ICO Analysis: Hedera Hashgraph

Hedera Hashgraph is another project in the blockchain space aiming to take blockchain to the next level: fast and ready to take on widespread usage by the mainstream as well as enterprises.

Currently, distributed ledger technology faces a number of challenges:

  1. Scalability
  2. Security
  3. Governance
  4. Stability
  5. Regulatory Compliance

Hedera Hashgraph’s team believes that only when these challenges are addressed and surmounted will mainstream markets trust blockchain enough to adopt it en masse.

With regards to the aforementioned challenges, Hedera Hashgraph aims to address them in the following ways:

  1. Performance – Hedera is built on the hashgraph distributed consensus algorithm (“hashgraph” also is used to refer to Hedera’s blockchain), invented by Hedera’s CTO and Chief Scientist Dr. Leemon Baird, who worked as a Professor of Computer Science at the US Air Force Academy and has multiple patents and publications in peer-reviewed journals. According to the Hedera Hashgraph whitepaper, the platform can handle hundreds of thousands of transactions per second in just one shard (let alone the entire network). Confirmations also happen in seconds and not minutes, hours, or days.
  2. Security – Hedera Hashgraph is secure through asynchronous Byzantine Fault Tolerance (aBFT). While other platforms are susceptible to Distributed Denial of Service (DDoS) attacks, the hashgraph platform isn’t. Moreover, aBFT provides both fair access and fair ordering for transactions on the platform. Appendix 3 of the whitepaper gives a full definition of the hashgraph algorithm and its fairness properties as well as proofs of aBFT.
  3. Governance – Hedera’s governance consists of Council Governance (management of council concerns) and Consensus Model (determining transaction consensus order).
    • Council Governance is done by an elected Governing Board that deals with council membership policy, network token regulation, and platform codebase changes. The Governing Board will consist of up to 39 leading organizations in their respective fields, bringing expertise previously lacking in past blockchain platforms.
    • Consensus Model deals with how nodes reach consensus on the platform’s order of transactions. In the Consensus Model, nodes cast one vote for each Hedera token that they own and since many nodes are expected to join the network and be compensated for maintaining the hashgraph ledger, it’s expected that Consensus Model voting privileges will be distributed amongst thousands of nodes.
  4. Stability – Hedera Hashgraph’s stability will be ensured with both technical and legal controls.
    • Technical – Hedera Hashgraph has Swirlds technology, which has the effect of protecting users of the platform from unofficial forks of the platform as well as ensuring that only software clients running the latest version are able to modify the hashgraph.
    • Legal – The Hedera Hashgraph codebase will not be open-source but be available for public review so that anyone can read the source code, recompile it, and verify its legitimacy. No licenses will be required to use the platform, write software that uses the platform, or build smart contracts on the platform. Thus, Hedera will provide a transparent codebase open to innovation so that the market can use it for its own purposes.
  5. Regulatory Compliance – Hedera has an opt-in escrow identity mechanism that gives users the choice to attach verified identities to their otherwise anonymous cryptocurrency accounts. Therefore, on the one hand, anonymous users can maintain their anonymity, and on the other, users that need to be verified for official purposes can do so without having to worry about regulatory backlash.

Token

By replacing proof-of-work consensus mechanisms with virtual voting (nodes cast one vote for each Hedera token that they own), high throughput, low fees, and micropayments are all made possible.

DApp developers on the network will use Hedera tokens to pay for network services like processing transactions, executing smart contracts, and storing files.

As mentioned earlier in the analysis, anyone running a node will earn Hedera tokens for doing so. The amount they earn is proportional to the amount of Hedera tokens they stake in one or more accounts for which they have the private keys. (This stake is also used to weight their votes in the Consensus Model). However, users are still able to spend their stake at any time – though of course spending some of the stake means receiving less rewards for running a node.

Users who don’t want to run a node (e.g. not wanting to invest in computing resources and/or the maintenance of them) can “proxy stake” Hedera to someone else’s node. This means that the user with no node gives a node “credit” for their stake and splits ledger maintenance awards with the node that they credit with their stake. (The ratio of the split is negotiated between the two parties). Proxy stake funds are in control of the proxy staker, who can spend the stake at any time, turn off the stake, or even redirect the proxy stake to another node.

As mentioned, fees are low, but they do exist. There are node fees, service fees, and transaction fees:

  • Node fees – a platform user can use platform services (e.g. transferring crypto from one account to another) by contacting a node, which submits the user’s transactions. The platform user pays a fee, negotiated between the user and the node, to the node for its service.
  • Service fees – users that use platform services (e.g. storing a file in the hashgraph) without going through a node pay a service fee.
  • Transaction fees – transactions handled by the network incur a fee to cover the associated costs of nodes exchanging data about the transactions, temporarily storing them in memory, and calculating consensus on the events containing them.

Token distribution is “expected” (taken from the Hedera Hashgraph crowdsale FAQ – “What is the token distribution?” section) to be as follows.

  • 65% Hedera Council Treasury
  • 17% management and employees
  • 13% SAFT purchasers and developers
  • 5% Swirlds

Hedera has already raised $100m in funding from institutional and high net worth investors and is currently conducting an accredited investor crowdsale ($20m target).

Accredited investor verification (whitelisting) will stop when $20m in funding is reached or August 15th, whichever comes first.

Token price and token release schedule for both first round and accredited investor round are the same:

  • Option A: $0.12 per token. 20% of tokens issued six months after network launch, with the rest vested in 10% installments over 8 months.
  • Option B: $0.096 per token. 20% of tokens issued six months after network launch, with the rest vested in 20% installments over the subsequent 4 years.

The majority of founder tokens are vested in 4 to 6 years.

If all funding goals are met, the project will start with a $360m market capitalization (based on expected circulating supply on day of token release).

Total token supply is fifty billion.

The offering is a Simple Agreement for Future Tokens (SAFT) in accordance with SEC regulations and there will be no ICO.

Minimum contribution is $1,000, and maximum contribution per person is $250,000. However, investors who want to invest >$250,000 can email saft@hashgraph.com (?), according to the Hedera Hashgraph crowdsale FAQ, which is confusing.

All raised funds will be used to grow the platform (engineering, sales, marketing, developer advocacy, community development, legal, etc).

Team

Co-Founder, CTO, and Chief Scientist Leemon Baird – Baird invented the hashgraph consensus algorithm, has worked as a Professor of Computer Science at the US Air Force Academy, has a PhD in Computer Science from Carnegie Mellon University, and has many patents and publications in peer-reviewed journals and conferences in the fields of computer security, mathematics, and machine learning.

Co-Founder and CEO Mance Harmon – Harmon also has an Air Force background as former Course Director for Cybersecurity. He was also Program Manager of a large-scale software program for the US Department of Defense’s Missile Defense Agency and senior executive for product security of an unnamed $1.7b revenue organization.

President Tom Trowbridge – Trowbridge is President of the Hedera Hashgraph Council and has a strong finance background, having started and ran the New York Office of UK-based Odey Asset Management. He also has held positions at Goldman Sachs, Lombard Odier, Atticus Capital, Bear, Stearns & Co., and telecom and media private equity firm Alta Communications, where he was responsible for 10 deals.

Verdict

Below is a breakdown of the risks and growth potential of Hedera Hashgraph.

Risks

  • Very bold claims but no working product (-1)
  • High hard cap and initial valuation but other projects that have done well have had the same (though uncommon) (-0.5)
  • Similar to EOS – bold claims, no working product, lots of hype – except the EOS team probably had a more relevant background (CTO Dan Larimer was behind popular and proven projects like Bitshares and Steemit) (-0.5)

Growth Potential

  • A lot of hype (e.g. large Meetup community) (+4)
  • Some DApps have already committed to the platform, and many developers are interested in the platform (e.g. their developer – not general public – Discord channel has nearly 5,000 members as of writing) (+4)

Disposition

  • Hedera Hashgraph promises to pack quite the punch similar to projects like EOS. The hype is definitely there, but can the team deliver?
  • Hedera Hashgraph receives a 6/10.

Investment Details

  • Type: Native – Utility
  • Symbol: Unspecified
  • Platform: Native
  • Crowdsale: Ongoing
  • Minimum Investment: $1,000
  • Price: $0.096 or $0.12
  • Hard Cap: $120m (institutional round and accredited investor round combined)
  • Payments Accepted: BTC and USD (via wire transfer) – can’t mix BTC/USD to pay for one SAFT (but can purchase two SAFTs separately using BTC for one and USD for the other)
  • Restricted from Participating: The SAFT is being offered to accredited investors in 63 countries. (Anyone from a country NOT on the following list is restricted from participating). The countries are: Andorra, Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Virgin Islands (British), Bulgaria, Canada, Cayman Islands, Croatia, Cyprus, Czech Republic, Denmark, El Salvador, Estonia, Finland, France, Germany, Gibraltar, Greece, Guatemala, Honduras, Hong Kong, Iceland, India, Republic of Ireland, Isle of Man, Israel, Italy, Jamaica, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Moldova, Netherlands, New Zealand, Nicaragua, Nigeria, Norway, Panama, Poland, Portugal, Puerto Rico, Romania, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, United Arab Emirates, United Kingdom, United States.

For More Information

Featured image courtesy of Shutterstock.