Distributed Ledger Technology: Explaining Blockchain, Hashgraph and Bitcoin
As the CEO and Founder of the most visible Distributed Ledger Company in Fresno, a lot of people ask me about bitcoin. We even have actual (but not real) “coins” in our office suite just for fun. Here’s an explanation of what the next iteration of the internet is and the technology behind it.
The past decade of the internet has shown we haven’t built a system we can inherently trust. Data can be manipulated or stolen; identity theft and manipulated elections have impacted us all. As the internet became intertwined with our daily lives we started to place importance in how we manage its data, as our standard database isn’t working.
Infamously, bitcoin and its underlying distributed ledger technology, blockchain, burst on to the scene to provide a viable alternative. Unlike a traditional database controlled by a single owner a distributed ledger is designed to be shared. This simple shift flips things on its head.
Distributed Ledger Technology or #DLT
Distributed Ledger Technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Instead of a database controlled by a single owner that can freely block transactions, modify, or delete records a distributed ledger allows for a shared state of transactions. This means that all parties involved with a transaction can see what is happening and have equal ownership over the ledger establishing more trust of its data then ever before possible.
The greatest technical hurdle for distributed ledgers to work efficiently is how these computers collectively work together to decide if a transaction is valid, called consensus. How consensus is achieved is important as it ultimately determines how accurately, quickly, and with what level of security a transaction should be added to the ledger.
Both blockchain and hashgraph are DLT networks. Companies and projects build or integrate their software with their preferred network for decentralization, immutability, speed and security.
Enter Bitcoin ($btc)
Is it a coin? Is it a byte? Is it real? All of the above, absolutely! Bitcoin is digital currency that was created on DLT, more specifically, blockchain technology. This technology was invented by a man, woman, or group of people named Satoshi Nakamoto. The creation of digital currency that could not be tampered, duplicated, and recorded on a public ledger was appealing to many globally which sparked a demand and created immense value for this crypto currency. In April 2020 alone, Bitcoin enthusiasts purchased and held an extra 530 million USD each day.
A further iteration of distributed ledger technology are smart contracts. A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. To say it more simply, two parties come up with certain rules in order for a contract to be completed. As long as all the terms are met, the contract is done. No third party is needed to validate or negotiate. It’s very simple; either the contract terms have been met or have not been met—there is no gray area. Contracts can be carried out without human error, malicious behavior, and cannot be altered, tampered, removed or changed.
The Ever So Powerful and Amazing … Hashgraph!
My company and I have recently built our signature IoT product, SEUN, on Hedera Hashgraph. I am currently in the Founder’s Cohort of Geekwise Academy in Fresno, California (our specific cohort is sponsored by Google). When Google joined the governance council of Hedera, we decided to follow, and it was the perfect decision. A hashgraph can handle many more transactions than a blockchain but the core principles are the same. The cost of using the hashgraph is also much more affordable, which is perfect for a startup company like mine.
Hashgraph is a consensus algorithm that provides a faster, more secure alternative to blockchain. Hashgraph helps computers come to agreement better by introducing two concepts: gossip about gossip and virtual voting.
Not Your Traditional Gossip
It is common for a network of computers to talk to each other, this is often using the concept of gossiping. Like folks do at the work water cooler, this gossiping can spread information fast. What hashgraph does differently is it adds a small bit of additional data. It not only gossips about what data it knows, but also from whom they heard about the data.
Consider an example where I heard about a transaction from you. You would tell me the transaction (gossip), but also how you heard about the transaction (gossip about the gossip). I would then pass on the transaction and how both you and I heard about the transaction to the next person and so on until everyone is aware of the transaction and a history of how it was communicated.
Now, as you might imagine in this game of telephone it is possible for one person to be wrong or lying. This is where virtual voting comes into play. In order for a transaction to be valid and successfully processed the group of people, or network, must agree which transaction is true. In our example case, I know everything you know and how you received it. This enables me to virtually, meaning without having to ask you again, know if you’d deem the transaction valid or not. Like me, each person, or node, is able to independently do this. As such, the network of computers can quickly come to agreement on the transaction and add it to the ledger.
Trust and Web 3.0
Consensus algorithms, like hashgraph, will be increasingly important to how critical functions in our everyday lives like currency and identity operate. In the second era of the web we saw large centralized data undeniably enable true harm.
Decentralized networks, those not owned by a single or few entities like Hedera and Ethereum, give us the opportunity to fundamentally shift control and power to a more secure environment. Data can be safely exchanged and readily verifiable to establish a new era of trust on the web.