Blockchain developers often aim to solve for the trilemma when building new protocols. To that end, the platform was created to handle up to 1,000 transactions per second with a focus on near-instant completion finality on the blockchain in under 5 seconds, all the while maintaining rigorous standards of security. With no central authority and transactions being verified by participating users who have equal say in decision-making, Algorand also maintains a great degree of decentralization.
Algorand uses a variation of Proof of Stake (PoS) called Pure Proof of Stake (PPoS) to verify transactions and add blocks to the blockchain. The validator rewards are then distributed to all holders of ALGO, the protocol’s native cryptocurrency.
Algorand is considered to be a carbon negative blockchain. It achieves this by not only emitting low carbon emissions, but Algorand, Inc., the blockchain’s parent company, also donates significantly to Climate Trade, a company whose goal is to develop solutions to offset carbon emissions and financing climate change projects.
This blockchain has also been popular for enterprise applications, such as creating and launching central bank digital currencies (CBDCs) due to its speed, scalability, security, and the network’s ability to implement compliance controls needed for a national currency. The Marshall Islands was the first country to launch its CBDC on Algorand, with many more waiting in the wings.
Further, Algorand has partnered with FIFA to provide an official wallet solution for NFT (non-fungible tokens) collections and blockchain-based initiatives such as ticketing and merchandise purchases.
- Algorand is a smart contract platform for building decentralized applications (dapps) and was created with the goal of solving the blockchain trilemma by trying to find the right balance between speed, security, and decentralization.
- Algorand’s Pure Proof of Stake (PPoS) consensus mechanism is designed for all those who stake its cryptocurrency, ALGO, to participate in verifying transactions and producing blocks.
- ALGO also enables users to vote on changes to the software and earn a share of new ALGO tokens as rewards.
Who created Algorand?
Algorand was launched in 2019 by Silvio Macali, an MIT professor and computer scientist who received the prestigious Turing Award for his work in cryptography.
The platform’s development is also supported by two independent entities. The non-profit Algorand Foundation oversees the protocol, its governance mechanism and the open-source development of the platform while Algorand, Inc. oversees the enterprise adoption of its technology.
The Foundation also supports training and education by organizing events, certifications, and hackathons for its ecosystem, as well as develop courses at major universities like MIT and UC Berkeley.
Mainnet was launched in June 2019 and a Dutch auction was held to release its token around the same time. The auction helped sell 25 million of its 10 billion total minted tokens and raised $60 million.
How does Algorand work?
To achieve its goal, Algorand uses a two-tier blockchain structure:
- Layer 1 – base layer that supports most types of smart contracts, token creation and exchange, and NFT creation.
- Layer 2 – supports complex smart contracts that require more computing and/or space.
Both layers work hand in hand to support each other. The Layer-1 helps ensure security and compatibility while the Layer-2 can compute complex applications and transactions without interfering with Algorand’s efficiency when processing transactions.
Algorand Standard Asset (ASA) protocol
The Algorand Standard Assets (ASA) protocol is the token standard for creating and deploying assets on Algorand, much like ERC-20 on Ethereum or TRC-20 on Tron. The creation of ASAs focuses on simplicity and allows anyone, regardless of their computing background, to create them.
In order to create an ASA token, users do not need any technical expertise as all they have to do is fill out a form. ASAs can be configured to fit any use case the creator chooses, and benefit from the same security and speed as the ALGO token, which is also built on an ASA standard.
What is Algorand’s Pure Proof of Stake? (PPoS)
Pure Proof of Stake (PPoS) is a variation on the more common Proof of Stake (PoS) protocol on which other blockchains operate. Its main goal is to democratize the process of block creation by allowing anyone who holds a balance of 1 ALGO or higher to be able to validate blocks on the blockchain (as opposed to Ethereum post-merge, that will have a minimum staking requirement of 32 ETH).
When it comes time to validate blocks, the protocol randomly and privately selects a block leader using a process called the verifiable random function (more on that below). Selecting the leader privately is an important feature to help reduce the vector of attack from bad actors.
A committee is then selected from all ALGO holders to approve the proposed block and ensure that no problem occurred. If the committee approves the validity of the block, it is then added to Algorand’s blockchain. If malicious activity is detected, such as double spending, the block is removed, and a new block leader is elected.
Algorand has become a popular cryptocurrency to stake thanks to its flexibility and usability. All you need is 1 ALGO to start staking, and, once you purchase ALGO, you only need to send it to your crypto wallet as staking happens automatically.
Verifiable Random Function (VRF)
The custom-made cryptographic randomization tool called Verifiable Random Function (VRF) works by selecting a block leader from participating ALGO holders. User selection is weighted based on the amount of ALGO staked.
The benefit of VRF is that when a block leader is selected, it is known only to them, which helps them validate and approve blocks without any external influence. Block leaders only become known after the round is complete and the committee disbands. The next round then starts fully independently of the previous committee and the blockchain continues.
Committee selection via VFR and the notion of user replaceability are essential in making the blockchain secure, as they eliminate the requirement for a central authority that may be used as a target for attack. Since there is never any communication between the central authority and the block leaders, there is no information to intercept.
What are the benefits of the ALGO token?
On top of being used by block leaders, ALGO can be used to pay for transaction fees when using its platform.
Further, any holder can participate in the platform's governance system. Holding ALGO enables users to vote on changes and upgrades to the software and earn a share of new ALGO tokens as rewards.
Anyone wishing to become a block leader or to be chosen as part of the selection committee may wish to add ALGO to their portfolio and stake it.
How to buy ALGO
You can buy the Algorand coin on Bitstamp. Sign up for a Bitstamp account and start trading ALGO today!
Disclosure: Bitstamp is licensed to engage in virtual currency business activity by the New York State Department of Financial Services.