Hedera Hashgraph raises $100 million for fast and secure blockchain alternative

Move over blockchain. Hedera Hashgraph has raised $100 million via a future token sale from institutional investors as it seeks to create a new commerce network based on its “hashgraph consensus” technology. That’s a fancy term for a new distributed public ledger that the company says can function much faster, more securely, and at a larger scale than current blockchain technologies.

The Dallas, Texas-based company will use the money from its public sale of future tokens to accelerate development of key services to be provided by Hedera. The company says the amount of money raised shows how much potential it has to change the internet as we know it and overcome the obstacles that have stopped cryptocurrency and blockchain from disrupting the world’s financial systems.

“As a technology, it’s a fundamental advance in the world of distributed systems,” said Hedera CEO Mance Harmon, in an interview with VentureBeat. “It has fantastic performance, and it achieves the best in security one can have in the field.”

He added, “Small systems have achieved this in the past, but never at scale. Bitcoin had terrible performance, but it is reasonably secure. It was always a trade-off. What hashgraph does for the first time is break that trade-off, maximizing both security and performance.”

That means it can be used as a foundation for a cryptocurrency that can function at hundreds of thousands of transactions per second in a single cluster of computers (a shard), compared to five for Bitcoin and 15 for Ethereum. With enough clusters operating in parallel, the performance can reach millions of transactions per second, and that is enough to handle commerce on a gigantic scale, Harmon said.

“This is like the difference between a calculator and a computer in what we can do,” he added.

Above: Mance Harmon is CEO of Hedera Hashgraph.

Image Credit: Hedera Hashgraph

The Hedera Hashgraph provides a new way to arrive at distributed consensus, or verifying something like a transaction to satisfy people who don’t know each other or trust each other. They do this in a collaborative way without the need for a trusted intermediary, like a bank.

With the blockchain, achieving that consensus can take a long time, slowing down technologies such as Bitcoin or Ethereum when it comes to doing transactions. The compute-heavy task, dubbed “proof of work,” can make Bitcoin more secure, but it also slows it down. In closed networks, proof of work isn’t necessary, but that means sacrificing security.

Hedera Hashgraph doesn’t require the compute-heavy proof of work that slows down some of the blockchain platforms. It uses something dubbed the “virtual voting consensus algorithm,” which dispenses with the proof of work and runs extremely quickly. And so Hedera Hashgraph aims to run transactions at least 1,000 times faster than other cryptocurrencies, Harmon said.

One of the things Hedera Hashgraph will enable is the micropayment, or the ability for one party to pay another a fraction of a penny, Harmon said.

“We think that will be incredibly important for things like the internet of things, where the things will discover each other and engage in commerce automatically in a micro economy,” Harmon said.

He also said it could enable high-throughput transactions for online games, where you can use the hashgraph to verify the authenticity of resources, like a sword in a vast universe.

“You could do a fully distributed Metaverse,” Harmon said, referring to the world of virtual worlds envisioned by sci-fi author Neal Stephenson in the 1992 novel Snow Crash. “It ensures scarcity of items, and you can’t cheat. We think gaming will be a huge vertical for us, and it was part of our original motivation. The vision for cyberspace is for an individual to grab a piece of the space, play together, work together, exchange goods and services, and do it without having to trust a central third party with their privacy and their data. That was the goal.”

Above: The Hedera Hashgraph logo

Image Credit: Hedera Hashgraph

Hedera Hashgraph plans to launch the Hedera network and start giving early access to some partners within the next month, with numerous distributed applications already being developed for the platform.

The hashgraph consensus technology on which the company is based is the brainchild of Leemon Baird, chief scientist of Hedera Hashgraph and a former professor of computer science at the Air Force Academy. He started working on a mathematical piece of the problem, dubbed asynchronous Byzantine Fault Tolerance, at scale back in 2012. He wasn’t trying to compete with Bitcoin at the time, Harmon said.

“He was thinking of this cool math problem,” Harmon explained.

Baird succeeded in creating the Hedera Hashgraph. In 2014, Baird and Harmon started a company, Swirlds, whose mission was to demonstrate that the technology worked. NEA led the funding for Swirlds.

By that time, the significance of Bitcoin and cryptocurrency was becoming more evident. Last year, Swirlds spun out Hedera Hashgraph as a separate company. And the Hedera Hashgraph Council was established as a group of 39 major companies that provide governance and licensing for the hashgraph. The council’s job is to ensure that the network remains decentralized.

While many cryptocurrency sales have investors and regulators spooked, Harmon said Hedera Hashgraph has made every effort to be “squeaky clean.” Harmon said the $100 million raise is like bridge financing, with institutional investors putting in money to buy tokens that will be issued at a future date, when the Hedera network is up and running.

In addition to the $100 million, Hedera said it will conduct a limited accredited investor crowdsale, targeted at raising $20 million through the sale of its cryptocurrency — in accordance with Securities and Exchange Commission regulations — as a private placement.

Above: Hedera Hashgraph aims to enable micropayments with cryptocurrency.

Image Credit: Hedera Hashgraph

“As we come close to completing initial development of the Hedera network, we are pleased to be opening our crowdsale to the community — without whose support we would not be where we are today — under the same terms offered to institutional investors in this funding round,” said Hedera president Tom Trowbridge, in a statement. “These are the same terms under which management and employees have invested over $10 million in the most recent round. Separately, the majority of the tokens granted to the cofounders vest in four to six years. This clearly demonstrates our long-term belief in, and commitment to the growth of, Hedera.”

Hedera Hashgraph is creating public applications programming interfaces to enable three services. It will create a cryptocurrency-as-a-service with native support for micropayments. It will create distributed file storage for the network that can be used by smart contracts, or programs that run on the public ledger. And it will create smart contracts based on Ethereum’s scripting language, Solidity. That makes it possible to build distributed applications that run on the Hedera Network, Harmon said.

The company is building a community of developers and advocates who are attracted to the speed, security, and scalability benefits of the hashgraph technology. To date, almost 200 Hedera Hashgraph ambassadors have run more than 80 meetups in cities around the world, reaching more than 5,000 attendees. Hedera itself has about 50 people.

“We are excited to be on the cusp of launching our network,” said Hedera cofounder Baird, in a statement. “We are grateful for the commitments of our investors and employees, as well as the strong support we continue to receive from the community. In addition, we want to acknowledge the incredible role the developer community has and will continue to play in our growth, and we will be providing opportunities for developers to earn tokens as we roll out the network throughout the year.”

Hedera18, the inaugural hashgraph developer conference, will be hosted in Dallas, Texas, from October 15 to October 17. A global hackathon will take place at the same time in Dallas, Tel Aviv, London, Singapore, and Sao Paulo.

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