No, Hedera and the Hbars is not a band, though it would make a great band name. Every once in a while I find it useful to read one of the thousands of White Papers and see what is happening in a specific segment of the crypto-blockchain space. The best place to start is always with a crypto’s economic discussion. Here is Hedera’s White Paper.

Hedera is a blockchain network built upon its proprietary hashgraph consensus algorithm. Hedera is one of many attempts to make the blockchain more efficient by foregoing Bitcoin’s decentralized, energy-intensive proof of work cryptography protocol in favor of a more efficient validating consensus. A Governing Council centrally controls Hedera. In its initial stage of operation, Hedera’s Governing Council controls the consensus nodes. Hedera states that they will at some point move to a decentralized proof of stake consensus system.

To achieve node consensus that validates transactions requires a “fuel” or currency. Hedera’s currency is hbar. Like all permissioned blockchain attempts at increased efficiency, the currency is an afterthought. Hey, the system network requires a currency, so let’s put our heads together and trick one up! Credit to Hedera for being upfront and stating that their currency is an afterthought. Hedera states,

The purpose of Hedera is to provide a stable, trustworthy network for a wide variety of decentralized, enterprise-grade applications, not to provide a cryptocurrency. Like all public DLT networks, however, Hedera needs a cryptocurrency to function.

When you’re creating an afterthought currency in the current crypto environment, the first step is to come up with a name for your currency and pull a fixed supply number out of your ass. In Hedera’s case, it is 50 billion hbar. Hedera tells us that there will ever only be 50 billion hbars.

The next step is to reward the founders, developers, and employees and sell hbar to initial investors to raise the funds to develop the network. Allocated to this group is 43.09% of the 50 billion hbars. The other 56.91% of hbars remain in the Hedera treasury controlled by the Governing Council. Hedera lists a predetermined schedule for issuing these hbars. By 2025, Hedera plans to release 34% of the remaining treasury hbars.

Everything else in the Governing Council’s plan is vague. The Council may or may not change this schedule depending on undefined circumstances. The Council plans to go to a proof of work system at some undefined point. Hedera plans at an undefined point for undefined reasons to transition from a governing council to a permissionless system.

Hbars are the network currency that “serve as a “fuel” to pay for network services and incentivize nodes to contribute computing resources to the network.” Those who maintain a node are rewarded with hbars from the Hedera treasury for maintaining the system. What happens when Hedera reaches its 50 billion supply limit? How are the nodes rewarded for maintaining the system, the reason for the existence of the network? Hedera doesn’t look that far ahead and mention it, so we don’t know.

Hedera states that its transaction costs are extremely low.

The fees per transaction are very low, requiring the ability to make micropayments in a form — an hbar — that is divisible to less than a penny. For example, transactions using the cryptocurrency service or Hedera Consensus Service are expected to cost ~US$0.0001 (one one-hundredth of a cent).

There is no explanation for how Hedera determines the “expected” low transaction fees. Presumably, it is because for now, the Governing Council controls the treasury and can issue hbars in any amount necessary to maintain the low fees. Again, what happens to transaction fees when Hedera transitions to a permissionless system without Governing Council discretion or reaches its 50 billion supply limit? Since there is no mention of how Hedera calculates transaction fees, it remains another unknown.

To purchase hbars may require pair trades on a crypto exchange. You exchange your fiat dollars for a major cryptocurrency like bitcoin, ethererum, or litecoin, and those cryptocurrencies are then traded for hbars. That’s why all cryptocurrencies rise and fall together. For now, there is no independent price discovery for tokens like hbar. Hbar rises or falls with its paired trade.

The promise of Hedera is that its efficient DLT (distributed ledger technology) blockchain with low transaction fees will disrupt segments of the current financial system. Despite Hedera’s DLT efficiency, it ultimately suffers from the same issue as permissionless Bitcoin with its energy-intensive proof of work cryptography and every other cryptocurrency and token. The blockchain requires a currency to validate it, and a currency requires a monetary standard of reference for stability of value. Satoshi screwed up this essential monetary concept when he created Bitcoin and every other cryptocurrency and token has followed in Satoshi’s fixed supply flaw footstep. Hedera is no exception. Yes, Hedera is efficient with low fees in the short term, but there is no Hedera plan outlined for the long term. That’s what speculation is all about, the short term.

The other issue with Hedera is its Governing Council. Hedera’s White Paper describes a democratic Governing Council with the best interests of its network users as its guiding principle. Congress created the Federal Reserve under a system of a “governing council” to maintain the dollar at $35/oz of gold and act as lender of last resort on unanticipated rare occasions. Today, the unaudited Federal Reserve “governing council” has the dollar at $1900/oz of gold, severely regulates the global fiat dollar system, and regularly acts as lender of any resort. I’m not stating a direct relationship between Hedera’s governing council and the Fed. I’m merely noting the history of how unelected governance evolves from its original mandate.

A token that the SEC does not designate as a security is owned not for speculation, but to validate and participate in the underlying network. Volatile price changes in such a token would make the network less economical for its participants. Like most of the cloudy descriptions in Hedera’s White Paper, it is unclear whether the SEC will designate hbar a security. Hedera states that,

We have treated Hedera’s SAFTs as investment contracts. People who purchased hbars through the SAFT did so before there was a live network, before hbars existed, and when they had to rely on the efforts of the Hedera team to deliver a functioning network to the market in order for those hbars to have use or value. Hedera expressly stated that the SAFT was a security and conducted its SAFT financing in accordance with SEC regulations.

Hedera further states

There is still a risk that the SEC or other securities regulators could retrospectively deem hbars and transactions in hbars to be subject to applicable securities regulation. The regulatory environment in the United States remains unclear and each user needs to assess their own risk.

Nevertheless, Hedera’s view is that, based on the facts and circumstances at the time of Open Access, the sale of hbars and transactions in hbars should not be subject to U.S. securities law.

Does Hedera desire hbar to achieve stable value for its users or act as a speculative asset to reward investors? Due to its stated goal of low transaction fees, it seems clear that initially, the Governing Council will distribute hbar supply in order to maintain the low transaction fees. This will put a cap on hbar’s value–other than its relationship to the overall crypto space due to the paired trade phenomenon. In the longer term, there is only vague guidance on what will happen with hbar.

Is Hedera the cryptocurrency promise land that finally brings the blockchain to the masses and disrupts the global fiat system? Not even close, IMO. In our current speculative hypertrophy of finance system where the main financial enterprise is churning manufactured exchange rates for no productive reason, Hedera may find a niche to bring some order to a segment of the chaotic financial system. At least in the short term. Hedera does not provide the clarity in its White Paper to understand where it plans to go in the long term.