Algorand Aims To Solve The Blockchain Trilemma

What Is Algorand?

Algorand is a decentralized network built to solve the Blockchain Trilemma of achieving speed, security, and decentralization simultaneously. Launched in June 2019 by computer scientist and MIT professor Silvio Micali, Algorand is a permissionless, open-source blockchain network upon which anyone can build. Algorand is designed to be a payments-focused network with rapid transactions and a strong focus on achieving near-instant finality — that means processing over 1,000 transactions per second (TPS) and achieving transaction finality in less than five seconds.

Algorand uses a Proof-of-Stake (PoS) consensus mechanism, and distributes validator rewards to all holders of its native ALGO cryptocurrency. Through strong throughput capacity and equitable community incentivization, Algorand is capable of managing the high-throughput requirements of widespread global usage and a variety of use cases.

As a public smart contract blockchain that relies on staking, Algorand is currently capable of hosting decentralized application (dApp) development and providing scalability. Rising gas fees on Ethereum have led many dApp developers and decentralized finance (DeFi) traders to look for alternative blockchain solutions. Some have turned to Algorand as an Ethereum-alternative for dApp development and DeFi applications.

Algorand also allows developers to use the Algorand Standard Asset (ASA) protocol to create new tokens or to transfer existing tokens to the Algorand ecosystem. For example, stablecoins like USDT and USDC also exist as ASAs on the Algorand blockchain and enjoy much higher throughput and much lower transaction fees than what is typical on Ethereum. Further, as central banks continue to research networks to host their central bank digital currencies (CBDCs), Algorand has become a viable option and has been chosen to host the Marshall Islands CBDC.

Who Are The Founders Of Algorand?

Silvio Micali is a professor of computer science at the Massachusetts Institute of Technology, and the founder of Algorand. He is a recipient of the Turing Award (in 2012) for his fundamental contributions to the theory and practice of secure two-party computation, electronic cash, cryptocurrencies and blockchain protocols. This makes him one of the foremost creators of crypto in the world.

Why Does Algorand Have Value?


Algorand is a new public blockchain, meaning its technology, while novel, has not yet seen much testing under real-world market conditions. 

Users may find the ALGO cryptocurrency valuable should they believe Algrorand’s technical specifics will make it likely to be the blockchain of choice for developers who want to design and launch new kinds of decentralized applications. 

Investors may also see Algorand as a viable part of a cryptocurrency portfolio should they believe that proof-of-stake blockchains, which lower the cost of participating in a blockchain’s operation, will ultimately prove more successful in the market. 

Token Economy

The Algorand Foundation, the non-profit organization overseeing and funding development of the protocol, says that only 10 billion units of its ALGO cryptocurrency will ever be created.

Algorand maintains a block explorer, which keeps an official count of its circulating supply. 

A schedule of distributions, which the foundation expects to be completed within five years of the protocol’s launch, can be found below: 

Overall Token Distribution:

3.0 billion
Estimated algos to be injected into circulation (initially via auction) over the first 5 years

1.75 billion
Estimated participation rewards (distributed over time)

2.5 billion
Relay node runners (distributed over time)

2.5 billion
Algorand Foundation & Algorand, Inc.

0.25 billion
End user grants (distributed over time)

Understanding Algorand

Algorand markets itself as a highly efficient, scalable platform that can immediately finalize transactions. Algorand accomplishes this in a decentralized way by:4

 
  • Using relay nodes to enable efficient communication paths
  • Incorporating participation nodes that vote on and confirm new blocks for the Algorand blockchain
  • Prohibiting any splitting (forking) of the Algorand blockchain, to guarantee that completed transactions cannot be changed
  • Reducing the data burden placed on Algorand network participants by continually compressing blockchain information

The Algorand blockchain uses a modified version of the proof-of-stake consensus mechanism. While the traditional proof-of-stake method enables cryptocurrency holders to opt into validating transactions, the pure-proof-of-stake method recruits validators from the entire pool of ALGO holders. ALGO holders who stake—agree to not trade or sell—their ALGO are rewarded every time a new block is added to the Algorand blockchain.

ALGO network participants are rewarded in ALGO, Algorand’s native cryptocurrency. ALGO is also used as a utility token to pay transaction processing fees.

Algorand Protocol Structure

Algorand has a unique two-tiered blockchain structure. The base layer supports smart contracts, asset creation, and atomic swaps between assets. All of these processes take place on Layer 1 of the Algorand blockchain, which helps ensure security and compatibility.

On this first layer of the Algorand network, platforms and users can create ASAs that represent new or existing tokens on the Algorand blockchain. This is similar to how ERC-20 tokens function on the Ethereum network. With regard to security, simple smart contracts on the Algorand platform execute as Layer-1 Algorand Smart Contracts (ASC1s), which means they maintain the same level of security as the consensus protocol itself.

The second layer of Algorand is reserved for more complex smart contracts and dApp development. It’s this bifurcation of the network, between Layer 1 and Layer 2, that allows Algorand to process transactions so efficiently. With more complex smart contracts taking place off-chain, simple transactions can be processed more quickly on Layer 1 without being bogged down by larger, more complex smart contracts.

Algorand Staking Mechanism: Pure Proof Of Stake

Algorand uses a unique variation of Proof of Stake called Pure Proof of Stake (PPoS). PPoS is a highly democratized PoS consensus mechanism with a low minimum staking requirement for participating in and securing the network — only one ALGO coin is needed to participate. By contrast, Ethereum 2.0 requires a minimum stake of 32 ether (ETH), an amount which establishes a much higher barrier to entry for users. Conversely, a low minimum staking requirement may adversely affect network security, as network participants may be less incentivized to behave optimally when they don’t have substantial value staked on the network.

Algorand Staking Mechanism: Pure Proof Of Stake

Algorand uses a unique variation of Proof of Stake called Pure Proof of Stake (PPoS). PPoS is a highly democratized PoS consensus mechanism with a low minimum staking requirement for participating in and securing the network — only one ALGO coin is needed to participate. By contrast, Ethereum 2.0 requires a minimum stake of 32 ether (ETH), an amount which establishes a much higher barrier to entry for users. Conversely, a low minimum staking requirement may adversely affect network security, as network participants may be less incentivized to behave optimally when they don’t have substantial value staked on the network.

Algorand’s Compatibility With Ethereum

On Feb. 17, 2022, the Algorand Foundation announced a $10M grant to Applied Blockchain to develop the London Bridge, a trustless bridge that will bring Ethereum compatibility to the Algorand blockchain. Algorand has struggled to attract liquidity to its ecosystem, despite promising low cost transactions, low latency and high scalability. Having a bridge to Ethereum, which currently has the most robust DApp ecosystem, would allow Algorand to connect to these applications and attract more liquidity. In the long-term, the Algorand Foundation aims to have verification of other chains be performed on Alogrand’s smart contracts, by incorporating state proofs in the form of Compact Certificates into the Algorand Consensus. The foundation’s goal is to eventually solidify the DeFi ecosystem on Algorand.

The Algorand Foundation

Launched in 2019, Algorand is a relatively young protocol. A non-profit organization called the Algorand Foundation oversees the funding and development of Algorand Inc. and the Algorand protocol itself. The Algorand Foundation supports developer education in universities and educational settings. Its Global University Program includes prestigious universities like MIT, UC Berkeley, and other leading institutions around the world. The Algorand Foundation also sponsors blockchain events, hackathons, educational classes, and certifications.

The Algorand Foundation launched two accelerator programs in 2020 — Algorand Asia Accelerator and Algorand Europe Accelerator — which focus on assisting ongoing projects and developers interested in building on Algorand. These programs provide promising projects with end-to-end support — from strategy formulation all the way to launch — in an effort to help the Algorand ecosystem grow and thrive.

A relative newcomer in the blockchain space, Algorand has already proven to be a powerful platform with strong tech innovation, developer support, and real-world use cases. Algorand’s highly equitable coin rewards structure and consensus mechanism is pioneering a new standard in blockchain, and expectations for the Algorand endeavor are growing fast.

What is the purpose of Algorand?

Algorand aims to achieve global trust among trustless parties through blockchain-based decentralization. The platform prioritizes simple designs for developing technology that can eliminate barriers to prosperity.

What makes Algorand a green blockchain?

Algorand bills itself as the most efficient and greenest blockchain. Since April of 2021, Algorand has been carbon-negative—meaning that the platform purchases carbon credits that more than offset its carbon emissions.

What projects are in the Algorand ecosystem?

The Algorand blockchain supports a variety of different projects, many of them focused on decentralized finance like decentralized lending and trading. The Algorand blockchain supports other cryptocurrencies such as stablecoins and even a digital national currency.

Can you mine ALGO?

ALGO is validated rather than mined. The proof-of-stake consensus mechanism, including pure proof of stake, uses validators rather than miners to operate a blockchain platform. Crypto mining is generally associated only with the proof-of-work consensus mechanism.

The Algo

Introducing the Algo – possibly one of the most important, native tokens ( coins ) in the world of cryptocurrencies today. The Algo is the native token of the Algorand blockchain. As such, the Algo has all the key features of the Algorand blockchain itself. 

  • It’s super-fast: every transaction with Algo is complete in ~4 seconds.
  • It’s scalable: whether you are the first transaction or the 10 millionth transaction in a day, your Algo transaction will still take place in ~4 seconds
  • It’s secure: Algorand and Algo transactions are secured by the unique Pure Proof-of Stake consensus that powers the Algorand blockchain.
  • It’s almost free to use: unlike many blockchains, where every transaction is hugely expensive, every Algo transaction today, no matter the size, costs a fraction of a penny.

In addition to these fundamental features, the Algo is a leading cryptocurrency because of its importance to the Algorand blockchain. It’s the token used to secure the consensus used in building each block, it’s the token used to pay for every transaction and soon, it will be the token used to govern the growth of the Algorand ecosystem and as Governance rewards for those who commit to voting as part of governing.This unique nature enables the Algo to be the key pillar of the Algorand blockchain but to also be the most efficient, secure way to buy something as simple, and everyday, as coffee.

Speed

Send money to anyone, anywhere, anytime. Transaction finality in under 4.5 seconds. Avoid the wire transfers, forms, banks, and delays with Algo.

Scale

Built for billions of users. Payments won’t slow down, no matter how many Algo users there are.

Secure

This blockchain is different. Algorand doesn’t fork and uses the most advanced cryptography to protect your data and privacy.

Transparent

The fixed and immutable total supply of Algo was created at the launch of the Algorand blockchain. At any time, anyone can see how many Algo are in use.
 

Real-Time Metrics

Circulating Supply

6,709,834,626

All unrestricted Algo not held directly by the Algorand Foundation.

 

Total Max Supply

10 Billion

Algo Supply Minted at Genesis

 

Liquid Supply

7,140,687,221

All unrestricted Algo. This includes Algo held directly by the Algorand Foundation   

Algorand’s Key Features

Algorand includes various features that set it apart from other blockchains.

Top Features of Algorand:
  • Verifiable random functions: Pioneered by Algorand, VRF is a consensus algorithm that takes a secret key and a value and produces a pseudorandom output, providing proof that anyone can use to verify results. This is what leads to faster transaction speed and lower fees compared to other blockchains.
  • Efficient transactions: ALGO crypto can be used for all transactions on the network, allowing purchases to occur quickly, easily, and cost-effectively.
  • Scalable blockchain: Algorand’s blockchain protocol allows it to process thousands of transactions per second with low latency and cost. This allows for easy adoption by businesses and individuals.
  • Reliable security: Cryptographic tools allow the network to achieve high levels of security while keeping data private. These tools enable users to remain anonymous and prevent tampering or revision of transactions on the blockchain.
  • Turing complete: The Algorand blockchain is Turing-complete or universal, meaning that it runs any program. This allows for the easy creation of smart contracts and decentralized applications with minimal development work.
  • Staking: While anyone who owns ALGO crypto can typically vote on new block creation, those with a higher stake — or who own more ALGO tokens — generally have a stronger say over validating transactions.
 

Pros And Cons Of Algorand

Pros

✅ Algorand Is a Major Player in the Creation of CBDCs 

✅ ALGO is Extremely Affordable 

✅ ALGO Is Highly Undervalued 

✅ Algorand Has a Relatively Faster Scaling Time 

✅ Algorand Has Impressive Use Cases 

Cons

❌ Crackdown on Indirect Players of Cryptocurrencies 

❌ Ethereum Has the First-Mover Advantage 

❌ Infinite Competition from other Smart Contract Chains 

Is Algorand A Good Investment?

Algorand is making a big effort to develop new projects that will expand the possible use cases of Algorand logocryptocurrency. The key driver of this innovation is by making transaction speeds extremely fast and making it faster to deem a transaction as being final. Whilst relatively new and untested in the real world, this could potentially be a competitor to the likes of Visa and MasterCard.

Algorand has a lot of things going for it, which could bode well in both its future price and the likelihood of mass adoption. Beyond just the fast transactions and low fees, Algorand is an interoperable blockchain with a growing ecosystem. It’s listed on many great exchanges in which users are able to gain governance, as well as being a crypto that is easy to use. It also has a rapidly growing NFT market, which alone could be enough to sway many people to invest in Algorand. All of these promising attributes have led to some handsome price forecasts from expert analysts.

Whilst the crypto market at large – along with crypto sentiment – is a large factor in most coins’ success, ALGO only has a 0.2 correlation with Bitcoin over the past 3 months (a very weak correlation, compared to 0.91 for ETH-BTC). This shows that Algorand could possibly hold its own during a Bitcoin crash, and may even be a useful tool of diversification within your portfolio.

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