Key takeaways
- Hedera’s unique hashgraph architecture enables high speed, scalability and energy efficiency, distinguishing it from traditional blockchains.
- Hedera’s governance through a council of global corporations ensures stability, though it also draws criticism for compromised decentralization.
- Hedera’s applications span diverse industries, including finance, gaming, healthcare and supply chain, showcasing its adaptability and enterprise appeal.
- While Hedera faces competition from blockchains like Solana and regulatory hurdles, its innovative technology gives it an advantage over other blockchains regarding scalability.
Hedera Hashgraph (HBAR) is an alternative distributed ledger system that takes a novel approach to scalability, performance and security. It utilizes the patented Hashgraph consensus algorithm to address the limitations of previous blockchain generations like Bitcoin and Ethereum. Swirlds, a company founded in 2015 by the American scientist Leemon Baird and his business partner Mance Harmon, holds the patent for the Hashgraph algorithm.
Hashgraph stores data in hashes instead of blocks, which eliminates limitations such as speed and scalability associated with blockchains. With an assurance of no-fork, it offers a stable environment for creating decentralized applications (DApps).
Hedera took a significant step toward open-source decentralization in September 2024, joining the Linux Foundation's Decentralized Trust as a founding premier member and contributing its full codebase. This project, named "Hiero," includes Hedera's hashgraph consensus algorithm and all core services, tools, and libraries. This move aims to foster global collaboration on decentralized trust technologies within an open-source framework, ultimately improving developer collaboration and interoperability.
This Hedera Hashgraph tutorial for beginners explores the fundamentals of the project, including its key features, applications and its role in the future of decentralized technology and Web3 adoption.
What is Hedera Hashgraph
Launched in August 2018, Hedera Hashgraph is an advanced distributed ledger technology (DLT) that provides a faster, more secure and scalable alternative to existing blockchains.
Unlike blockchains, which record transactions in sequential blocks, Hedera uses a directed acyclic graph (DAG) structure known as the hashgraph. This facilitates concurrent transaction processing, resulting in increased throughput and lower latency.
The hashgraph relies on two distinct algorithms: gossip-about-gossip and virtual voting. Gossip-about-gossip spreads information quickly across the network, while virtual voting ensures consensus with low communication overhead. This architecture supports asynchronous Byzantine fault tolerance (aBFT), one of the highest security criteria in DLTs.
An advanced consensus mechanism designed for distributed systems, aBFT ensures fault tolerance even when some participants act maliciously or unpredictably, addressing the challenges of the Byzantine Generals Problem. This algorithm allows nodes to reach agreement asynchronously, which helps create highly resilient and scalable decentralized applications.
The Hedera Governing Council
Hedera has set up a robust governance model with substantial support from industry leaders. The Hedera Governing Council, a group of up to 39 globally recognized corporations like Google, IBM and Dell, manages the network. The Limited Liability Agreement (LLC) defines the Council’s rights and obligations.
Each Governing Council member has an equal vote on issues like software upgrades, treasury management, network pricing and more. Members of the Governing Council serve for a fixed period and earn no compensation from Hedera.
The Hedera Governing Council members vote on Hedera Improvement Proposals (HIPs), which serve as a place to propose new features and collect community input on particular issues.
Did you know? HederaCon, the inaugural user conference of Hedera Hashgraph, will be held on Feb. 25, 2025, in Denver, Colorado. It will be held alongside ETHDenver, one of the largest developer gatherings in the world.
How does Hedera Hashgraph work?
The efficiency of Hedera Hashgraph lies in two innovations: the gossip-about-gossip protocol and virtual voting.
The gossip-about-gossip protocol allows for quick information sharing across the network. When a transaction is initiated, network nodes exchange information and reach a consensus. The protocol uses a DAG to record how events are related. It generates a cryptographic timestamp, allowing the network to track and validate transactions effectively while minimizing transmission costs.
Virtual voting is another crucial component. To arrive at a consensus, nodes independently analyze the shared history of gossip. This eliminates the requirement for direct voting (sending actual votes), greatly reducing delays.
The gossip-about-gossip protocol and virtual voting work together to enable aBFT, ensuring the highest level of security even when some nodes go malevolent.
Hedera employs a consensus mechanism where a transaction is finalized once a consensus timestamp is assigned. This timestamp reflects the time when most network nodes acknowledge receiving the transaction.
Here is how consensus timestamp works:
- Each transaction is assigned a unique consensus timestamp.
- This timestamp is determined by calculating the median of the times each node received the transaction.
- Transactions are processed and applied to the network’s shared state in the order determined by their consensus timestamps.
- Once a transaction has achieved consensus, it becomes immutable and permanently recorded on the public ledger.
What services are provided by Hedera?
Broadly, Hedera offers three kinds of services – consensus, token and smart contract – all with their own use cases:
Hedera consensus service (HCS)
HCS provides safe, tamper-proof and transparent data logging for distributed applications. It supports timestamped event ordering, ensuring data integrity in the banking, supply chain and healthcare industries.
Hedera token service (HTS)
HTS facilitates creating, maintaining and transferring digital tokens on the Hedera network. It supports fungible tokens and NFTs and includes features such as custom token setups, account-level controls and low, predictable fees. HTS enables organizations to efficiently and securely tokenize assets, including real estate, commodities and NFTs.
Hedera smart-contract services (HSCS)
HSCS enables developers to construct DApps compatible with the Ethereum Virtual Machine (EVM). Leveraging Hedera’s high-speed network, these contracts get executed quickly and at low costs. DeFi, gaming and enterprise automation are among the use cases it supports.
Did you know? Walltech’s initiative to tokenize $3 billion in luxury items underscores Hedera’s viability for real-world applications and solidifies its position as a preferred platform for enterprise-level tokenization.
How Hedera Hashgraph compares with proof-of-work (PoW) and proof-of-stake (PoS)
As a distributed ledger technology, Hedera Hashgraph is structurally different from blockchain consensus mechanisms such as PoW and PoS.
PoW, used in Bitcoin, relies on miners solving complicated cryptographic problems. Though secure, PoW is computationally intensive, sluggish and energy-consuming. Hedera’s gossip-about-gossip protocol, on the other hand, assures speedy information sharing, completing transactions in seconds while using minimal energy.
PoS, used by Ethereum, improves on PoW by validating transactions using staked assets. PoS is more energy efficient but vulnerable to centralization, as larger stakeholders tend to wield more power. Hedera’s virtual voting method, working along with the Hedera Governing Council, provides decentralization while ensuring the power doesn’t get consolidated with few nodes.
Hedera’s aBFT is as secure as PoW while considerably reducing transaction time and costs. Moreover, Hedera facilitates stable and predictable transaction costs, which can be erratic under PoW and PoS systems.
Hedera can process over 10,000 cryptocurrency transactions per second (TPS). Each transaction takes about two seconds to complete.
Bitcoin processes 6-8 TPS. Individual transactions usually get through within 10 minutes.
Ethereum processes about 12-15 TPS. Individual transactions are usually confirmed within 15 to 30 seconds. But, during high network congestion, confirmation times can go up to several minutes.
This table illustrates the differences between Hedera, PoW, and PoS.
Did you know? Hedera network is ACID (Atomicity, Consistency, Isolation, Durability), which ensures transaction consistency and isolation. It effectively functions as a distributed database with the same characteristics as a traditional, centralized database.
Understanding HBAR: the native cryptocurrency
HBAR is the Hedera Hashgraph network’s native cryptocurrency, which supports its ecosystem while ensuring safe and efficient operations. Designed to play a dual role, HBAR is designed as fuel to pay for network services and incentivize node participation. It enables Hedera’s services while also contributing to network security.
The transaction fee on Hedera (around $0.0001 ) is negligible. It facilitates microtransactions, which in turn support frictionless smart contract execution and file storage, making the network suitable for both enterprise and consumer applications.
HBAR also plays a key role in network security. Nodes that stake HBAR contribute to transaction validation and consensus, preserving the network’s integrity while collecting incentives for their efforts.
The Hedera network was rolled out with a total supply of 50 billion HBAR. There can be no modification in the total supply of HBAR without the unanimous consent of the members of the Hedera Governing Council. Unless transferred to a user account, all HBAR is considered an unreleased supply.
Hedera has a gradual and controlled HBAR release plan. At the beginning of 2020, less than 4% of the total supply was in circulation, and by the end of 2025, this is projected to be less than 31%. This measured release strategy serves several purposes:
- Security: It prevents any single entity or group from accumulating enough HBAR to disrupt the network through malicious activities.
- Market-driven value: It ensures that the HBAR price is primarily determined by market demand and supply rather than being significantly influenced by the actions of the Governing Council.
Did you know? Blockchain is a specific type of DLT. Both DLT and blockchain are decentralized systems that securely store data in a tamper-resistant manner.
How to buy HBAR
You could get HBAR on a centralized or a decentralized exchange (DEX).
Here is the process of buying HBAR on a CEX using a fiat currency:
- Step 1: Choose a cryptocurrency exchange – Find a crypto exchange that supports HBAR.
- Step 2: Create an account – Register on the exchange and complete Know Your Customer (KYC) verification by submitting the required papers.
- Step 3: Fund your account – Deposit funds with a bank transfer, credit/debit card or other approved means.
- Step 4: Search for HBAR – Locate the HBAR trading pair (such as HBAR/USD or HBAR/BTC).
- Step 5: Place your order – Choose between market and limit orders, then specify the quantity of HBAR you want to purchase.
- Step 6: Store securely – Transfer HBAR to a secure software wallet or a hardware wallet for added security.
On a DEX such as Uniswap, you will need to connect the DEX with your crypto wallet, like MetaMask or Trust Wallet, to complete the transaction. Select the cryptocurrency you want to trade, e.g., Ether (ETH), in the “From” field and the cryptocurrency HBAR in the “To” field. Specify the amount and approve the transaction. You will receive HBAR in the specified wallet.
Key features of Hedera
As a next-generation distributed ledger platform, Hedera offers several features that help the platform combine performance and sustainability, making it ideal for real-time applications:
- High throughput and speed: With the capacity to process 10,000 crypto TPS, Hedera outperforms blockchains such as Bitcoin and Ethereum. Hedera transactions achieve finality on the ledger within three to five seconds.
- Energy efficiency: Unlike energy-intensive consensus processes like PoW, Hedera’s gossip-about-gossip and virtual voting protocols are environmentally friendly and use few computational resources.
- Scalability: The network’s DAG architecture allows for simultaneous transaction processing, providing scalability as usage increases while maintaining efficiency.
- Fixed and predictable fee: Unlike blockchains, Hedera’s transaction fee is constant and predictable. The predictability of the fee simplifies application development for enterprise-level applications.
How to set up a Hedera local node
Developers can set up a Hedera local node to test and develop applications without interacting with the mainnet. The local network includes the JSON-RPC relay, consensus node, mirror node and other Hedera products. You can set it up using the CLI tool and Docker.
Here are the steps to set up a Hedera local node:
Step 1: System requirements
Your machine should meet Hedera’s minimum requirements, including
Step 2: Start your local network
Select a workspace: Open a terminal and navigate to a folder where you want to work on your Hedera local node project.
Install dependencies to the local machine: Run the following command to clone the repo and install dependencies to your local machine:
Windows users: Run this in WSL to update the file endings of compose-network/mirror-node/init.sh:
Get the network up: Run this command to get the network up.
Step 3: Generate keys
To create accounts with random keys, run this command followed by the desired number of accounts (e.g., hedera generate-accounts 5 for 5 accounts).
Copy one of the generated private keys (listed under “Alias ECDSA keys Accounts”). You will need it later to use as LOCAL_NODE_OPERATOR_PRIVATE_KEY environment variable value in the .env file of your project.
Step 4: Stop your local network
To stop your local node, you can run the hedera stop command. If you want to keep any files created manually in the working directory, save them before executing this command.
Alternatively, run docker compose down -v; git clean -xfd; git reset --hard to stop the local node and reset it to its original state.
Use cases and applications of Hedera
Hedera Hashgraph’s fast, secure and energy-efficient platform has enticed companies from various industries to develop scalable and innovative solutions. Its adaptability enables applications ranging from finance to gaming, making it a cornerstone of Web3 advancement.
Payments
Hedera supports quick, low-cost, and transparent payments, which help make financial services more efficient. For example, On Feb. 24, 2021, Standard Bank Group, the largest African bank by assets, partnered with Hedera to set up the continent’s first Hedera network node and resolve some sore points that troubled enterprises in cross-border trade. These problems included long settlement periods and information asymmetry between the parties involved.
Asset tokenization
Hedera facilitates asset tokenization by enabling you to create, manage, and trade digital representations of real-world assets (RWAs). Key features of Hedera, such as quick transaction times and negligible fees, make the platform conducive to tokenizing assets such as real estate, art and commodities. The platform supports the creation of various digital assets, ranging from regulated securities to NFTs, enhancing the assets’ liquidity and allowing for fractional ownership.
To ensure compliance, you may require account-level configurations when tokenizing assets. Hedera empowers token issuers to implement crucial features such as:
- Know Your Customer (KYC) verification: Establish and enforce KYC requirements at the account level.
- Account freezing: Enable the freezing of accounts to prevent unauthorized transactions.
- Token supply management: Control token issuance, circulation and distribution.
- Transfer restrictions: Define rules and limits for token transfers between accounts.
- Anti-Money Laundering (AML) checks: Integrate AML checks to prevent and detect illicit financial activities.
Did you know? On Jan. 22, 2025, Hedera (HBAR) was placed 13th on the list of cryptocurrencies with a market cap of $12.4 billion.
Deter data manipulation
Designed to enhance trust in data, the HCS helps create secure, tamper-proof records of sustainability data. These decentralized, auditable logs of data are immutable and timestamped. Leveraging HCS, organizations can securely log and share granular data with all relevant stakeholders.
This decentralized and auditable system leads to enhanced transparency and accessibility, making it difficult for fraudsters to manipulate data and fostering greater trust in the integrity of information.
Secure data sharing
The advancement of public blockchain and DLTs enables healthcare providers to augment existing trial data and patient medical record information while maintaining patient privacy and meeting regulatory compliance.
Handling these tests at scale with diagnostic transactions, healthcare companies need an immutable record. Hedera can log those transactions with high throughput, fast finality and low cost.
Safe Health Systems, a healthcare platform, turned to Hedera for their public distributed ledger. Hedera logs an immutable and verifiable log of patient information and identifiers while preserving end-user privacy; this increases patient and customer organizations’ trust, leading to greater adoption, retention and platform usage.
Navigate logistics
Hedera allows supply chain operators to easily navigate logistics by verifying the integrity of supply chains and product flows. Distributed ledger technology fulfills core requirements of global supply chains, such as authenticity, compliance, validation, clearance and auditability, thus helping the associated companies realize their full potential.
Hedera ensures the accurate sequence and validity of events while providing a transparent view of their historical order, all without maintaining a complete record of every past transaction. Suku. world has developed supply chain finance applications that use Hedera’s public network to create a link between traceability, transparency, and open finance.
Gaming
Risks of fraud increase in virtual gaming. Players may cheat for competitive advantages, while centralized platforms could potentially manipulate in-game asset ownership.
Traditional gaming relied on centralized servers to manage gameplay, requiring players to trust platforms to act fairly. Centralized control risks gameplay as it is prone to censorship and unauthorized asset modification.
Hedera addresses these issues by ensuring speed and trust in recording in-game events, such as scoring, determining player status and managing digital asset creation or transfers. Game elements like character locations, assets and logic get stored on a distributed ledger, preventing any single entity or player from corrupting games or altering digital ownership.
Animoca Brands has partnered with Hedera to enhance validation for play-to-earn (P2E) activities and combat cheating, a huge gaming industry problem.
Challenges Hedera is confronting
Hedera Hashgraph faces major challenges, including competition from next-generation blockchains and regulatory issues. While Hedera is decisively ahead of first- and second-generation blockchains like Bitcoin and Ethereum, next-generation blockchains like Solana do pose a challenge to Hedera, thanks to quick processing speed and other features.
Solana offers 3,000 to 4,000 TPS, which, though lesser than Hedera, is considerably ahead of traditional rivals like Bitcoin and Ethereum. Moreover, Solana enjoys strong community support. While Bitcoin is not a platform that supports DApps, Ethereum does have a large developer community and widespread usage.
Regulatory considerations may also be a hurdle in several jurisdictions as cryptocurrency regulations evolve. Navigating compliance without impeding innovation is key to Hedera’s growth. Some argue that Hedera’s governance model is not sufficiently decentralized, raising concerns about its alignment with the core principles of blockchain technology. This aspect of Hedera might draw regulatory objections.
Yet another challenge Hedera faces is to build community support at the scale of blockchain rivals like Ethereum and Solana.
The future of Hedera
Hedera’s advantage lies in an innovative technology that gives it an edge over other cryptocurrencies. It uses DLT, which provides it a key advantage in scalability, a major hindrance in the public adoption of blockchain technology.
If Hedera can convince regulators and businesses regarding the decentralization of its governance, it might be able to cultivate the support it needs to zoom ahead.
The emergence of Hedera as a major player will impact industries like finance (stablecoins, tokenized assets), supply chain (tracking, provenance), and gaming (decentralized experiences). If Hedera can capitalize on enterprise demand in these industries, it might propel Hedera to the frontline.