At an event in New York City last night, a cryptocurrency startup called Hedera publicly unveiled its plan to bring credit card company-type speed to crypto payment processing. There were 1,000 audience members in attendance at the PlayStation Theater in New York’s Times Square, and 80,000 more around the world watching the livestream.
Cryptocurrency is hardly the niche nerdy thing it used to be, but it still has a long way to go before it becomes a conventionally useful payment mechanism. It can take up to 10 minutes for a single bitcoin transaction to be confirmed and settled. The bitcoin blockchain can only process some 10 transactions per second. Ethereum is only slightly better, at 25 transactions per second. Meanwhile, Visa can process 24,000 transactions per second. Furthermore, who other than Alice and Bob would have been happy to pay for a $5 latte with bitcoin this past December when the average bitcoin transaction fee was over $50?
While devotees of existing currencies say the future will bring technological solutions to these woes, Hedera has implemented a wholly new distributed ledger technology called a hashgraph. It uses an entirely different mathematical approach to cryptocurrency transactions, called directed acyclic graphs (DAG). It’s presented as a faster, cheaper alternative to the blockchain, capable of processing hundreds of thousands of transactions per second.
Hedera has military technological might in its DNA. Cofounders Mance Harmon and Leemon Baird met in 1993 as members of a team that built machine learning algorithms for the U.S. Air Force. They reunited in 2015 to start Swirlds, a company that builds private blockchains for big companies, and began the hashgraph work in Fall 2017.
Baird, a techno-wizard who completed a computer science PhD. at Carnegie Mellon in under three years, invented the algorithm that makes the hashgraph work. To compare this new technology to the present state of blockchain technology is a bit like comparing high-speed internet to dial-up. Instead of recording transactions in a chain, Hedera’s hashgraph is a graph of transactions that “can process in parallel, as opposed to linearly,” Harmon said.
Importantly, Hedera’s own cryptocurrency will never fork. This is a relatively common characteristic of other currencies—if a group of users doesn’t like the way things are going, they band together and start a new one with similar rules as the old one. But Harmon identifies these forks as “a hindrance to mainstream market adoption.”
So Hedera’s platform handles more transactions more quickly than others, and it does so with lower fees. If you were going to reverse-engineer a recipe for a conventionally useful real-world cryptocurrency, it would sound a lot like this.