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Mid Level Reading
25 May, 2024

Hashgraph Consensus Mechanism

[ Hash-graf kon-sen-sus mek-a-nizm ]

The hashgraph consensus is a more efficient, non-linear alternative to blockchain technology.

Suchet Dhindsa Salvesen
Written by
Suchet Salvesen
Suchet Dhindsa Salvesen Suchet Salvesen Expert Author
Suchet is a Norwegian economist, entrepreneur, and investor, serving as the CFO and COO of Brainfund. With over a decade of experience in global expansion, venture capital, and emerging technologies, he earned his MBA from the NMBU School of Business & Economics. He held dual bachelor's degrees from the University of South-Eastern Norway. His career...
Sam Kazemian
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Sam Kazemian
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Sam Hamidi-Kazemian is an accomplished American software engineer and entrepreneur. As the Co-Founder and President of Brainfund, he has demonstrated exceptional leadership in the tech industry. Sam pursued higher education at the University of California, Los Angeles, graduating with a double major in neuroscience and philosophy. During his time at UCLA in 2014, Sam co-founded...

The hashgraph consensus algorithm is an alternative technology to blockchain that allows data to be validated more efficiently without having to discard any blocks (also called block pruning).

Instead of waiting for block confirmations, nodes can validate transactions in parallel or at different times. This non-linear structure is called DAG, Directed Acyclic Graph.

Visual comparison between the traditional blockchain and hashgraph structure
Comparison of traditional blockchain and hashgraph structure | Medium.com

Understanding Hashgraph Consensus

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The hashgraph consensus allows members to agree on the linear order of transactions and events without mining blocks or sending votes.

Instead, members can see each others’ copies of the hashgraph and can automatically predict votes to reach a consensus. Pretty genius.

This is achieved with four components: 

  1. Events (information about data),
  2. The “Gossip protocol” (for node communication), 
  3. Gossip About Gossip (to spread the information across all nodes),
  4. Virtual voting algorithm. 

The result is an efficient network to process thousands of transactions per second for a fraction of a cent, no matter the amount. It’s an alternative solution to the blockchain trilemma: scalable, secure, and decentralized.

The hashgraph algorithm was patented by Hedera and first introduced with Hedera Hashgraph ($HBAR), founded in 2018 by Dr. Leemon Baird, Mance Harmon, and Paul Madsen. It was a permissioned network of 39 term-limited companies, the Hedera Governing Council. After 2022, the Council voted to purchase the patent rights and make the algorithm open-source and public.

Still, $HBAR remains the only cryptocurrency based on hashgraphs, with over 80 dApps developed in the Hedera ecosystem.

How Does Hashgraph Consensus Work?

“The Hashgraph consensus algorithm is an algorithm for asynchronous Byzantine fault tolerance intended for distributed shared ledgers.”

– Crary, K.

The hashgraph consensus requires ⅔ of nodes to agree on the transaction order to confirm it—a security level classified as ABFT, Asynchronous Byzantine Fault Tolerant.

As a highly efficient network, members don’t need mining rigs or special devices to participate in this process:

  • Whenever users make payments, use smart contracts, or pay network fees, the hasgraph nodes receive transaction data.
  • Transactions are formatted as “events” and include timestamps, transaction batches, two-parent hashes, and an encrypted signature.
  • After the node confirms the transaction, the event data is shared with a few other nodes chosen randomly. This is the Gossip protocol.
  • The receiving nodes resend it the same way until all nodes have received it (node syncing).
  • To ensure that the same node doesn’t receive the same event twice (see DAG), nodes also add secondary information called Gossip about Gossip, such as their own transaction history.
  • Once the event reaches all nodes, there’s a virtual voting algorithm that automatically calculates each of the nodes’ votes. Once two-thirds agree on the order, this updates the ledger without having to discard or cancel transactions from other blocks (often called forks).

Hedera Hashgraph allows weighted voting based on the amount of tokens committed. This is the blockchain equivalent to proof-of-stake consensus.

What Are the Differences Between Blockchain and Hedera Hashgraph?

Both Hedera hashgraph and blockchains are decentralized ledgers that verify information with previously stored data. The difference is the consensus model:

  • Block pruning: Hashgraphs don’t discard any blocks, whereas blockchains need complex, impractical systems to prune the main chain (such as block times)
  • Transaction order: Hashgraph transactions are ordered by timestamps and can’t be changed. Blockchain validators select which transactions to confirm first, and users can pay higher fees to influence this.
  • Performance: Blockchain consensus is inefficient despite the security of pure voting. Hashgraphs and virtual voting algorithms achieve the same security with higher efficiency and minimal latency/delays.

“When a cryptocurrency built over Hashgraph consensus algorithm, that will lead to have a fast network which will result in low network fees making very low microtransaction more practical than blockchain network. e.g., Bitcoin.”

– Alahmad, M.
Consensus Comparison between Bitcoin, Ethereum, and Hedera Hashgraph
Consensus comparison between Bitcoin, Ethereum, and Hedera Hashgraph | researchgate.net

Conclusion 

The hashgraph consensus exemplifies what modern cryptocurrencies could look like if blockchains were reinvented today. In theory, the Hedera founders have seemingly solved the scalability challenge. However, this efficiency may come at the expense of either security or centralization.

Even though the network is permissionless, there’s no guarantee that the efficiency claims will be maintained at scale. Until hashgraph-based networks see more adoption, it remains to be seen whether or not they can potentially replace traditional blockchains.

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Suchet Dhindsa Salvesen
Written by

Suchet is a Norwegian economist, entrepreneur, and investor, serving as the CFO and COO of Brainfund. With over a decade of experience in global expansion, venture capital, and emerging technologies, he earned his MBA from the NMBU School of Business & Economics. He held dual bachelor’s degrees from the University of South-Eastern Norway. His career spans roles at NextToMe, Get, and Conax before joining Everipedia, now Brainfund, in 2017.