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A secure cryptocurrency without the scalability problems, performance issues, and costs of blockchain technology, that’s exactly what Hedera’s HBAR is. To introduce Hedera token briefly, it can achieve 10k TPS, settle almost immediately, and cost USD 0.0001 to transfer. The Hedera Hashgraph is designed to deliver faster transaction speeds, increased decentralization, lower environmental impact, reduced costs, and improved scalability to meet the demands of real-world use cases. What makes it a promising alternative to the current blockchain technology is much more. Let’s dive deep to understand more about HBAR tokens.
HBAR is the primary digital currency of the Hedera network, designed to be energy-efficient while fulfilling two main functions: acting as network fuel and safeguarding against cyberattacks. As network fuel, Hedera token is utilized to pay for network services and incentivize nodes to contribute their computing resources to the network. Additionally, the network’s proof-of-stake consensus mechanism utilizes HBARs to protect the network from malicious actors.
HBARs, the native cryptocurrency of the Hedera network, serve as a means of both network fuel and network protection.
In terms of network fuel, developers can use Hedera token to pay for a variety of network services such as transferring HBARs, executing smart contracts, creating fungible and non-fungible tokens, logging data, and more. Every transaction submitted to the network requires HBARs as compensation for the validator nodes that handle the computing, bandwidth, and storage.
As for network protection, HBARs are staked to the network nodes, which gives them a weighted influence on the consensus process for validating transactions. This weighted voting system makes it difficult for malicious actors to disrupt the consensus, as it would require a centralized authority to own and stake more than 1/3rd of the network’s total supply of HBARs.
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Upon the launch of the Hedera network, a total fixed supply of 50 billion HBARs was minted and placed in a Hedera Treasury account, which is composed of multiple cryptographically secure multi-sig accounts. This ensures that HBARs can only be transferred out of the Treasury account after a transaction is cryptographically signed by a majority of members in the governing council.
In September 2019, the network was opened to the public, and the Hedera Treasury began distributing HBARs to SAFT holders, employees, vendors, advisors, and others. Additionally, Hedera token became available on exchanges, enabling developers and users to purchase them.
Public distributed ledger technologies (DLTs) rely on a decentralized network of computers, known as nodes, to maintain and verify the ledger. These nodes work together to ensure that user account balances are always up-to-date by executing new transactions and placing them in consensus order. To perform these functions, nodes must provide computing power. To encourage participation, DLTs offer incentives to nodes, often in the form of a native cryptocurrency.
The Hedera network utilizes HBARs as a means of paying for network services such as submitting transactions, executing smart contracts, using the Hedera Consensus Service, and storing files. Additionally, HBARs are used to reward nodes for contributing their computing resources to the network.
The Hedera whitepaper states that the per transaction fee is so minimal that it necessitates payment to be made in a denomination smaller than a penny. This economic design of the network’s transactions strikes a balance between costs and incentives, leading to an efficient flow of funds. The mechanism behind this is as follows:
Users of the Hedera network are required to pay fees for utilizing its services. The fees vary depending on the type of network services used and the resources consumed during the process. The overall fee charged for action on the network is known as the Transaction Fee, and it is made up of three separate fees: the node fee, network fee, and service fee. Each of these fees corresponds to a specific aspect of how a transaction is submitted and validated by the network. The fees are determined by the Hedera Council.
Node Fee
Anyone seeking to complete a transaction on the network will send that transaction to a node. This node will then submit the transaction to the network. For this, the node will use resources and energy. The purpose of node fees is to compensate nodes for these resources as well as incentivize them to take on the task. Node Fees are deducted from the end user’s account and are submitted directly to the account associated with the node performing the task.
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Network Fee
Once a transaction is submitted to the network, the network communicates the transaction to other nodes that validate digital signatures, further communicate it to other nodes, and temporarily store it in their memory as the network reaches consensus. The Network Fee—paid by the user—compensates all the nodes that participate in calculating consensus on a transaction. This fee is deposited into a Hedera-controlled account.
Service Fee
Users compensate the network for the services associated with the transaction (such as cryptocurrency transfer, file storage, smart contract processing, etc.) by means of service fees. The amount of the fee varies according to the nature of the transaction being completed. For instance, the service fee for a file service transaction will depend on the amount of energy and memory required to store a file as per its size and the duration for which it will be stored. Alternatively, for a smart contract transaction, the service fee will be calculated according to the processing power that the network nodes require to perform the due computation. The service fee is also deposited into a Hedera-controlled account.
The network also has an optional application fee that developers can charge to users to use their Hedera-based applications/services. This fee will be paid by the end user directly into the developer’s account.
Node Reward Payments: Similar to most DLT networks, Hedera rewards nodes with the network’s native cryptocurrency, i.e., HABR. The implementation of node reward payments expects that a Hedera-controlled account will, at an interval of 24 hours, distribute Hedera token to all nodes that were online and took part in validating transactions.
This node incentivization system is better than the winner-take-all approach of the proof-of-work networks. Hedera claims that on the network, no energy is wasted since nodes don’t expend energy on solving math problems but on communicating, supporting, and validating transactions.
Proxy-staking Payments: The implementation of proxy-staking on the Hedera network expects that initially, only Hedera can proxy-stake coins to nodes. Gradually, the network will allow any HBAR owner to proxy-stake their coins to nodes. Once this happens, the network will start proxy-staking payments to accounts that have proxy-staked coins to active nodes. These payments will also be made once every 24 hours, and any payment relating to a user’s proxy-staked coin will be split 50-50 between the user’s and the node’s account.
Staked or Proxy-staked HBAR will always remain under the control of their owner. The owners will have the freedom to spend their HBAR anytime. Moreover, those who proxy-stake HBAR can turn off or redirect the proxy-staking to another node at any time.
For the Hedera network to operate securely as a permissionless distributed ledger technology, it is crucial that the network’s coins are widely distributed. The Hedera coins represent the stake of voting power in the network’s proof-of-stake consensus model, meaning that a greater number of coins equates to more voting power over consensus. Widely distributing HBARs ensures that no single group of attackers can gain control over 1/3rd of the coins.
To achieve this, the Hedera network will remain a permissioned network until the coins are sufficiently distributed or until the total value of circulating coins becomes too high for malicious actors to acquire a third to conduct an attack. Additionally, the network will introduce a cap on the number of HBARs that can be proxy-staked to a single node.
Hedera is also following a slow and controlled release schedule, with no more than 34% of HBARs to be released until 2025. This approach ensures stable and orderly growth of the network, allowing it to scale without compromising security. The network is also providing transparency and predictability by publicly communicating the expected release schedule of the total circulating supply to minimize asymmetry of information and protect the network against market manipulation.
Hedera token or HBAR, the native cryptocurrency of the Hedera network, has a fixed supply of 50 billion and is currently available for trading on various cryptocurrency exchanges. The Hedera community is strong, and the ecosystem of dapps and developers building on the Hedera network is growing. The Hedera network is positioning itself as a next-generation blockchain platform that aims to address the scalability and security issues that existing blockchain networks face.
The Hedera network utilizes the Hashgraph consensus algorithm, a unique feature that makes it an interesting project to keep an eye on. Additionally, the network’s multi-tier governance model adds to its appeal. However, as with any cryptocurrency, it is crucial to conduct thorough research and assess the risks before investing in Hedera token or any other token.
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