. With each new transaction, a new block is added to the blockchain, which means all the blocks are linked chronologically. 

Since it is a distributed ledger technology, copies of the blockchain are stored on multiple nodes and updated simultaneously. This creates a centralized system, with no central authority or body governing it. Instead, the blockchain is governed by a consensus algorithm which may include a Proof of Work, Proof of Stake, and so on. This has given rise to the different types of blockchain technology protocols using different mechanisms to govern block creation. 

The blockchain is the underlying technology behind the most popular cryptocurrencies in circulation today such as Bitcoin and Ethereum. This revolutionary technology has also been used to create a variety of applications including e-wallets, social media apps, gaming, and eCommerce. 

Pros and Cons of Blockchain

Pros 

• Blockchain is practically immutable, which means the data stored on the blockchain cannot be altered or changed by anyone once it has been created, making it highly reliable. 
• It is decentralized and distributed across a network of computers, which makes it difficult for hackers to breach the system. 
• It is transparent, providing multiple users access to track the information stored on the blockchain. This is particularly useful for certain industries such as supply chain management where transparency is important. 
• All data stored on the blockchain are secured with cryptographic hashes and the identity of individual participants is protected. 
• By eliminating intermediaries, blockchain can reduce transaction costs.

Cons 

• Blockchain technology is quite complex. This makes it challenging to understand, set up and maintain.
• Since blockchain technology is decentralized, no individual entity is responsible for maintaining and ensuring the safety of the database. 
• Blockchain protocols are designed to handle a specific number of transactions per second. This can lead to problems with scaling and efficiency as the platform grows. 
• The consensus algorithm behind some blockchain platforms (such as Bitcoin’s proof of work consensus mechanism) consumes vast amounts of energy. 

Understanding Hashgraph Technology

Hashgraph is a distributed ledger technology that is considered a more modern alternative to Blockchain. It was created in 2016 by American computer scientist Leemon Baird. Unlike blockchain which stores data in blocks, Hashgraph data is stored in the form of a Directed Acyclic Graph (DAG). 

The participating nodes on a Hedera Hashgraph network decide on the validity of data using gossip about gossip protocol or virtual voting consensus algorithms. These two consensus systems are unique to the Hashgraph DLT. 

The gossip-about-gossip mechanism circulates data between all participating nodes on the network using a method similar to Chinese whispers, where the nodes share information with each other in no particular sequence.

The “gossip” message shared between the nodes contains specific details of a transaction including the timestamp, digital signature, and a cryptographic hash. Every instance of new information being shared, results in the information being shared faster compared to the previous instance. 

With the second mechanism, the participating nodes verify transactions in the distributed ledger by electronic voting. Based on the information they receive, each node is already aware of what the other node knows and can predict how the other participating node would vote. 

The unique design of Hashgraph DLT allows it to overcome many of the limitations associated with the blockchain such as transaction processing speed, fees, scalability, and even security. Although Hedera Hashgraph can also be used to build peer-to-peer payment systems like Bitcoin, it has other uses as well including the creation of smart contracts and other distributed applications. 

Pros and Cons of Hashgraph

Pros 

• Hedera Hashgraph claims to be even more secure than Blockchain. It uses a security protocol known as asynchronous byzantine fault tolerance (aBFT) to deliver high-level security for the distributed ledger system. 
• Hashgraph uses an advanced data structure that allows it to deliver faster transaction speeds than blockchain. It can process up to 10,000 transactions per second and offers a 100% success certainty.
• The fee for Hedera Hashgraph transactions is less than 1 cent for each transaction. This is quite low compared to blockchains like Bitcoin whose transaction fee is between $10 – $30. 

Cons 

• Hashgraph has been patented by Swirlds, which means it is not open-source like blockchain. 
• Since it is a relatively new technology, Hedera Hashgraph adoption is still quite low and the ecosystem is smaller compared to blockchain.
• The governance model is generally not as decentralized as traditional distributed ledger systems. 

Similar Features of Hashgraph and Blockchain

Hashgraph and blockchain are two completely different types of distributed ledger technologies, with Hashgraph created to improve on the blockchain framework. However, they do share a lot of similarities in how they operate and the results they deliver. Let’s look at some of the key features shared by these two distributed ledger systems. 

Decentralization 

Blockchain and Hashgraph are both distributed ledger technologies. This is a type of database where data is stored on a peer-to-peer network of nodes spread across different locations. Although the underlying architecture and consensus algorithm that controls these systems are unique, they both operate and are capable of transmitting data without intermediaries. This eliminates the need for any centralized authority or provides for the system to function. 

Transaction Authentication 

Both technologies have mechanisms to verify the identity of users and ensure transactions occurring between two different nodes are correct. This is known as the consensus mechanism, which determines how participating nodes decide on the validity of transactions.

The most popular consensus algorithm for blockchain is the proof of work or proof of stake mechanism. Hashgraph on the other hand uses gossip-about-gossip protocol and a virtual voting mechanism to authenticate data. 

Immutability 

In blockchain and Hashgraph systems, all data are synchronized across all the nodes on the network. This means each computer on the network stores a copy of the data. Once a new transaction is recorded by the system, it is difficult (almost impossible) to alter, meaning no one can change or edit the data once the transaction has been recorded. 

Transparency

Transactions on Hashgraph and Blockchain are recorded in a way that makes it easy for anyone to verify them. They both maintain a public ledger, which is basically a public record of all transactions that have taken place on the network. Since this ledger is accessible to anyone, public verification of information is possible on both networks. 

Different Features of Hashgraph and Blockchain

Structure 

One of the fundamental differences between blockchain and Hashgraphs is how they’re structured. Transactions on a blockchain network are organized into blocks, with each block chronologically linked to the one before it to form a chain (which is why it is called the blockchain). This sequential sequence of storing data impacts the speed of each transaction on the blockchain network. 

In Hashgraph, data is stored using a directed acyclic graph (DAG) structure. In this case, transactions are linked through a complex graph instead of a linear chain like you have with blockchain. This structure is less complex, leading to potentially faster transaction confirmation time. While Bitcoin processes just 7 transactions per second and Ethereum processes 15 transactions, Hashgraph Hedera can process over 10,000 transactions per second thanks to this unique structure. 

Governing Model

Most blockchain protocols have truly decentralized governance models. The administration of the blockchain network depends on consensus algorithms and community decisions made by all participating nodes on the network. 

With Hashgraph, the protocol is controlled by a governing council, which consists of a few selected organizations. This model raises concerns about the true decentralization model of Hashgraph since a lack of central control is one of the core qualities of distributed ledgers. 

Note that not all blockchain networks are open to the public, there are permissioned blockchain networks controlled by a few entities as well. However, as a whole, the blockchain is generally considered a better-decentralized network compared to Hashgraph.

Consensus Algorithms

Blockchain does not have a unified approach to achieving consensus on a network. Instead, consensus depends on how the platform is structured. This has given rise to several kinds of transaction confirmation methods including proof of work (where participating nodes prove to others that they have contributed computational efforts to the blockchain to verify the transaction) and Proof-of-Stake (where a node has to prove to others that it has contributed something of value to the network). Other popular blockchain consensus mechanisms include proof of elapsed time, leader-based, economy-based, and so on. 

Hashgraph only uses the Gossip-about-Gossip and Virtual Voting consensus mechanisms. In the former, a node shares information with another random node, which in turn shares the data with the next node until the entire network is aware of each other’s data. With virtual voting, each node is aware of all the other member node’s data and can predict what the other members will vote to arrive at a consensus. 

The Hashgraph consensus algorithm is generally faster and more energy-efficient compared to that of blockchain technology because it generally doesn’t require significant computing power. 

Fairness

Hashgraph has features aimed at improving fairness in consensus, but fairness in blockchain can vary. This is due to the consensus mechanism (the algorithm that determines who can validate transactions on the network). On blockchain networks, the nodes with the biggest stakes or highest computing power (miners) tend to have the highest power. They get to determine how transactions are ordered and processed and may even stop transactions. 

Hashgraph handles fairness quite differently. Nodes are allocated randomly and it uses a consensus time stamp to order transactions. This gives every node equal power to complete transactions. 

Security 

Both Hashgraph and the blockchain are very secure distributed ledger systems known for their robust security measures. However, their approach to securing the database is different from each other. Blockchain technology uses cryptographic techniques, which involve encrypting data with a complex mathematical algorithm known as a cryptographic hash.

Not only does this ensure the integrity of data and protect the user’s identity, but it also makes it easier to authenticate the validity of a transaction. Cryptographic hashing is also tamper-proof and it reports any attempt to manipulate data or DDOS attacks to the participating nodes. 

Meanwhile, Hashgraph uses an even more advanced encryption method to secure data. This method known as Asynchronous Byzantine Fault Tolerance is considered the gold standard of all encryption technology.

Asynchronous Byzantine Fault Tolerance (aBFT) records each event that occurs on the network. This allows the system to compare its current state to past data versions, and alert the system of any data discrepancies. The security protocol makes it almost impossible for malicious actors to tamper with data on the Hashgraph network even if they are present on the network. 

Hashgraph vs Blockchain Comparison: How to Choose?

Based on our Hashgraph vs blockchain comparison, which of these blockchain solutions is the best? Will Hashgraph replace blockchain in the future?

Hashgraph is the new kid on the block typically advertised as a more advanced and powerful alternative to blockchain. This newly distributed ledger technology is highly energy efficient and offers much faster transaction fees and low costs for each transaction. This gives it an edge over older and more popular blockchains like Ethereum and Bitcoin. 

However, it is worth noting that some new blockchain protocols like Solana boast low transaction fees and high efficiency. So if speed or energy efficiency are your major reasons for choosing Hashgraph over blockchain, you may want to consider these new blockchain options. 

One major limitation of Hashgraph is that it is a patented technology governed in a centralized manner. This might be unsuitable if you’re looking to build a fully decentralized permissionless system. Blockchain is an open-source project that offers both permissioned and permissionless platforms depending on what’s suitable for your project. The open-source nature of blockchain also means you get access to a much larger community and resources if you decide to build on it. 

Final Thoughts

Blockchain and Hedera Hashgraph are two advanced technologies that can be used to build all kinds of decentralized projects. While Hashgraph is undoubtedly the more advanced technology of both options, it will not completely replace blockchain. Your choice between both options depends on your project goals and needs. Our experts at CrustLab have been building custom blockchain protocols and decentralized applications for several years. We help businesses make important technical decisions for their projects and can help you analyze your business use case, offering the most effective solution for your project. Contact us now to learn more and get started with your project.