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The worst kind of crypto you can own

by , 18 June 2018
The worst kind of crypto you can own
Have you heard about a new crypto that's been making headlines in the crypto world?

It's called Hedera Hashgraph and it claims to be able to do everything blockchain technologies like bitcoin and Ethereum can do but much, much better.

Its white paper says it can process over 250,000 transactions per second (tps).

That's about five times what VISA can do. About 12,500 times what Ethereum can currently do, and about 30,000 times what Bitcoin can currently do.

It basically sounds like the perfect crypto…Super-fast and scalable and incredibly secure too.

Everything you want in a cryptocurrency, right?

Well, here are the major problems…

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Red flag #1: It’s patented – try to change it and you can be sued

Co-founded by two ex-US military men, Hedera Hashgraph is a distributed ledger technology (DLT) based on a directed acyclic graph (DAG).

In simple terms, all cryptos are DLTs, but not all cryptos are DAGs. DAG cryptos don’t have a blockchain, they have a graph.

According to CryptoWiki

The hashgraph is a patented data structure developed by Professor Leemon Baird. The hashgraph stores and updates information in accordance with a unique algorithm which allows a distributed and decentralised community to reach consensus between nodes/members in a fast (250,000 transactions per second) and secure (Strong Form Byzantine Fault Tolerant) way with mathematically proven fairness in the absolute ordering of transactions.

The data structure is a directed acyclic graph, where each vertex contains the hash of its two parent vertices. A hashgraph is updated by gossip where each member repeatedly chooses another member at random who gives them all the events that they don't yet know.

The hashgraph utilizes an entirely new protocol called "gossip about gossip" for information sharing. This means that part of the information transferred between members is an abbreviated history of how members have spoken to other members. This is similar to how friends may "gossip about what Bob did."  

Now the first major problem with Hashgraph is, it’s patented. In the world of crypto that’s a huge red flag.

What this means is, if anyone tried to change the code for a better one and split it, Hashgraph – or the company that owns it, Swirlds – would sue them.

Being patented also means it’s not an open source, which means people can’t check or improve the code.  This goes against what almost every other crypto out there stands for.

Almost every crypto is open source.

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Red flag #2: It’s all about its own profits

Unlike many cryptos, which form non-profit foundations, Hedera Hashgraph has formed a for-profit foundation.

The White Paper states:

Hedera Hashgraph Council is a for-profit LLC that will be governed by up to 39 renowned enterprises and organizations, across multiple industries and geographies.

Most cryptos pride themselves on building open-source platforms and protocols. Hedera Hashgraph, on the other hand, is all about its own profit.

Red flag #3: You MUST pay fees to use Hashgraph

One of the main benefits DAG cryptos provide is they can be fee-free. Two of the biggest DAG cryptos at the moment, IOTA and NANO, process transactions for free.

For example, if you send someone R1 worth of NANO, they’ll receive exactly that.

Hedera Hashgraph will not be free to use. You have to pay fees to send transactions and to store files on it.

And what’s more, the Hedera Hashgraph Council (HHC) will also get periodic dividend payments from network users.

Red flag #4: HHC owns 60% of the supply

Given that Hedera Hashgraph runs on fees, how are those fees distributed?

Well, Hedera Hashgraph will run a proof-of-stake protocol (POS). This means people who own it can “stake” what they own to secure the network and in turn get rewarded in fees.

Since the HHC owns 60% of the supply, it will collect 60% of the fees for itself. That’s on top of its unspecified dividend payments.

Also if the HHC wanted too, it could allocate itself even more at any time. And every user would have to go along with it.

So if there’s a valuable lesson to learnt from a crypto like Hedera Hashgraph, it’s…

Don’t always believe the crypto hype

The facts are, Hedera Hashgraph is incredibly centralised. It uses fees and is a closed source.  And don’t forget, its corporate leaders can change its code and rules at will.

But that’s not to say that it won’t do well. Who knows in the world of cryptos. It has a lot of money and power behind it, and it makes some very big claims.

But we’ll just have to see how the crypto community and the wider media respond when it launches on exchanges.

See you next week.

Joshua Benton, Managing Editor The South African Investor

P.S.  If you’d like to know which cryptos will go on to change the world and make people who own them a lot of money in the process, then I urge you to read this now!



The worst kind of crypto you can own
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