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Hedera is probably one of the most talked about projects in the blockchain and crypto space at the moment, some calling it THE blockchain killer.
Blockchain killer or not, Hedera does seem to have legs since the world’s most reputed brands are joining forces with the project. At the time of this writing, these companies have formally joined the Hedera Governing Council:
- TATA Telecommunications
- Deutsche Telekom
- DLA PIPER
- Swisscom Blockchain
- Swirlds (developer of the hashgraph algorithm)
A project in the works for over seven years
Dr. Leemon Baird first thought about exploring the true potential of distributed ledger systems back in 2012. At that point, the concept started out with a simple yet ambitious thought of exploring the maximum potential of Asynchronous Byzantine Fault Tolerance (ABFT).
Carve out a piece of Cyberspace
Talking about the genesis of Hedera, Mance referred to the math problem and the desire of Dr. Baird to build a system that helps individuals carve out a piece of cyberspace to make it their own where they can interact, transact, and set rules without having to trust a third-party vendor.
That desire to solve the math problem and create a cyber sanctuary for individuals, along with years of hard work, helped Dr. Baird arrive at the hashgraph algorithm.
Nothing like this exists in the market today
Talking about how Hedera is pushing the envelope in the space, Mance exlpained how the consensus service that Hedera offers in conjunction with IBM is one of a kind.
“What we have is a platform that has very high throughput and very low latency, and fantastic security compared to the other platforms in the market,” he continued. “The way to think about the Hedera Consensus Services (HCS) is essentially providing ABFT as a service, and nothing like that exists in the market today.”
In essence, Hedera is able to offer the ABFT as a service to enterprises who can choose to keep certain information private while leveraging the interaction on the public network, all without compromising on the performance of the network and keeping the costs at a fraction of what it would have been on another network.
No forking, guaranteed
When a company invests money into building a DApp on a public network and that network then forks, splitting the resources and network strength, the company is assuming a huge risk in terms of performance and stability.
Lack of governance is a big issue in the public networks.
Hedera solves this issue by keeping the legal and technical controls with the Governing Council. “We addressed that risk by creating the legal and technical controls that eliminates the possibility of the Hedera ever forking. That’s the promise we made,” Mance affirmed.
Governance and stability by design
Unlike other projects in the space, Hedera is unifying the benefits of public networks and the security of private networks. It is, however, taking this concept a step further to avoid too much concentration of network decision-making power.
To this end, Hedera will be managed by a Governing Council. The Governing Council will ultimately have thirty-nine members. At the time of this writing, ten members have already joined the council.
Each of these members are co-owners of the organization, not just market partners. Members serve on the Governing Council for a maximum term of six years (two, three-year terms).
When all member roles are filled, Hedera is expected to have representation from eighteen market sectors and geographically diverse organizations.
“They are not just marketing partners; they are co-owners of the organization. It’s structured as an LLC to provide liability protection and at the same time designed to be more like a not-for profit entity. There are no dividends paid to the members, for example,” Mance explained.
These members help run the nodes while setting standards for the business to operate on. “They run the initial set of nodes and govern all the aspects of the network. So, it’s a board-level oversight in one sense and a standards body at the same time,” Mance commented.
Working alongside regulators in an evolving environment
Hedera’s aim has always been to be compliant with the authorities every step of the way.
There have been projects that had to close shop because of SEC enforcement actions. It is a good idea to work with the authorities before tripping any wires.
Mance said, “Our goal is for the SEC to never be surprised by anything we do. Not just the SEC, we don’t want any regulators be surprised by anything we do.”
Built to survive 100 years
In the past three to five years alone, over 1000 projects have been considered dead. Some of these projects were outright scams while others couldn’t keep up with the demands of the space. Projects that were once in the top fifty are now nowhere to be seen.
Hedera wants to be the exception to this predicament.
Mance says, “Our goal from the very beginning has been to build a company that is going to be around for hundred years. The decisions you make with that as your goal, as opposed to decisions you might make if you are simply wanting to build something for a few years and cash out, they are very different decisions.”
Micro transactions can benefit enormously from a project like Hedera
Talking about some of his favorite use cases for distributed ledger technology, specifically Hedera, Mance spoke about how the gig economy is ripe for disruption so that customers and content developers stand to be big beneficiaries of the introduction of distributed ledger platforms in the space.
Micro transactions are another space that Mance is excited about.
“Every business in the world is sitting on data that could be monetized, but the friction associated with taking that data and monetizing it is huge,” says Mance.
A lot of companies choose not to touch the data at their disposal because of the hassles they have to go through to be able to use the data. And even when the data is monetized, the cost of transaction usually outweighs the transaction value.
When the companies are able to settle payments in pennies at a fraction of the cost using auto-payment methodologies, the massive amount of data in the world could be monetized. This could spawn a whole new industry that benefits businesses by providing intelligence, and customers by empowering them to monetize their data, which in turn brings more meaning and value to the advertising industry.
Questions explored in this exclusive interview:
How Hedera got started.
Will Hedera kill blockchain?
Will quantum computing kill Hedera?
Best use cases for blockchain and how Hedera addresses them better than blockchain
How to get Hedera Cryptocurrency, HBAR
What’s stopping blockchain mass adoption?
Is Hedera just a copy of other blockchain projects?
And much more.
Read or listen to the interview to learn directly from Mance Harmon.
CryptoTapas: Tell us about the genesis of Hedera.
Hedera started out as a math problem. It was Dr. Leemon Baird, co-founder of Hedera, who wanted to solve a very difficult math problem; this was in 2012.
Specifically, Dr. Leemon wanted to build a distributed ledger consensus algorithm that achieves the limits of what can theoretically be achieved in terms of security, known as Asynchronous Byzantine Fault Tolerance (ABFT).
He wanted to achieve the ABFT limit while achieving practical limits of the performance possible.
ABFT was well understood for three to four decades, and we have known the limits of ABFT. However, these legacy systems do not scale well.
The more systems you connect to the network, the greater are the demands and bandwidth, which limits its scalability. Because of this inherent limitation, there are no large-scale ABFT systems in the market today.
Dr. Leemon wanted to solve this problem.
He and his team worked on it from 2012 through 2015 and eventually figured it out. Today, that solution is called the hashgraph algorithm.
In late 2015, we decided that we were going to commercialize it.
We saw what Bitcoin was doing in the market. Essentially, Bitcoin was making the market ready for something like Hashgraph to enter.
It was even more exciting that Dr. Leemon had understanding of this technology even before Bitcoin became a mainstream buzzword, and right when the market was in need of an invention like Hedera.
We started out as private permissioned networks focusing on credit union industry in North America. We were successful in that space in the first two years.
During the fall of 2017, we made the decision that we have done enough to be able to launch a public network on the hashgraph algorithm.
That’s how Hedera came to be.
It all started with this desire of Dr. Leemon to solve a math problem.
Dr. Leemon describes it as a system where “You can carve out a slice of cyberspace and invite your friends, family, and colleagues to participate in this virtual world with you to play together, work together, and buy and sell goods and services to one another without the need or requirement to have a trusted third party that mediates all of those interactions.”
CryptoTapas: How did you and Dr. Leemon come together to collaborate on Hedera?
Dr. Leemon and I have been working together for 26 years, since 1993, when we were both young officers in the United States Air Force, on a team of five, researching machine learning, specifically reinforcement learning.
We became great friends and we have been working together ever since.
We both taught computer science at the Air Force Academy. I was a course director for cyber security at the Air Force.
We went out and did independent contracts separately, but ended up working together in 1999-2000 and started our first company in the field of identity and access management. Since then, we have sold two companies in the identity space to Fortune 500 and private equity.
This is our third venture together.
CryptoTapas: That sort of profile is hard to find in this space. For my next question, what is your elevator pitch for Hedera?
Unfortunately, the elevator pitch for Hedera is not short.
The world is used to databases, and there are some databases with multiple masters. What multiple masters database means is that you have the same copy of the database on multiple systems. There are algorithms that help keep all of these databases to stay in sync with one another.
The assumption has always been that a single organization is responsible for all of those master databases.
For example, Amazon has lot of multi-masters databases. They would never dream of giving Google rights to their master database in their system.
But when you take that leap of giving away the master so that anybody, even anonymous people, can copy the master database to their systems, then you are dealing with a whole new set of security concerns to address.
That is the leap that the Bitcoin blockchain took for the very first time.
The Bitcoin blockchain showed that it is possible to have multi-master database system where each master is run by a different party, and do it securely. That is the original innovation of the Bitcoin blockchain.
What hashgraph does is takes that original concept and simply expands on it and makes it more secure.
This is what I call a Multi-Master and Multi-Party Database.
CryptoTapas: Can Bitcoin, Ethereum, and other protocols co-exist with Hedera? Or will success of Hedera negatively impact the other protocols?
There is a difference between a brand living on and technology persistence.
Ethernet is a great example of that. Original protocol standards for Ethernet are not what we use today.
Will blockchain as a technology continue to persist? I don’t know. Blockchain as a brand or term used in the market very well may.
Will the Proof of Work blockchains that exist as first-generation technology continue to exist in the long-term? I suspect not.
It is not just because of the costs associated with the technology both in terms of transaction cost and the real impact on our environment, but there is no good reason for that to continue when you have alternatives that can solve the same problems without the negative side.
I think Proof of Work blockchain will eventually go away.
Whether Bitcoin as a cryptocurrency and a brand (and for that matter Ethereum and other blockchain protocols) continue as an ongoing concern will depend on whether or not the underlying technology is able to evolve over time.
CryptoTapas: You mentioned about creating ecosystems in which individuals can carve out a space for themselves within the big Hedera system. Will these ecosystems built within Hedera be interoperable and able to interact with other networks?
The vision that Dr. Leemon has necessarily requires a hybrid of private and public networks. When we talk about carving out a space for yourself, it could be as simple as inviting them to a game.
It is not difficult to imagine a scenario where 20-30 people from different private networks playing a game together in an environment of very high throughput and low latency that ensures great performance.
The public network layer then helps connect these private networks as a single source of truth for all of the game assets from the private networks that all the networks are able to reference and update on the public blockchain that acts as the directory.
So, to achieve the original vision, we need this technology to be absolutely interoperable.
It will take a little while for the industry to develop standards for the inter-ledger protocols, but I absolutely expect that to happen in time.
CryptoTapas: Is it a stretch to say that you took the best of Bitcoin, Ethereum, Hyperledger protocols and improved upon them?
It’s an interesting question because in some sense you could say that we have been able to take the best of different projects. That’s how it would appear. The reality of it is that the technology has led us on a particular path.
What we have is a platform that has very high throughput and very low latency, and fantastic security compared to the other platforms in the market.
When you have that combination, then the question becomes, ‘What is the sweet spot of services you can provide?’
The sweet spot turns out to be the Hedera Consensus services we have just announced this summer in conjunction with IBM.
We jointly published a whitepaper with IBM.
The way to think about the Hedera Consensus Services (HCS) is essentially providing ABFT as a service, and nothing like that exists in the market today.
Another way to think about it is, it’s a twitter service in some sense of distributed consensus. Developers can build applications (DApps) and submit transactions with a topic (like a hashtag).
You can have a lot of client software submitting with a topic name. The consensus service takes all of those and puts them into consensus order using the public network (Hedera). Developers can then filter the stream using the topic name.
That service makes it possible to unify the best of public and private networks.
You can have the advantages (like security and privacy) of a private network and avoid the downside of a public network, like cost and time involved in running the smart contracts; Hedera consensus brings the best of both networks to one single platform.
We did not look at Hyperledger, Ethereum, or Bitcoin to pick the best features, absolutely not.
What we did is we started out with our principles first to realize the potential of ABFT, and that led us to build a system that turned out to solve a lot more than what we set out to.
Hedera Consensus Service caters to the enterprise needs of keeping certain information private while still leveraging the trust from a public network, without compromising the performance required and keeping the costs at a fraction of what it would have been on a public network.
CryptoTapas: Do you think Hedera is quantum computing-resistant?
There are two parts to that answer.
One is about the consensus algorithm itself. Hashgraph as a consensus algorithm is not susceptible to future quantum computers, in sort of breaking the ABFT properties. So, there is no problem with quantum computers in terms of the hashgraph ABFT consensus mechanism.
However, it is the case when you create the transactions using cryptography. So, when it comes to the crypto side of the equation, we designed hashgraph such that the signature technology can be swapped out for quantum computing secure signatures in the future. That is easy to do since we have built our technology to accommodate for that possibility.
For the hashing side, we already use SHA384, which is expected to be secure against quantum attack.
CryptoTapas: What about the impact of 5G networks on Hedera?
When the node software itself is running on 5G, it won’t impact the network of Hedera. From a security perspective, our network stack sits on top of the Internet stack. Our software makes API calls to the operating system, and as long as the operating system stack (TCP/IP) can handle the 5G, it would be transparent to us. We wouldn’t even know that the software was running on a 5G because of how high-up we are on the stack hierarchy.
CryptoTapas: What are your two favorite use cases for Hedera?
Generally speaking, the whole gig economy is ripe for disruption.
For instance, when you think about platforms matching services with service providers like Uber or Fiverr, etc.
These are effectively, centralized systems that take bids and asks in the most general sense. Someone is offering a service or product of value, and others in the market are wanting to consume those services or products.
That could be distributed.
There is a lot of value to the community and to the world. The amount of money that these service providers, for example Uber, takes off of the table from drivers that they could have received if the central component was taken out, is substantial.
That’s what our economy is moving to.
Hedera as a platform to support these kinds of economies is ideal because one thing we have not talked about is how fair hashgraph is.
Hashgraph, for the first time, makes it possible to know for sure that a single node in the network is not unduly influencing what the network as a whole will agree on or what the right order of a transaction is.
For instance, with Bitcoin, miners are collecting all the transactions and putting those transactions into a block, and miners can individually decide on the order of those transactions.
A single miner could dictate the order of transactions in the network. That’s not fair.
Most protocols in the market today each have this problem manifesting in a different way. All lack fairness.
Hashgraph’s fairness aspect is important if you are building an economy for a matching platform where bids and asks are flowing in and no single party can prevent someone from getting into the network.
CryptoTapas: In your example you referred to Uber. However, Uber charges 20% from drivers because it is providing a platform for people to trust. If something goes wrong, I know who to go after. In a decentralized economy where there is no ‘central authority’, what happens when something goes wrong?
What do you do in terms of recourse?
If you take each of these entities and break them down into their individual components, you will see that they each have a very separate function.
When the technology stack matures over time, these individual components can be specialized so that companies can spring up to provide services to address that particular component.
This gives individuals the ability to choose from the best of vendors for various components of the service.
CryptoTapas: What is your second favorite use case?
I think micro transactions. The ability to have Alice pay Bob a fraction of a cent and do so economically is a capability that will change business models and the way the Internet works.
I don’t know how long it will take. It’s not a market that necessarily exists today, but I can see a lot of value in having that kind of capability.
For example, if we look at Wikipedia, its business model depends on charitable contributions. Instead of asking for donations, we could have a system where anyone who browses Wikipedia, for each article they read, they pay out a penny automatically.
In that case, Wikipedia will have an alternate source of income, which could be far better than relying on charitable contributions.
Users may not mind paying a penny for the value they consume.
Another use case could be that, in a business-to-business transaction, every business in the world is sitting on data that could be monetized, but the friction associated with taking that data and monetizing it is huge.
If we can simply make a micro payments gateway that sits on these databases, every time a particular data is consumed then an automatic payment is processed without any third-party intervention.
The transaction can happen in real time; value transfer can happen in real time and without any friction.
CryptoTapas: Was there a specific reason why Hedera was not made available to the general public through an ICO model?
We focused on the SEC and SEC compliance in taking the coins to market. From the very beginning we understood that for this technology to go mainstream, we had to work with the regulators to help them understand the function of Hbars and why we do not believe they are securities
We have been very conservative in our approach to the market. We started talking to SEC for about 18 months ago and kept the ongoing dialogue going with SEC since the beginning of 2018.
My goal is for the SEC to never be surprised by anything we do. Not just SEC, we don’t want any regulators be surprised by anything we do.
That meant that when we raised money through SAFT (Simple Agreements for Future Tokens), we had to do so assuming that SAFT itself was a security instrument and that then implied that we had to follow Reg D rules. This required us to adhere to the accredited investor standards.
CryptoTapas: Are there any opportunities for people to get hands on Hedera without buying them?
We have had, in December of last year, our first round of community testing, which presented the opportunity to earn HBAR (our native coin). We closed that round and opened a second round of community testing in May of this year. That’s been paused at this point.
CryptoTapas:Based on the information from the Hedera coin economics whitepaper, you raised about 124 million dollars, and using the last SAFT rate of 12 cents per coin, Hedera is a 6 billion dollar (factoring 50 billion total supply) company from the get-go. What kind of responsibility does that put on you being a billion dollar company in the blockchain space?
I don’t even think about the valuation of the company in those terms.
Our goal from the very beginning has been to build a company that is going to be around for 100 years.
The decisions you make towards that as your goal as opposed to decisions you might make if you are simply wanting to build something for a few years and cash out, they are very different decisions.
And you can see those decisions at every step of our journey.
From our regulatory posture, to decisions we made personally in lockup position of our coins and taking a leadership role to lead by example and delaying more than three quarters of our coin release and delaying our compensation coins until 2020, these kinds of decisions reflect our long-term perspective.
CryptoTapas: What are the two big hurdles coming the way of blockchain adoption?
When we started Hedera we talked about four big hurdles in blockchain adoption. We put these hurdles into two categories; one is tech and another is governance/stability.
On the tech side, performance and security are the hindrances that avoided mainstream adoption. We checked both those boxes with the hashgraph algorithm itself. When we open access to our the platform on September 16th, we will be launching the beta version of the product with performance severely throttled at 10,000 transactions per second for cryptocurrency, and 10 transactions per second for smart contracts and file storage. That throttled performance is still fantastic compared to what we have in the market. From a latency perspective, we are using ABFT and you cannot do better than that.
On the governance and stability of the platform, if you are a business manager thinking to spend 3 million dollars to build a DApp on a public network, that’s going to be important for your business in some way. Then you notice that these public networks are quite frequently forking into competing networks and competing cryptocurrencies, and you understand the technical and market implications that it might have on your product, it represents risk.
You have to address that risk.
We addressed that risk by creating legal and technical controls that eliminates the possibility of Hedera ever forking. That’s the promise we made.
In our model, we designed governance such that it represents the entire market use cases on a global basis, and it doesn’t stagnate, it changes over time.
We have the Hedera Governing Council, which will ultimately have 39 global blue-chip organizations. Each organization represents the very best in their field in terms of expertise and size in their industry.
We want representation from 18 market sectors, and we want them to be geo-distributed.
Their term is limited. They cannot stay as governing council members forever; they have a maximum of six years (two three-year terms) and then they have to rotate out.
We have announced our first 10 council members. Boeing, IBM, TATA Communications, Deutsche Telekom, DLA PIPER, FIS, Magalu, Nomura, Swisscom Blockchain, and Swirlds.
This is a company that members of other corporations are a member of. They are not just marketing partners; they are co-owners of the organization. It’s structured as an LLC to provide liability protection and at the same time designed to be more like a not-for profit entity. There are no dividends paid to the members, for example.
They run the initial set of nodes and help govern all the aspects of the network. So, it’s a board-level oversight in one sense and a standards body at the same time.
We encourage people to keep an eye on all the communication we release on Hedera.com or join our Telegram group.
What you will see in the next 12 months is the focus on building out the council and announcement of the solutions we bring to the market.
CryptoTapas: Thank you very much for giving this opportunity, it was a pleasure talking to you.
Thank you for reading the article.
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RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.