Distributed ledger technologies (DLT) are currently transforming existing markets in several industries today. However, during this disruption, some obstacles are hindering the adoption of these technologies by enterprises.
The use of DLT by enterprises like Amazon and Disney would require processing hundreds of thousands of transactions per second and a very fast consensus duration that is measured in seconds.
In addition, they will also require a public ledger that is governed by representatives from a wide range of sectors with world-class expertise. All these concerns are what Hedera, a public hashgraph network and governing body, has been built to address.
In this article, you will learn about how the Hedera network works and the various uses of its utility token.
What is Hedera Network?
Hedera Hashgraph is a public distributed ledger technology (DLT) network that allows individuals and enterprises to interact and transact easily and securely. It was established in August 2018 and the utility token of the network is called Hbars.
The Hedera network operates through an advanced form of distributed consensus technology called the hashgraph consensus algorithm. Similar to blockchains and other DLTs, Hedera enables users to create a decentralized and reliable database without the need for a third party.
Many existing DLT networks are often forced to compromise between performance and security. In this case, if they are faster, they are less safe; if they are more secure, they tend to be slow. However, hashgraph technology offers exceptional levels of transaction speed and security.
Since the Hedera technology offers a faster and more secure platform than other blockchain-based networks, it supports several types of use cases and business models. Developers and enterprises can use Hedera’s network services to develop various applications that run on top of the network.
The network supports developers to build applications for music-streaming services, pharmaceutical supply chain management, energy microgrids, and even multi-player online games.
Hedera Use Case: Staking and Proxy Staking
The Hedera ledger makes use of Hbars for staking on its platform. It operates on a proof-of-stake consensus mechanism, whereby each node’s ability to partake in validating transactions depends on the amount of Hbars it has staked.
A transaction is validated and completed after it is confirmed by nodes representing a total stake of more than two-thirds of the network’s total number of Hbars. The network enables anyone to host a node. Hence, the Hedera network is permissionless.
When a node joins the network, it must disclose one or more accounts that it can control, and prove that it has the private keys for those accounts. Afterward, the amount of Hbars in those accounts will be used to determine its votes in the hashgraph virtual voting algorithm.
However, nodes are allowed to spend those Hbars at any time. This is in place to encourage nodes that may be unwilling to stake their tokens due to the fear of loss of liquidity.
In addition, a mechanism called “proxy staking” will allow a person who owns Hbars to still stake without running a node. Such a user can stake their Hbars to earn a small amount of Hbars for contributing to network operation through “proxy staking” their account to a node.
Furthermore, they will also be able to spend the proxy staked Hbars at any time they desire, However, doing this will reduce the rewards they receive for staking. It’s important to note that the node to which the Hbars are proxy staked will not be able to spend those Hbars.
Hedera Use Case: Payments and Fees
Users pay Hbars as fees to use the Hedera platform for activities like transferring tokens or adding items to the ledger. Since the Hedera network has a high transaction speed, the network fees are smaller than that of other public DLT platforms in the market today.
Nodes in the Hedera ledger are rewarded in Hbars for sharing computing, bandwidth, and storage resources used in achieving consensus and for the services they provide. The various types of payments and fees in the network include:
- Node Fees -. Hbars are given as Node Fees to nodes for providing their resources and to encourage them for taking on such critical roles. Initially, the Hedera Governing Council set the amount of the Node Fees, but now Node Fees are determined by each node. They are paid by end-users directly to the account of the node that submits the user’s transaction to the network
- Network Fee – Users pay Network Fees in Hbars. These fees compensate all participating nodes for taking part in reaching a consensus on transactions. The resources required to validate a transaction varies based on the nature of the transaction, like the transaction’s file size and several digital signatures. Network Fees are paid by users into a Hedera Treasury account
- Service Fee – Service Fees are paid in Hbars by users, to reward the network for the services associated with the transactions like token transfers, smart contract processing, or file storage.
For instance, in a file service transaction, the network will charge a Service Fee in Hbars that depends on the amount of energy and memory needed to store a file, based on its size and the requested duration of storage on the network.
Hedera Use Case: Node Reward Payment
Hedera charges users for services and transaction fees in Hbars, on behalf of all the nodes processing the transactions and performing the services. Hedera uses those accumulated fees to fund payments to nodes.
Once a day, payments are made from the Hedera account to nodes, to reward them to keep serving as nodes. A node will be compensated according to the amount of cryptocurrency it is staking (both owned by itself and proxy staked to it by others).
The fees motivate the node to submit a transaction appropriately as it will not be paid if it fails to do so.
This node reward strategy is more efficient than what exists in proof-of-work, “winner-take-all” networks. In such networks, mining nodes consume energy to try to solve the cryptographic puzzle, but only the winning node receives compensation. All the energy consumed by the other nodes becomes wasted.
The Future of Hedera Hashgraph
The team behind Hedera Network is actively working on additional features and partnerships for the network. A notable instance was the launch of the Hedera Token Service, which allows anyone to create tokens on the platform. Transferring tokens on the token service cost just $0.001. These will help in increasing the value and adoption of the project.
Furthermore, some projects are being built on Hedera. Some of the projects include Carbon, AdsDax, Agryo, and TrakInvest. The successes of these projects through leveraging the remarkable technology that Hedera provides will attract more enterprises to build on the platform.
In the same vein, the network plans to introduce scheduled transactions. This will enable a user to specify a future time that they want the transaction to occur. Similarly, it will enable a user to permit the transaction to be signed by a specific number of people before it’s sent.