Is Hedera Hashgraph (HBAR) a Good Investment?

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Contributor, Benzinga
February 6, 2022

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The Hedera Hashgraph network is a public distributed ledger network that is built using a directed acyclic graph (DAG). Hedera Hashgraph was founded by a Texas software company known as Swirls. The company raised capital for the project through a series of SAFTs (Simple Agreement for Future Tokens) starting in 2018. It’s mainnet was launched in 2019 and currently has partnerships with major institutions such as Alphabet Inc. (NASDAQ: GOOGL), LG Electronics Inc. (KRX: 066570), University College London and many more. HBAR certainly has a lot going for it, but is it a good investment?

What is Hedera Hashgraph?

HBAR is the native token for the Hedera Hashgraph network. The token is used to power its decentralized applications and serves as the fuel for its ecosystem. The vision of Hedera Hashgraph is “to build a trusted, secure, and empowered digital future for all.”

Although Hedera Hashgraph is a distributed ledger technology, it is important to note that it is not built on top of a blockchain. Instead this technology uses a DAG, which differs from the vast majority of distributed ledger networks — such as Bitcoin, Ethereum, Cardano — that are all built using the blockchain. Hedera Hashgraph also uses a unique consensus mechanism called the hashgraph consensus algorithm, which was invented by the co-founder of Hedera, Leemon Baird. The consensus algorithm uses what is referred to as a “gossip protocol” where the nodes of the network send transaction information to other nodes, and the receipts of this information repeat the process by sending it to additional nodes. This unique consensus algorithm has been validated through mathematical proofs to be asynchronous Byzantine Fault Tolerant (ABFT).

Hedera Hashgraph claims to support 10,000+ transactions per second, which is lightning fast. For reference, Visa Inc. (NYSE: V) handles around 1,700 transactions per second and claims to have the capacity to support 65,000 transactions per second. However, there are major red flags in the transactions per second that Hedera Hashgraph claims to be able to process. The transactions per second supported by the network drops significantly when executing transactions involving smart contracts. Furthermore, transactions involving smart contracts written in solidity tend to cause the transactions per second to drop to 13 to 15 transactions per second because the Ethereum virtual machine (EVM) must be used to run transactions.  

Another important critique of Hedera Hashgraph is its centralization. Hedera Hashgraph is governed by a council of 19 multinational corporations from around the world. Some of these multinational corporations include Google, LG and IBM (NYSE: IBM). These multinational corporations and the founding company Swirls have a great deal of power over the network. Furthermore, until recently the software behind Hedera Hashgraph was patented and closed source. 

Hedera Hashgraph Price History

The HBAR token is currently trading above its all-time lows but it isn't close to its all-time highs either. HBAR was an amazing investment for anyone who bought it before February 2021 and sold before the recent crash. HBAR could a great investment again now that it is closer to its lows but it is still quite risky to invest in relatively small cryptos. The token has a market cap of over $1 billion and a fully diluted market cap of over $3 billion. The fully diluted market cap is the market cap of the token if the max supply were in circulation. Currently, 21 billion HBAR tokens are in circulation, and the token has a max supply of 50 billion tokens. That level accounts for 36% of the max supply currently in circulation. The token is in the top 50 largest cryptocurrencies by market cap. It is currently down from an all-time high of $0.5059. 

Hedera Hashgraph Competition

Hedera Hashgraph faces strong competition from other major smart contract platforms. Competitors include well-established networks such as Ethereum, as well as other projects such as Cardano, Solana, Avalanche and Fantom. Although Hedera Hashgraph aims to serve the enterprise blockchain space, nothing prevents big institutions from building their applications on top of these other networks. 

Hedera Hashgraph also faces competition from the many Layer 2 solutions working to help scale Ethereum.  One example would be Polygon and the MATIC network. Ethereum currently has the most users and developers of any smart-contract-compatible distributed ledger technology. If Layer 2 solutions are able to help scale Ethereum, then many institutions may choose to build their applications there instead of on a smaller project such as Hedera Hashgraph.   

How to Buy Hedera Hashgraph

The best place to buy Hedera Hashgraph is from a centralized exchange. These exchanges are companies that allow you to purchase cryptocurrencies using fiat money. Unfortunately, many major exchanges such as Coinbase Global Inc. (NASDAQ: COIN) do not support Hedera Hashgraph. Currently, the most reputable exchange to purchase HBAR on is crypto.com. To purchase HBAR through crypto.com you create and then login to your account. Afterwards, you fund your account through your bank account, credit card or other cryptocurrencies. Then convert these funds to HBAR. 

Decentralized exchanges (DEXs) are also a popular way to purchase cryptocurrencies. Some popular DEXs include Uniswap, SushiSwap and Metamask. However, since Hedera Hashgraph is not an Ethereum ERC-20 token, the vast majority of DEXs will not have this token available for purchase. 

Best Hardware Wallet: Ledger

If you choose to purchase a significant amount of HBAR tokens, it is extremely important to take the precaution to store these tokens safely. The best place to store your HBAR tokens is on the hardware wallet Ledger

Hardware cryptocurrency wallets such as Ledger store access to your cryptocurrencies on an external device. Ledger wallets are a form of offline storage and are not connected to the internet. This feature is beneficial because “hot” wallets that are connected to the internet are much more likely to be exposed to scams, hacks and private key leaks. Ledger wallets currently cost around $60 to $250 depending on the model you choose to purchase. 

Cryptocurrency Market Outlook

Here is the current outlook for the cryptocurrency market. The total cryptocurrency market is currently down significantly from the end of last year. If you are interested in purchasing cryptocurrencies, now may be a good time to get in well below past all-time high prices.

Is Hedera Hashgraph a Good Investment?

HBAR may not be a good investment in part because of its minimal community. Hedera Hashgraph’s centralization and focus on institutional investors mean that it does not seem to have grown a strong following. Lack of community can have a negative impact on cryptocurrencies because the value of a good or service that a user derives — the network effect — depends on the number of users of the same product or platform. 

The value provided by a platform with great technology may be less than the value provided by a less sophisticated platform if such platform has more users. For example, a social media platform with superior technology would provide little value if you are the only user of the platform. If the platform can gain many more users, however, HBAR could be a fantastic investment.

Another reason Hedera Hashgraph may be a poor investment is due to the heavy competition it faces from other Layer 1s and Layer 2 solutions. Many competing platforms attempt to create more scalable distributed ledger technology, and it is unlikely that Hedera Hashgraph will come out on top. 

However, the cryptocurrency market is down significantly. Hedera Hashgraph may still see a significant amount of growth if the cryptocurrency market as a whole experiences substantial growth.

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