What is Hashgraph? How is it different from Blockchain?

Financial security continues to remain in the forefront of not only large investors, but also the average consumer with a bank account. The desire to keep financial information safe and secure is imperative, as lost banking information can instantly result in the complete clearing out of money within the account, not to mention additional loans and other monetary expenditures taking out without the account holder knowing about it. While banks generally take Internet security seriously, it doesn’t stop a skilled hacker from probing for weaknesses and infiltrating when possible. To improve security and make hacking accounts next to impossible, the creation of blockchain came about in 2008. Blockchain has remained a top security feature for the last decade, until the release of hashgraph. While related, hashgraph does differ from blockchain. Understanding these differences will help even the most novice individual sees just how beneficial using a hashgraph based monetary system can be.

What is Blockchain?

To understand what hashgraph is and how it differs from blockchain, it is necessary to know what blockchain is and how it works. Blockchain has remained in news cycles prominently throughout 2018 due to its connection with cryptocurrencies. In fact, the creation of Bitcoin is directly connected with the creation of blockchains (the inventor of blockchain created Bitcoin as a means of offering additional financial security during transactions). The best way to understand blockchain and how it works is to strip it down to the basics. Every block represents a new bit of data. In the world of cryptocurrency, this can be the location of cryptocurrency, a transaction or any other bit of data. When another block of data is created, it is added to the data chain. This, in the simplest form, is a “blockchain.” It’s different blocks of data connected to one another (LifeHacker, 2018).

Information, such as that of a cryptocurrency, is encrypted, which requires a series of complicated math algorithms to access. For every block added to the chain, an additional step in the algorithm is required, which means the more a cryptocurrency is used, the longer its blockchain grows and the more difficult it becomes to crack. Essentially, it grows stronger and more secure with every use. When a user obtains a cryptocurrency (such as Bitcoin), they don’t receive physical currency. They receive what amounts to a password for a portion of the blockchain. This unlocks the currency and allows the user to use the digital currency as money. When the money transfers ownership it is this password key that actually transfers. During the transfer the password changes (as it adds another block to the chain), so the previous owner of the cryptocurrency is not able to try and pull the money back. Each transaction on a blockchain is identified. It doesn’t state a buyers or seller’s identity, but it does indicate how much the transfer went for. Most cryptocurrencies are limited in available blockchains, so this helps keep track of current digital money in circulation (LifeHacker, 2018).

Blockchains have garnished a considerable amount of attention in recent years. According to Accenture (2017), many in the international business community believe it to be the future (at least partially) with regards to a financial transaction. As the illustration below indicates, 83 percent of executives believe the digital economy will become the cornerstone for future business activities. Plus, 10 percent of all global GDP is likely to be stored on blockchains within the next decade.

Hashgraph1
(Source)

What is Hashgraph?

One of the major issues with blockchains (more on this later) is the length of time it takes to complete a transaction. Varying cryptocurrencies do differ in the amount of time it takes to process a transaction. However, Bitcoin, according to Coin Central (2017) takes around six minutes to confirm before it completes. Other cryptocurrencies take less time (Bitcoin Cash came about to help provide a slightly faster transaction process), but in general, this transaction time takes several minutes to run from beginning to end. When faster processing fees are attached to a payment, transactions are usually completed faster (the amount of network activity at the time plays a role as well). However, in the world of instantaneous gratification, waiting over five minutes to complete a financial transaction is an eternity (Coin Central, 2017). This is where Hashgraph comes in.

Hashgraph is a complex data process, and much like blockchain, the best way to explain it is to simplify it down as much as possible. Hashgraph uses what is known as a gossip protocol. In other words, when one computer connects with another, it “gossips” and shares information. This information can then be shared with another computer or network or data entry. Of course, along the way, variations are made to the information, so the “gossip” created by the initial interaction is not the same further down the gossip line. In a hashgraph, transaction data is referred to an event. The transaction moves through other random connected systems and as such it blindly selects a "neighbor" to gossip with the transaction. Two neighbors (or two different computers) send event information from one to another and then send the information to another, random neighbor. This continues to happen until all nodes (neighbors) are made aware of the initial transaction information. Basically, when performing a transaction, the initial purchase request goes through one neighbor, which is sent to another, then another, and so on, until the purchase is recognized. The best analogy for this comes from old movies, where the camera looks down a long hallway full of doors on both sides. A person steps into one door but then walks out of another. This usually repeats multiple times without anyone knowing what door they are going to exit out next. The same is true with data on a hasgraph. It passes through neighbors without any indication as to the next neighbor it will move through (Hackernoon, 2017).

When a node is created, it maintains a graph that represents a sequence indicating the witnesses and forwarders of the transaction. Of course, as the information continually passes through different nodes, all nodes have the same general view of the transaction, which makes it impossible (currently) to backtrack through the information. The node can determine if the transaction is complete (and valid) as it sends the information off to the next node. The visual representation of information passing through is an actual hashgraph.

Below is a visual representation of a hashgraph. The individual circles are nodes (neighborhoods) with lines representing the "gossip" transfer of data. While every node is free-standing, it is imperative to the final information transfer (seen as the top circle under Carol). Should one node fail, the rest of the transfer fails. Additionally, for someone attempting to hack into a financial transfer, it becomes nearly impossible to follow the transfer of information from one node to the next. And this is a simple representation of data transfers. In reality, there are thousands of these nodes, which will only grow and expand as more people adopt a hashgraph method of data transfers (Medium, 2018).

Hashgraph2
(Source)

How is Hashgraph Different from Blockchain?

Both a hashgraph and a blockchain are different ways to transfer information. While most commonly used in way of completing transactions using digital currency, it is not the only method of data transactions it performs. Each can send and receive any kind of connected data, ranging from the cryptocurrency transaction all the way to casting a vote on a voting machine. However, while both blockchains and hashgraphs are used to transfer information while sweeping away footprints in order to make it nearly impossible to track, there are some noticeable differences between the two methods.

The biggest reason behind the creation of the hashgraph is to speed up digital currency transactions. As indicated above, it takes six minutes or so for a Bitcoin transaction to complete. This is because the information needs to follow down a line of the chain while confirming passwords of varying blocks within the chain. A hashgraph is different. By using the “gossip protocol” it is possible to send the information and have it bounce from one neighbor to the next in shorter periods of time. The exact amount of time it takes for a hashgraph transaction to complete does vary, and even the official Hashgraph (2018) website does not have specifics, but most transactions are completed in under a minute (and usually far less than this). By speeding up the process users who need a transaction to process faster have an alternative option over blockchain.

As mentioned earlier, blockchain transactions see a reduction in time when higher processing fees at attached. This has a two-prong effect. First, more expensive processing fees do see an improvement in time. However, this pushes down other, more nominal processing fee-based transactions, which in turn extends the length of time for which someone making this form of payment must wait. During peak hours, it may take far longer than the six-minute average for a lower fee transaction to go through. This problem does not exist when using a hashgraph transaction method. When a transaction is input into a hashgraph-based system, it begins moving through neighbors within a network. By the time two-thirds of the network identifies the transaction it receives a time stamp. This way, it remains ahead of any other subsequent transaction with a later timestamp, regardless of the processing fee. Because processing fees do not speed up the acceptance range of a purchase or money transfer, fees generally remain lower within a hashgraph-based system
(Hackernoon, 2018).

During a hashgraph transaction, information passes through individual neighborhood nodes with the attached information of the purchase. If the information does not add up or comes off as malicious, the node will identify it as such. The information will continue to pass through random nodes, which may flag the malicious transaction. Repeated malicious successor nodes can prevent the information from moving further, which in turn prevents the transaction from taking place at all. This provides additional security benefits that not only prevent unwanted hackers from attempting to infiltrate and intercept the monetary transaction but if the purchase itself is fraudulent, the malicious flags will prevent the purchase from continuing (Hackernoon, 2018). As blockchain does not use the intersecting yet randomized hash graph, the same level of security does not exist. This is not to say a blockchain isn’t secure. Attempting to follow and mine through information in order to not only identify a transaction but also intercept the currency transfer before it reaches its designated destination is next to impossible. However, a hashgraph takes this to the next level.

Below is a visual representation of the difference between a hashgraph and blockchain security configuration. While far more complex, the illustration demonstrates the stark differences and how hashgraphs provide superior information security over what blockchain provides.

Hashgraph3
(Source)

In Conclusion

The invention of the blockchain helped lead to the creation of Bitcoin and cryptocurrencies. Seen as a valuable and secure alternative to more traditional cash and wire transfer transactions, blockchain has revolutionized the way the world conducts business. However, as is the case with most all technology releases, there is always a way to improve upon the initial design. While blockchain provides added security features over other transaction methods, processing time remains slow and it does not offer a fair transaction rate, as those with higher fees are processed first. Hashgraph corrects many of these issues. It adds another level of security, making it that much more difficult to track down transaction information and intercept monetary movement. It also speeds up the transaction process, without giving preferential treatment to higher fee monetary moves. With that said, while a hashgraph does provide noticeable benefits of a blockchain, it does not necessarily mean hashgraphs will take over as the default processing and security method for cryptocurrencies. With this processing method still in its infancy, it likely needs to go through varying forms of testing before ready to begin siphoning usage away from the trusted blockchain method.

ADDITIONAL RESOURCES:

TYPES OF CRYPTOCURRENCY AND UNDERSTANDING THE DIFFERENCE
WHAT CRYPTO CURRENCY INVESTORS NEED TO WATCH OUT FOR IN 2018

**Tell Us – **

Which do you think will be more effective in keeping financial information safe and secure - Blockchain or Hashgraph? Which technology do you think will be the norm going forward?

Written by Mike Williams

I am a serial entrepreneur with more than 20 years of business experience. My goal with this blog is to pass on some of what I have learned in order to help you achieve success in business.

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