Algorand (ALGO)
6 minutes
Advanced
Algorand is a smart contract platform for creating decentralized applications (dapps) created to solve the blockchain's trilemma of decentralization, security and scalability.
Blockchain developers often seek to solve this trilemma when creating new protocols. To that end, the platform has been designed to process up to 1,000 transactions per second with a focus on near-instant completion in less than 5 seconds on the blockchain, while maintaining strict security standards. With no central authority and no verification of transactions by participating users, who have an equal say in decision-making, Algorand also maintains a high degree of decentralization.
Algorand uses a form of Proof of Stake (PoS) called Pure Proof of Stake (PPoS) to validate transactions and add blocks to the blockchain. The validator reward is then distributed to all holders of ALGO, the protocol's own cryptocurrency.
Algorand is considered a carbon-negative blockchain. This is achieved not only through low carbon emissions, but also because Algorand, Inc., the parent company of the blockchain, also makes significant donations to Climate Trade, which aims to develop solutions to offset carbon emissions and fund climate change projects.
In addition, this blockchain has also been popular for corporate applications, such as the creation and launch of central bank digital currencies (CBDC), due to its speed, scalability, security and ability of the network to implement compliance controls required for national currency. The Marshall Islands was the first country to launch its CBDC on Algorand, and many others were waiting in the wings.
In addition, Algorand is working with FIFA to provide a formal wallet solution for NFT (non-interchangeable tokens) collections and blockchain-based initiatives such as ticketing and merchandise purchases.
MAIN PROPERTIES
- Algorand is a smart contract platform for creating decentralized applications (dapps), designed to solve the blockchain trilemma by finding the right balance between speed, security and decentralization.
- The Algorand Pure Proof of Stake (PPoS) consensus mechanism is designed for all those who keep their ALGO cryptocurrency in stacking to participate in transaction validation and blockchain creation.
- ALGO also allows users to vote for software changes and receive a share of new ALGO tokens as rewards.
Creating
Algorand was launched in 2019 by Silvio Macali, a MIT professor and computer scientist who won the prestigious Turing Prize for his work in cryptography.
The development of the platform is also supported by two independent organizations. The nonprofit Algorand Foundation oversees the protocol, its governance mechanism, and the development of the open-source platform, while Algorand, Inc. oversees the implementation of its technology by enterprises.
The foundation also supports training and education by organizing events, certifications, and hackathons for its ecosystem, as well as developing courses at major universities such as MIT and the University of California, Berkeley.
The main network was launched in June 2019, and around the same time, a Dutch auction was held for its token issuance. The auction helped sell 25 million of the 10 billion minted tokens and raised $60 million.
How does Algorand (ALGO) work?
Algorand uses a two-tiered blockchain structure to achieve its goal:
- Layer 1 - a basic layer that supports most types of smart contracts, token creation and exchange, and NFT creation.
- Layer 2 - supports complex smart contracts that require more computation or space.
Both layers work hand in hand to support each other. Layer 1 helps ensure security and interoperability, while Layer 2 can run complex applications and transactions without affecting Algorand's transaction processing efficiency.
Algorand Standard Asset (ASA)
The Algorand Standard Assets (ASA) protocol is a token standard for creating and deploying assets in Algorand, very similar to ERC-20 in Ethereum or TRC-20 in Tron. ASA creation focuses on simplicity and allows anyone, regardless of their computer experience, to create them.
Users don't need any technical knowledge to create an ASA token, as all they have to do is fill out a form. ASAs can be customized to fit whatever use case the creator chooses, and they have the same security and speed as an ALGO token, which is also built on the ASA standard.
Pure Proof of Stake (PPoS)
Pure Proof of Stake (PPoS) is a variation of the more common Proof of Stake (PoS) protocol on which other blockchains operate. Its main purpose is to democratize the block creation process, allowing anyone with a balance of 1 ALGO or higher to be able to verify blocks in the blockchain (unlike Ethereum after the merger, which requires a minimum of 32 ether).
When it comes time to inspect blocks, the protocol randomly and privately selects a block leader using a process called the inspected random function. Private leader selection is an important feature that helps reduce the attack vector from attackers.
A committee is then selected from all ALGO holders to approve the proposed block and ensure that there are no problems. If the committee approves the validity of the block, it is added to the Algorand blockchain. If malicious activity such as double spending is detected, the block is removed and a new block leader is elected.
Algorand has become a popular cryptocurrency for steak because of its flexibility and ease of use. All you need is 1 ALGO to start steaking, and after you buy ALGO, you only need to send it to your crypto wallet, as steaking is automatic.
Verifiable random function (VRF)
A specially created cryptographic randomization tool called Verifiable Random Function (VRF) works by selecting a block leader from the participating ALGO holders. The user's choice is weighted based on the sum of the ALGO stacking.
The advantage of VRF is that when a block leader is chosen, it is known only to them, which helps them to check and approve blocks without any external influence. Block leaders become known only after the round is over and the committee is dissolved. The next round then begins completely independent of the previous committee, and the blockchain continues.
Committee selection with VFR and the notion of user substitutability are necessary for blockchain security because they eliminate the need for a central authority to be used as a target for attack. Since there is never any connection between the central authority and the blockchain leaders, there is no information to intercept.
Benefits
In addition to being used by blockchain leaders, ALGO can be used to pay transaction fees when using its platform.
In addition, any holder can participate in the platform's management system. ALGO holding allows users to vote for software changes and updates and receive a share of new ALGO tokens as rewards.
Anyone who wants to become a block leader or be elected to the selection committee can add ALGOs to their portfolio and keep them stacked.
