Next-Generation Crypto-Ledgers Take the Block Out of Blockchain

Next-Generation Crypto-Ledgers Take the Block Out of Blockchain

(Bloomberg) -- A group of U.S. credit unions looking to pool resources considered the Bitcoin and Ethereum blockchains to track their business, but wound up selecting something else entirely: hashgraph.

Hashgraph, like Bitcoin blockchain, is a distributed ledger, a decentralized online record of transactions that can be accessed by multiple parties. Once it launches a public ledger version, promoters say, hashgraph should be a faster, cheaper alternative to the blockchain, but the very features that can make the older system slower and costlier are also the ones that attracted investors in the first place.

Technologies such as hashgraph, and the similar IOTA and ByteBall, rely on “directed acyclic graphs” to track information. Hashgraph’s DAG records information in a timed series so that the record of each transaction is dependent on the ordering of all the previous transactions in the series. In blockchain, only one record of a transaction exists. If two miners create blocks at the same time, the community will chose the one transaction to go with, and dump the other. In hashgraph, no transaction is discarded. There can be many branches to the transaction record, and they all can continue to grow until a consensus can be determined.

Data Marketplace

The new networks can operate as marketplaces for massive amounts of data, such as per-second temperature readings, or to keep track of millions of connected devices, multiplayer games or stock trades. 

All users of a given DAG-based ledger confirm transactions for one another rather than rely on outside “miners.” Hashgraph’s ledger doesn’t bundle transactions, while Bitcoin blockchain requires them to be packaged in 1 megabyte blocks, which, during days of heavy traffic, can take days of work by miners to confirm and record. 

With hashgraph every user participates in confirming transactions, so the process is faster, and transactions are processed as they come in, meaning hundreds of thousands can go through in a second, versus seven for the Bitcoin blockchain. And where the blockchain can cost users $55 a transaction, hashgraph’s costs are nominal. 

“We can do the same things that blockchain can do,” said Mance Harmon, chief executive officer of College Station, Texas-based Swirlds Inc., creator of hashgraph. “But we can process far more transactions per second and we are more secure. We achieve the best level of security that one can achieve for this category of technology, and we are the first to do it.”

Credit Unions

More than 20 credit unions will deploy the system by year-end, said John Best, interim chief technology officer of the credit-union effort, CULedger, which has been tinkering with the technology for a year and a half. The group includes Suncoast Credit Union and CUDirect, a big auto lender. Credit unions want to use the tool to package large loans through “smart contracts,” according to Best. 

“You want to design something that works well into the future,” Best, who’s based in Colorado Springs, Colorado, said in a phone interview. He called hashgraph “blazing fast.”

About 20 companies, ranging from startups to multibillion-dollar businesses and even a government office, are road-testing hashgraph, Harmon said. VMS Software Inc. will use the technology to help its customers run distributed applications. Hashgraph will also debut its own public distributed ledger and related cryptocurrency this year, Harmon said.

“In 2018, serious people will ask if non-blockchain based cryptocurrencies will replace blockchain based cryptocurrencies,” Ari Paul, co-founder of BlockTower Capital, said in a recent tweet. “Maybe this means a hashgraph based crypto achieving 10%+ market share.” He’s not currently an investor in hashgraph, he said in a message.

Why Not?

So why isn’t everyone rushing to start a DAG-based ledger?

First, blockchain benefits from incumbency and familiarity. Why risk replacing it with a less well-tested technology whose vulnerabilities haven’t all been identified? Also, while it can retain as much transactional data as needed, hashgraph typically doesn’t contain as much transactional history as the Bitcoin blockchain does. For many applications, hashgraph would only keep track of users’ latest positive wallet balances.

Second, the DAG system doesn’t involve the computation-heavy “proof of work” effort to verify transactions that some blockchains, such as Bitcoin blockchain, require. Having several miners ratify and vote to accept a transaction lends blockchain what some say is a greater degree of security that the ledger contains a single version of the truth than under DAG-based systems.

Top 10

IOTA, the best-known DAG, is already the No. 10 largest cryptocurrency, with $6.6 billion in market capitalization, according to CoinMarketCap. But in August, researchers at the Massachusetts Institute of Technology and Boston University reported they had found a security vulnerability, which has since been patched up. 

“Even first-year computer science students here at MIT laugh at the code when they see it,” Tadge Dryja, a research scientist at MIT who is working to scale the Bitcoin network, said in an email. 

The hack MIT came up with “can’t happen in practice,” Serguei Popov, one of the founders of IOTA, said in a phone interview.

Hashgraph uses DAG differently: It uses it to record different aspects of transactions than IOTA, and has different security characteristics, according to hashgraph developers.

But Spencer Bogart, partner at Blockchain Capital LLC, which invests in blockchain startups, says none of the DAGs have impressed him yet.

“It’s very easy to conclude we can create something much better, but the problem is actually very hard,” he said in an email. “I’m most encouraged by the things I see in-production and battle-tested today, everything else is entirely speculative, and that road is littered with failed experiments.”

--With assistance from Jeremy Kahn

To contact the reporter on this story: Olga Kharif in Portland at

To contact the editors responsible for this story: Crayton Harrison at, Andrew Dunn, Dave Liedtka

©2018 Bloomberg L.P.