How does Hederas Hashgraph consensus improve things & what are its use cases?
Tags: hashgraph, hederahashgraph, usecases, dlt
Published: 2021-04-20 03:18:27

# What does the consensus do for a company that they don’t already have?

I think you have a misunderstanding of the base technology that really brings value. It's not all about the consensus but if by consensus you mean a "**distributed system**", then they have evolved as a result of the limitations of the other systems. With increasing security, data storage, and privacy concerns, and the constant need for improving performance, distributed systems are the natural choice for many organizations.

To better answer this question I think we need to take a step back and talk about  **centralized vs decentralized vs distributed** **systems**, identify their pros and cons to  understand why a company would want to change over. And then take a look at the consensus algorithms that are a layer above the distributed systems.

# What is the difference from a centralized vs decentralized vs distributed system, and why would consider a business switching from one to another?

While all these systems can function effectively, some are more stable and secure than others by design. Systems can be very small, interconnecting only a few devices and a handful of users. Or they can be immense and span across countries and continents. Either way, they face the same challenges:

* *Fault tolerance*
* *Maintenance costs*
* *Scalability*

The internet itself is the world’s largest network. So large in fact that it brings together all these different systems into a vast digital ecosystem. But for most organizations and individuals, using all these systems is not feasible. They have to choose 1.

Here is a visual representation of a **Centralized (A) vs Decentralized (B) vs Distributed (C)**

[https://imgur.com/gallery/3lagQvw](https://imgur.com/gallery/3lagQvw)

**(A)**  In a **centralized system**, all users are connected to a central network owner or “server”. The central owner stores data, which other users can access, and also user information.

## Pros:

* Simple deployment
* Can be developed quickly
* Affordable to maintain
* Practical when data needs to be controlled centrally

## Cons

* Prone to failures (DDOS Atacks and hacking)
* Higher security and privacy risks for users (Do you trust them enough not to overwrite the database for their benefit or of others they depend on)
* Longer access times to data for users who are far from the server (Lag and ping issues)

**(B)**  **Decentralized systems** don’t have one central owner. Instead, they use multiple central owners, each of which usually stores a copy of the resources users can access.

## Pros

* Higher uptime because system owners can repair faulty servers and address any other problems while the system itself continues to run as usual
* Access time to the data is often faster. That’s because owners can create nodes in different regions or areas where the user is closer to.

## Cons

* The same security and privacy risks to users as the centralized systems
* Higher maintenance costs
* Inconsistent performance when not properly optimized

**(C)  Distributed system** is similar to a decentralized one in that it doesn’t have a single central owner. But going a step further, it eliminates centralization. In a distributed system, users have equal access to data, though user privileges can be enabled when needed. The best example of a vast, distributed system is the internet itself.

## Pros

* Fault-tolerant
* Transparent and secure
* Promotes resource sharing
* Extremely scalable\*

## Cons

* Difficult to scale without giving off some mayor trade-offs
* Its technologically complex and very costly to maintain and recruit for
* Very tedious to implement changes and business logic

As you can see, there are advantages and disadvantages to every system. **Centralized systems** helped the first networks grow and were the only choice before **decentralized systems** began to emerge.

Less prone to failure and offering faster access times, **decentralized systems** have provided a considerable improvement over the old systems. They continue to be very much in use today, especially since over the years they have become more affordable (An example would be Amazon AWS service).

However, it’s only **distributed systems** that allocate resources and rights across the whole network. By doing so, they are not only remarkably tolerant to faults but also more transparent than other systems. As the adoption of distributed systems lowers their deployment and maintenance costs, these systems will likely prove an inspired choice in the years to come.

It’s no surprise then that technologies using the distributed system – most notably the blockchain – are disrupting many industries but are also organizations wanting to change are having incredible difficult time to adopt maintain and scale. Hashgraph is intentionally set out to address these adoption issues from the get go. We will talk about these later on.

Now that we know why a business would want to switch from a centralized to a decentralized and from that to a distributed system, lets talk about **consensus**. Please refer to Part 2/2 of this post.


# What is the consensus algorithm?

A **consensus algorithm** is a strategy that a group of computers use to agree between each other on what is "true".

# How does consensus improve things?

The most significant benefit of a blockchain/Hashgraph is that its **decentralized**, so you don't have to trust any one person, or group of person to keep the state of truth of the system.  The consensus does that for you.

Think of every monopoly that has thrived being a middle man by selling trust. PayPal, YouTube, Government Institutions etc. Ideally, you can remove them and have the network do it for you at a lower cost and higher speed.

# What types of consensus algorithms are available?

There are generally 5 different flavors of consensus algorithms they are explained by Dr. Leemon himself:

[The five consensus algorithms #1: Proof-of-work by Dr. Leemon Baird](https://www.youtube.com/watch?v=A467am0fw34)

[The five consensus algorithms #2: Leader-based by Dr. Leemon Baird](https://www.youtube.com/watch?v=hVYRkcTY840)

[The five consensus algorithms #3: Economy-based by Dr. Leemon Baird](https://www.youtube.com/watch?v=EVVso37nie8)

[The five consensus algorithms #4: Voting-based by Dr. Leemon Baird](https://www.youtube.com/watch?v=HgaG6Vtv1zc)

[The five consensus algorithms #5: Virtual-voting by Dr. Leemon Baird](https://www.youtube.com/watch?v=rleAZVVA3kM)

But in general, most of them **basically** just *manage which participants of the network get to set the state of truth that everyone else follows and agrees to.*

# What are the best options?

Unfortunately, there is no one size fits all algorithm. Each different consensus algorithm has different trade-offs that makes them best fit for specific situations and not so great of others. You as an organization have to work to try and generalize between the different options available, to come up with what you best think is the best compromise for your particular use case.

# What kind of use cases of consensus, and how would it work, and why would it be necessary?

This is a jacked up question, but I will try and answer it anyway. I like the challenge. I also tweaked your last question since it's too vague.

The most obvious one is [Disrupting the payment system](https://hedera.com/use-cases/payments) with micropayments

* Who is doing this? [eftpos](https://www.eftposaustralia.com.au/)
* Why would it be necessary to innovate for this to work? Since the cost per transaction right now are way too high for micropayments to be feasible. Reducing cost and speed will unlock unrivalled business models for eftpos partners.
* How would it work? The [Hedera consensus service](https://hedera.com/consensus-service) enables eftpos to offer secure, real-time, and cost-effective payments in hbars, or your own stablecoin or cryptocurrency.

**Transfer of property** through the [tokenization of assets](https://hedera.com/use-cases/tokenized-assets)

* Who is doing this? [MemberPass](https://www.memberpass.com/)
* Why would it be necessary to innovate for this to work? Right now you need in most cases complex paperwork, long waiting times, and to pay commissions per intermediary  to transfer value.  Public distributed ledgers that offer to fix this with asset tokenization often carry the burden of expensive and unpredictable fees, slow transaction speeds, and mutable complexity in smart contract configuration.
* How would it work? The [Hedera Token Service](https://www-staging.hedera.com/token-service) enables MemberPass to offer innovative solutions to their credit union customers — it enables quick, secure, and inexpensive transactions of value, while meeting regulatory needs.

Hashgraph Enables healthcare providers to augment existing trial data and patient medical record information on an immutable Hashgraph.

* Who is doing this?  [Safe Health Systems](https://safehealth.me/)
* Why would it be necessary to innovate for this to work? Handling these tests at scale with home diagnostic transactions, is very complex costly and slow. These records end up being very low fidelity and hard to obtain for the patient and even harder for other hospitals. Making the patient have to retake exams and add up cost and time to his recovery.
* How would it work?   [Hedera consensus service](https://hedera.com/consensus-service) lets Safe Health log transactions with high-throughput, fast finality, and low cost, while maintaining patient privacy and meeting regulatory compliance.

**Fraud mitigation applications:**

* Who is doing this? [AdsDax](https://adsdax.com/)  a rich media advertising platform that aims to leverage distributed ledger technology to reinvent the advertising industry.
* Why would it be necessary to innovate for this to work?  Digital advertising’s current ecosystem is host to fraud and trust issues with over 75% of fees going to intermediaries in some cases.
* How would it work? [Hedera consensus service](https://hedera.com/consensus-service) helps AdsDax track and verify advertising events and engagement, while providing security, resilience, scalability, and transparency, without the need for costly intermediaries.

**Data Compliance,**  Log actions taken on data and make them publicly verifiable.

* Who is doing this? [Manetu](https://www.manetu.com/) is a Data Privacy Management platform that lets smart brands work with their customers instead of against them.
* Why would it be necessary to innovate for this to work? Regulations are forcing companies to take data compliance seriously, but today, proving actions to customers takes a leap of faith on their part. There is no objective way to prove to the customer that data has been handled and enforced appropriately. The solution is to amplify trust around data compliance by providing a publicly auditable log of actions taken and to provide tools to consumers to audit their own data.
* How would it work? [Hedera consensus service](https://hedera.com/consensus-service) helps  Manetu offer a self-service portal for consumers to come in and view, with permissions, exactly what information is held on them.

Well, those are just some use cases with Hedera consensus service and some with its token service which I think still fits since it uses the consensus service under the hood, all taken from their website. I hope I answered your questions and helped to better promote Hedera Hashgraph to companies, I sure learned a lot. Thank you for posting these questions.