What you will learn
- Unlike Ethereum, Hedera is natively Maximal Extractable Value (MEV)-resistant. This ensures that DEXs and other decentralized finance applications and marketplaces are fairer to users.
- Hedera, but not Ethereum, offers asynchronous Byzantine fault tolerance, which affords fair transaction ordering, consensus timestamps, and leaderless node operation.
- A single Hedera transaction requires only 0.02 watt-hours per transaction but 30 watt-hours on the Ethereum network.
- Hedera transactions settle with finality in 3-5 seconds, while it can take up to 15 minutes on Ethereum.
Decentralized applications rely on cryptographic and distributed ledger technology for trusted digital transactions, but the technology can come in varied forms. Hedera and Ethereum are two very different types of distributed ledgers that enable developers to build and deploy smart contracts to create immutable and transparent economies, while improving business processes. Ethereum, one of the leading blockchain-based ledgers, is very well known. Hedera is smaller, but is quickly carving out its place in the web3 space.
When you weigh Hedera vs Ethereum, your first point of comparison is the former’s directed acyclic graph (DAG) technology, hashgraph, with the latter’s blockchain format. Understanding DAG-based ledgers is essential to understanding the difference between the two networks.
It also helps to understand what it means to be asynchronous Byzantine fault tolerant (ABFT). ABFT is an essential measurement of whether a ledger is safe against attackers, and Hedera is one of the only public aBFT layer 1 networks in the broader web3 market.
This article will examine those issues and more as it compares Hedera and Ethereum and their roles in a decentralized economy.
An overview of Hedera and Hashgraph Consensus
The Hedera network was launched in 2018 to overcome five major obstacles faced by distributed ledger technologies (DLTs): performance, security, governance, stability, and regulatory compliance. Hedera believed the most compelling DLT use cases required consensus latency measured in seconds. Per Hedera’s whitepaper, it was also essential that “a general-purpose public ledger be governed by representatives from a broad range of market and geographic sectors.”
From the get-go, Hedera aimed to be governed by up to 39 leading global organizations, with no single entity having control and no small group having undue influence. Today, the Hedera governing body is led by 28 of the world’s leading organizations, including IBM, Dell, Chainlink, Ubisoft, Google, LG, and Boeing.
Council members vote on proposals and codebase changes that are submitted by Hedera’s developer ecosystem through the Hedera Improvement Proposals (HIPs) program. This program ensures that changes to Hedera’s codebase, standards, and ecosystems are driven directly by folks building web3 applications and engaging the network daily.
Hedera optimizes its network speeds using a DAG-based architecture. Directed acyclic graphs have vertices and edges that never form a closed loop. When used in a DLT, the distributed node network resembles a graph more closely than a blockchain. For example, Hedera’s gossip-about-gossip protocol lets each node communicate with all others in the network, sharing new information. When one node learns new information, it passes it to a randomly-selected node. Each of the two nodes then selects another random node to share the information with, and those nodes do the same. This graph-based architecture lets nodes pass data throughout the network at unprecedented speeds. Uniquely, gossip-about-gossip also shares how every node on the network has previously voted on transactions when coming to consensus; because every node knows what the others know, this reduces the network’s overall bandwidth and compute consumption when coming to consensus.
Hedera’s speeds are further enhanced by its robust mirror network. Mirror nodes function as read-only nodes that contain a verifiable history of all transactions on the network exposed across various network explorers and data APIs. Mirror nodes efficiently pass historical transaction information to users and dApps without impacting the main network, leaving it free to handle transaction processing.
Hashgraph consensus
Hedera’s hashgraph consensus algorithm is a core element of its operation and success. Hashgraph improves upon blockchain technology in numerous ways. Blockchains can be represented as a single chain of blocks, with new blocks falling in line as the chain grows. If two blocks are created simultaneously, the network must choose one chain and discard the other. Hedera hashgraph comes to consensus on every transaction individually, weaving newly-created transactions back into the ledger and ordering them fairly.
Blockchains must artificially slow down their growth to ensure blocks aren’t added faster than they can be validated. In contrast, there is no negative impact when the hashgraph’s data structure grows quickly.
Its hashgraph algorithm makes Hedera one of the only ABFT distributed ledgers, meaning honest nodes are guaranteed to agree on consensus and the ordering of transactions, even if malicious nodes exist. No distributed ledger network can ensure consensus if more than one third of the nodes are compromised, but ABFT networks are guaranteed to come to consensus if one third or fewer of the nodes are compromised.
Additionally, with Hedera’s proof-of-stake, there is no bonding or slashing for validators or stakers — this is because of hashgraph’s aBFT property and lack of a blockchain mempool. Because validators are literally unable to behave nefariously by re-ordering transactions, there is no need for these punitive measures seen on other networks.
Consensus service
Hedera is the only layer 1 public network to offer developers a tool to create decentralized logs of immutable and timestamped events for mission-critical web2 and permissionless web3 applications. These applications include tracking products in a supply chain, logging sensitive user access information, building DAO tooling, creating an asset bridge, and more.
Enabled by low, fixed fees, scalable transactions, and native consensus timestamps, the Hedera Consensus Service (HCS) acts as a “decentralized Kafka,” delivering multi-party trust and verifiability for streaming data at web scale.
Cryptocurrency
The Hedera platform is known for its low, fixed fees, scalable throughput of 10,000 transactions per second, and robust security. Transactions on Hedera are paid for using its native token, HBAR cryptocurrency. Payments on Hedera can be performed using institutionally-backed stablecoins, such as USDC, or your own cryptocurrency.
The Hedera Token Service allows any entity to configure, mint, and manage fungible and non-fungible tokens using just a few lines of code. These tokens map to Ethereum’s ERC-20 and 721 standards for interoperability, and the Hedera developer community is always staying up-to-date on the latest standards for Hedera to support via its Hedera Improvement Proposals (HIPs) program.
The token service is integrated with the Hedera Smart Contract service for enhanced flexibility. Hedera also offers numerous compliance configurations to reduce regulatory burdens, such as optional KYC flags for accounts and token associations. This can prevent spam airdrops by requiring an account to associate a token before successfully receiving it in their account.
Smart contracts
The Hedera network makes it easy for developers to create and deploy smart contracts using the EVM, as they can configure them using Solidity or port existing Solidity code in just a few minutes. The Hedera Smart Contract service is compatible with the most ubiquitous libraries, tooling, and development environments supported by the Ethereum Virtual Machine (EVM). This means Ethereum developers can easily start building on Hedera using the tools they’re most familiar with, such as HardHat, Truffle, Foundry, web3JS and ethersJS. In addition, developers and retail users can use MetaMask with the Hedera network to test their dApps or connect into Hedera’s thriving permissionless DeFi, ReFi, and NFT ecosystems.
Overview of Ethereum
The Ethereum blockchain initially employed a proof-of-work (PoW) consensus mechanism. PoW consensus relies on miners competing to solve intricate mathematical problems to gain the right to add new blocks to the blockchain. Miners were incentivized to participate with ETH rewards.
PoW consensus mechanisms were controversial due to the vast computing power needed to reach consensus and the energy it burned. According to Ethereum’s website, their PoW energy requirements were comparable to the nation of Uzbekistan, with a carbon emission equivalent to that of Azerbaijan.
Ethereum began transitioning from PoW to a more energy-efficient proof-of-stake (PoS) consensus mechanism in 2022. Validators in a PoS system stake ETH to participate in the network. Per Ethereum, this change cut their annual energy consumption from 78 TWh to 0.0026 TWh (2,600,000 KWh).
The overall structure of Ethereum is made up of the Ethereum Virtual Machine (EVM) and the Ethereum World State. The EVM, a decentralized computer running on every node in the Ethereum network, is responsible for executing smart contracts. The Ethereum World State is a database containing all data on the Ethereum network, such as account balances, transaction history, and smart contract code. The Ethereum World State isn’t stored on the blockchain. It is stored using a Merkle Patricia tree (trie), a data structure with “child nodes” that branch off of “parent nodes.”
Ethereum consensus mechanism
Ethereum uses the Gasper consensus mechanism, a collection of technologies that secure Ethereum’s PoS blockchain. Gasper combines Casper the Friendly Finality Gadget (Casper-FFG) and the LMD-GHOST fork choice algorithm.
Casper-FFG is a PoS-based partial consensus mechanism that helps the Ethereum network handle network latency or deliberate attacks. In a blockchain, each parent block should link to a single child block. However, if multiple child blocks branch off one parent block, Casper would choose which child block acts as the next link in the canonical chain.
The LMD-GHOST fork choice algorithm helps the Ethereum network handle forks. When a fork occurs, the LMD-GHOST algorithm chooses the side with more support from validators rather than the side with a longer chain.
Gasper helps Ethereum achieve consensus to validate transactions as long as two-thirds of the nodes are honest. Per the Ethereum website: “In Gasper, there is an additional line of defense against a liveness failure, known as the ‘inactivity leak.’ This mechanism activates when the chain has failed to finalize for more than four epochs. The validators that are not actively attesting to the majority chain have their stake gradually drained away until the majority regains two-thirds of the total stake, ensuring that liveness failures are only temporary.”
Cryptocurrency
ETH is the Ethereum network’s native cryptocurrency. Ethereum also has multiple token standards for creating new tokens on the Ethereum network. For example, the ERC-721 standard is used to create NFTs, while the ERC-20 standard is used to create cryptocurrencies and other fungible tokens.
Smart contracts
Ethereum was the first blockchain to introduce smart contract technology. Developers can use smart contract coding languages, such as Solidity or Vyper, to deploy automatically-executing smart contracts on the Ethereum network.
Comparison of Hedera and Ethereum
Now that you know how Ethereum and Hedera work, let’s compare these peer-to-peer networks.
Cost
Ethereum transactions require gas fees to cover the computational effort needed to create new blocks. Each block has a base fee that increases exponentially based on the size of the previous block. For transactions to be validated, the gas fee must be equal to or greater than the base fee. This model makes Ethereum fees relatively predictable, but they still vary from day to day.
Hedera’s fee structure is decided by its governing council with input from ecosystem stakeholders and is represented in USD but paid in HBAR. Hedera’s low transaction fees comprise a service, network, and node fee. You can use Hedera’s fee calculator to estimate the amount you’ll owe for a particular type of transaction. The calculator lets you choose a Hedera service, such as the cryptocurrency or smart contract service, the configurations you’ll be using, and the number of transactions and signatures.
Sustainability
Distributed ledger technology requires energy to process transactions, execute contracts, and run decentralization applications. The required energy depends on the computational effort needed for the task. The Hedera network is carbon-negative, meaning Hedera removes more carbon from the environment than it generates.
The UCL Centre for Blockchain Technologies determined that a single Hedera transaction requires only 0.02 watt-hours. Comparatively, the Ethereum network requires 30 watt-hours (0.03 kilowatt-hours) per transaction.
Performance
In its simplest terms, a network’s performance boils down to how many transactions it can handle per second and how quickly they are finalized. Hedera transactions settle with finality in 3-5 seconds, and its native services reliably scale to 10,000 transactions per second (TPS) and beyond. The Ethereum network handles between 27-30 TPS, and finality can take up to 15 minutes.
Ease of use
For the average user, ease of use will be based on the dApps and marketplaces interacting with a given network. This is influenced by how easy it is for developers to use the network. Native Hedera Token Service allows for the creation of ERC-20 and ERC-721 tokens interpreted as smart contracts (EVM addresses) created in just a few lines of code. In addition, royalties are configured in just a few lines of code and are at the protocol level, meaning all marketplaces, wallets, and SDKs have to abide by those royalty fees. Hedera offers developers the ability to use familiar libraries, tools, and development environments, such as HardHat, Truffle, Foundry, web3JS, and ethersJS, to build, test, and deploy their smart contract applications on the network.
The Ethereum network lets developers use Solidity, Vyper, or a range of other common EVM coding languages. This makes it easy for developers to get started with Ethereum.
Hedera vs. Ethereum use cases
Hedera and Ethereum differ in numerous ways. Hedera’s speed, security, compliance tools, and scalability give it an edge in many industries. However, Ethereum’s popularity makes it better suited for certain applications.
Hedera’s speed and security make it ideal for tracking goods and materials through a supply chain. Its low fees make it well-suited for real-time payments, and its compliance tools make it perfect for financial services. Additionally, Hedera is more suitable for government applications because it is secure, affordable, and scalable. Here’s a look at some Hedera use cases.
Hedera use cases
NFTs
Hedera offers low, fixed fees, native royalties, scalable transactions, and a carbon-negative footprint, making it a robust best network for NFT applications and projects. Royalties are enforced at the protocol level, and you can incorporate NFT royalty fees with just a few lines of code and ensure payment to creators for all secondary sales. Immutable royalties on Hedera are paid by the NFT recipient and can optionally include a fallback fee.
More than 600,000 NFTs have been minted on the Hedera mainnet and more than 1.1 million NFT transfers have been performed. Hedera’s NFT ecosystem has thousands of fast-growing projects, including the Dead Pixels Ghost Club, Hangry Barboons, and Koala Hash Klub.
Hedera and its robust NFT ecosystem offers all the tools developers need to create an NFT marketplace, project, financial application, or ecosystem tool. You can buy, sell, mint, and bid on NFTs using marketplaces and launchpads built on Hedera. And Hedera’s permissionless application ecosystem is a great place to create or import a Hedera account for free, buy HBAR and USDC using a bank card, manage tokens and NFTs, and achieve other goals.
Decentralized Finance
Unlike Ethereum, Hedera is natively Maximal Extractable Value (MEV)-resistant. This ensures that DEXs and other decentralized finance applications and marketplaces are fairer to users.
Hedera doesn’t use a mempool to hold transactions prior to their processing and there’s no bribing of nodes. Transactions are guaranteed to be ordered fairly, so there’s no threat of frontrunning. Also, Hedera can process up to 15 million gas per second, the same as what Ethereum aims to achieve in an entire block.
Developers can build and deploy EVM-based smart contracts using the most popular languages, including Solidity and Vyper, to create DeFi applications and protocols on Hedera.
Sustainability
In an environmental impact study by UCL comparing different distributed ledger networks, Hedera was proven to be the most sustainable network. With Hedera’s low energy network and with world class governance, developers can build, deploy, or access solutions for fast-growing sustainability ecosystem.
TYMLEZ, a pioneer in the development and delivery of carbon reporting and guarantee-of-origin solutions, was built on the Hedera network. TYMLEZ provides companies across the globe with world-class solutions designed to empower them in their decarbonisation journeys.
And the Hedera Guardian is an open-source platform that leverages the Hedera public distributed ledger network to enable digital-first sustainability policies and enables dMRV (Digital Measurement, Reporting, and Verification) requirements-based tokenization implementation. The Hedera Guardian provides auditable, traceable, and reproducible records that document the emission process and lifecycle of carbon credits, which reduces fraud in the ESG market.
Decentralized Logging
Hedera is the only layer 1 public network that offers developers a tool to create decentralized logs of immutable and timestamped events for mission-critical web2 and permissionless web3 applications. You can, to name just a few of the many possibilities, track products in a supply chain, log sensitive user access information, build DAO tooling, and create an asset bridge.
With its low, fixed fees, scalable transactions, and native consensus timestamps, the Hedera Consensus Service (HCS) acts as a ‘decentralized Kafka’, delivering multi-party trust for streaming data at web scale.
Payments
On Hedera, you can make scalable, real-time, and affordable payments in HBARs, supported stablecoins, or your own cryptocurrency. Hedera enables token issuers to define account-level KYC verification and freeze, token supply management, transfer, and more.
Hedera is a USDC-compatible platform and has more than $250 million in USDC liquidity.
Hedera is working on a global scale to streamline payments. To expedite cross-border transactions, Shinhan Bank, the leading bank in South Korea, and Standard Bank, the largest bank in Africa, united in a proof-of-concept Stablecoin on Hedera. And Banxa, an international financial technology platform, became in 2022 the first retail platform to support USDC on Hedera.
Decentralized Identity
On Hedera, developers can build decentralized identity right into their applications. Hedera is a member of W3C and has registered a DID Method to the W3C Credentials Community Group’s Decentralized Identifier (DID) registry.
The Hedera Consensus Service, using the open DID specification developed by the W3C DID working group, offers developers building on Hedera the ability to manage credentials through their lifecycle in a secure, standards-based and privacy respecting manner.
Among the organizations taking advantage of Hedera’s performance and efficiency are:
- Earth ID, a decentralized identity platform
- ServiceNow, a digital platform for digital workflow
- Meeco, a cloud-based platform for data/identity management and reporting.
Hedera, Ethereum, and the future
Hedera and Ethereum are two of the leading DLTs for decentralized applications and ecosystems, driven by smart contract innovation and development. Hedera’s DAG architecture and aBFT consensus mechanism make it particularly adept at handling high-throughput transactions, processing fair and secure decentralized finance applications, and meeting regulatory compliance needs. Its low, predictable fees and carbon-negative operations make it an attractive choice for many developers.
On the other hand, Ethereum’s popularity and robust developer community make it a popular choice based on the size of its existing ecosystems. It isn’t as fast or affordable as Hedera, but its transition to a PoS consensus algorithm has made it more energy-efficient than it once was. Choosing whether to use the Hedera or Ethereum network may depend on your intended use case. However, you can easily build new or transfer existing smart contracts from Ethereum to Hedera if you’ve decided to make the switch.
