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What is Algorand?

Pathik Bhattacharya
Pathik Bhattacharya Published on March 07, 2023 02:44 PM

Algorand is an open-source, decentralized blockchain network with a two-tiered structure and a unique Proof-of-Stake (PoS) consensus mechanism.

What is algorand?
Source: Medium

What is Algorand? This is a question that many investors and enthusiasts have in the realm of cryptocurrency. Algorand is a blockchain platform that is gaining traction owing to its distinct features and outstanding performance. It is a decentralized, safe, and quick platform that is intended to provide users with a seamless experience. 

Understanding what Algorand is and how it works is critical whether you're a seasoned investor or a newcomer eager to explore the world of cryptocurrencies. In this blog article, we'll go through Algorand in-depth, looking at its core features, application cases, and future possibilities.

Algorand Explained

Algorand is a blockchain platform that was established in 2017 and released in 2019 after several years of development. The mainnet of Algorand was launched on June 19, 2019, signifying the platform's formal release. Silvio Micali is a well-known computer scientist and Turing Award laureate. It is intended to provide a decentralized, safe, and efficient platform for developing and executing decentralized applications (dApps).

Algorand employs a Proof-of-Stake (PoS) consensus mechanism, with validator incentives distributed to all holders of its native ALGO money. Algorand is capable of meeting the high-throughput needs of extensive worldwide usage and a range of use cases due to its great throughput capacity and equitable community incentivization.

Algorand is now capable of hosting decentralized application (dApp) development and enabling scalability as a public smart contract blockchain that relies on staking. Increasing Ethereum gas rates have prompted many dApp developers and decentralized finance (DeFi) merchants to seek alternate blockchain alternatives. Algorand has been proposed as an Ethereum alternative for dApp development and DeFi apps.

Algorand Protocol

The Algorand protocol is intended to provide a decentralized, secure, and efficient blockchain platform. It is made up of numerous main components that collaborate to allow the platform's major features and capabilities.

Consensus method of Algorand Protocol, which is based on pure proof-of-stake, is at its heart (PPoS). This implies that the process of certifying transactions and establishing new blocks is carried out by a set of validators chosen based on their network stake. Because there is no need for energy-intensive mining procedures, the network is safe, quick, and energy-efficient.

The Algorand protocol also features a cryptographic sortition mechanism that picks validators at random for each block. This keeps the network decentralized since no single party has too much power over the platform.

Another important aspect of the Algorand protocol is its quick block confirmation times, which are achieved via a technique known as Binary Byzantine Agreement (BBA). This method allows the network to establish agreement on blocks in a matter of seconds, allowing for fast transaction speeds and minimal costs.

The Algorand protocol also features a smart contract layer, which allows developers to construct decentralized apps (dApps) on top of the platform. TEAL (Transaction Execution Approval Language) is the smart contract language used in Algorand. It is a basic, stack-based language that is supposed to be secure and efficient.

Algorand Staking Mechanism

Algorand's unique variation of Proof of Stake, called Pure Proof of Stake (PPoS), is a highly democratized consensus mechanism that allows for a low minimum staking requirement of just one ALGO coin to participate in and secures the network. In comparison, Ethereum 2.0 demands a substantially greater minimum stake of 32 ETH, resulting in a higher barrier to entry for users.

While a low minimum staking requirement might boost network accessibility and participation, it can also contribute to worse network security. Participants may be less encouraged to act properly and safeguard the network if there is less value placed on it, thus resulting in a larger risk of assaults or hostile behaviour.

Algorand has included numerous techniques to encourage optimum behavior and network security to avoid this danger. For example, the algorithm chooses a group of validators at random to participate in the consensus process for each block, ensuring that no single entity has undue influence over the network.

Algorand’s Native Cryptocurrency: ALGO

ALGO, Algorand's native cryptocurrency, acts as the platform's principal utility token. ALGO, as a pure proof-of-stake (PPoS) blockchain, is utilized to protect the network, incentivise network membership, and simplify platform transactions. The entire maximum amount of ALGO tokens is 10 billion, with the circulating supply growing progressively overtime via the network's incentive system.

ALGO's very accessible staking mechanism is one of its distinguishing characteristics. Unlike other proof-of-stake (PoS) blockchains, which frequently need users to stake a large number of tokens in order to participate in network validation, Algorand simply requires a minimum stake of 1 ALGO to become a validator.

There is a hard supply cap of 10 billion ALGO tokens, which is allotted as follows:

  • 3 billion ALGO released into circulation throughout the first five years (including the initial auction of 25 million ALGO coins)

  • 1.75 billion ALGO (estimated) to be given over time as participation node incentives

  • 2.5 billion ALGO will be allocated to Relay Nodes throughout time.

  • The Algorand Foundation and Algorand Inc. have been allocated 2.5 billion ALGO.

  • 0.25 billion ALGO will be allocated for end-user grants.

Algorand's decentralization of its ALGO currencies is an iterative process, similar to many blockchain-based initiatives striving toward an optimally egalitarian coin distribution procedure. The Algorand Foundation now owns a considerable quantity of ALGO, which detractors fear will monopolize the protocol in the immediate future. Yet, Algorand's democratized reward distribution system is designed to reduce network centralization over time.

What’s so Special About Algorand?

While Bitcoin (BTC) is based on the assumption that no single bad actor has control over the majority of computational power used to generate blocks, it still faces a number of challenges. BTC's proof-of-work (PoW) approach to block generation requires a significant amount of computation, leading to high energy consumption and environmental concerns. Additionally, PoW allows for forks, where two alternative blockchains with the same length coexist, leading to slower transaction times.

BTC also faces issues with anonymity, as the pseudo-anonymity provided by BTC payments can be used for illicit activities such as money laundering, financing criminals or terrorist organizations.

In contrast, Algorand aims to address the "blockchain trilemma," tackling the three major issues that the blockchain ecosystem currently faces: scalability, speed, and security. Algorand's pure proof-of-stake (PPoS) consensus mechanism enables high scalability, as the network can handle up to 1,000 transactions per second. The protocol also ensures fast transaction times, with transactions confirmed in seconds rather than minutes or hours.

In short,

  • BTC's PoW approach requires significant energy consumption and leads to slower transaction times and forks, while Algorand's PPoS enables high scalability, fast transactions, and highly secure networks.

  • BTC's anonymity can be used for illicit activities, while Algorand's secure network ensures that all transactions are valid and secure.

  • Algorand's innovative approach to consensus mechanisms positions it as a leading blockchain platform for a wide range of applications and use cases.

How Does Algorand Work?

Algorand is a blockchain platform that uses a unique consensus mechanism called Pure Proof of Stake (PPoS) to enable high scalability, security, and decentralization. Here's how Algorand works:

PPoS Consensus Mechanism

Algorand uses a highly democratized version of proof of stake (PoS) called PPoS. This consensus mechanism allows anyone with at least one Algorand (ALGO) coin to participate in securing the network and validating transactions.

Block Proposal

Every round, a new block is proposed by a randomly selected user. This user is chosen based on a cryptographic sortition process that ensures that every user has an equal chance of being selected. Once the block is proposed, other users on the network validate it and add it to the blockchain.

Binary Byzantine Agreement (BBA)

To ensure that all users on the network agree on the contents of the blockchain, Algorand uses a consensus algorithm called Binary Byzantine Agreement (BBA). This algorithm allows users to reach a consensus on the contents of the blockchain without the need for energy-intensive computations.

Fast Block Confirmation

Since each block is added to the blockchain within a single round, Algorand is able to achieve fast block confirmation times. This allows for quick and efficient processing of transactions.

Smart Contract Execution

Algorand also supports smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Algorand's smart contracts are built on a custom-built scripting language called TEAL (Transaction Execution Approval Language).

How to Mine Algorand

Mining Algorand is not possible as it uses the Proof-of-Stake method. However, there’s another over-the-counter method to do so.

To mine Algorand, you need to participate in the Algorand network as a validator. Algorand uses a Proof of Stake (PoS) consensus mechanism, which means that instead of using computational power to solve complex mathematical problems (as in Proof of Work), validators are chosen to create new blocks and validate transactions based on the amount of Algorand tokens (ALGO) they hold and are willing to "stake."

Here are the steps to mine Algorand:

Acquire ALGO: To become a validator, you need to have a certain amount of ALGO tokens. The minimum amount required to participate in the network as a validator is 1 ALGO.

Install a node: You need to run a full node on the Algorand network to participate in consensus. You can download and install the node software from the Algorand website.

Set up your node: After installing the node software, you need to configure your node to participate in the consensus process. This involves setting up your validator identity and staking your ALGO tokens.

Start validating: Once your node is set up, it will start participating in the consensus process and validating transactions. You will earn rewards in ALGO for validating transactions and creating new blocks.

Maintain your node: As a validator, you need to keep your node running and ensure that it stays in sync with the rest of the network. You also need to make sure that your node is secure and protected from attacks.

How to Buy Algorand

Choose a cryptocurrency exchange: You need to find a reputable cryptocurrency exchange that supports Algorand (ALGO). Some popular exchanges that support ALGO include Binance, Coinbase, Kraken, Bitfinex, and Huobi.

Sign up for an account: Once you have chosen an exchange, you need to sign up for an account. You will need to provide some personal information, such as your name, email address, and a government-issued ID.

Verify your account: Depending on the exchange, you may need to complete a verification process to access all of the features of the platform. This typically involves providing additional information and documentation to prove your identity.

Fund your account: After your account is verified, you can fund it with fiat currency (such as USD, EUR, or GBP) or other cryptocurrencies (such as Bitcoin or Ethereum).

Buy Algorand: Once you have funds in your account, you can buy Algorand (ALGO) using a market order or a limit order. A market order buys ALGO at the current market price, while a limit order allows you to set a specific price at which you want to buy ALGO.

Withdraw your ALGO: After buying Algorand, you can withdraw your ALGO tokens to your personal wallet or leave them in your exchange account.

Algorand Vs Ethereum

Algorand is a newer blockchain platform that uses a pure proof-of-stake consensus algorithm to achieve high scalability, security, and decentralization. It was created with the aim of providing a blockchain platform that can scale to support a large number of users and transactions without sacrificing security or decentralization. 

Algorand uses a unique consensus algorithm that ensures fast and secure transactions, allowing developers to build decentralized applications (dApps) that can scale to millions of users.

Ethereum, on the other hand, is a more established blockchain platform that introduced the concept of smart contracts to the blockchain world. It uses a modified version of proof-of-work consensus algorithm, which requires a significant amount of computing power to secure the network. 

Ethereum's smart contract functionality has made it the most popular platform for decentralized applications, powering a wide range of dApps including decentralized finance (DeFi), gaming, and more.

Here's a comparison table highlighting some of the key differences between Algorand and Ethereum:

Comparison

Algorand

Ethereum

Consensus Algorithm

Pure Proof of Stake

Modified Proof of Work

Transaction Speed

Thousands per second

15-45 transactions per second

Smart Contract Functionality

Limited

Advanced

Scalability

Highly Scalable

Less Scalable

Security

High

High

Decentralization

High

Decentralized but becoming more centralized with the shift to proof of stake

Tokenomics

ALGO token

Ether (ETH) token

Market Cap (as of March 2023)

$1.58 billion

$191 billion

Algorand Foundation

The Algorand Foundation is a non-profit organization that oversees the funding and development of Algorand Inc. and the Algorand protocol. It was launched in 2019 to support the growth and development of the Algorand ecosystem. 

One of the foundation's key priorities is to promote developer education and support the adoption of the Algorand protocol. To this end, it has established the Global University Program, which partners with leading universities around the world to provide training and support for developers interested in building on the Algorand platform.

In addition to supporting developer education, the Algorand Foundation sponsors a range of events, hackathons, and educational classes to help drive innovation and adoption of the Algorand protocol. 

In 2020, the foundation launched two accelerator programs - Algorand Asia Accelerator and Algorand Europe Accelerator - to support promising projects and developers building on the Algorand platform. These programs provide end-to-end support to help participants develop and launch successful projects.

Algorand FAQs

What is Algorand?

Algorand is a public, decentralized blockchain platform that uses a unique consensus algorithm called "pure proof-of-stake" to achieve fast and secure transaction processing. It was founded by Silvio Micali, a Turing Award-winning computer scientist, in 2017.

How does Algorand work?

Algorand uses a pure proof-of-stake consensus mechanism that ensures that all users can participate in the network's consensus process without having to compete for the right to validate transactions. This ensures that the network remains decentralized, fast, and secure.

What is the advantage of Algorand?

One of the main advantages of Algorand is its ability to process a large number of transactions per second while maintaining a high level of security and decentralization. This makes it well-suited for use cases that require fast and secure transactions, such as payment systems, supply chain management, and decentralized applications.

What is the Algorand coin?

The Algorand coin, also known as ALGO, is the native cryptocurrency of the Algorand blockchain. It is used to pay transaction fees and to incentivize validators to participate in the consensus process. ALGO can also be used as a store of value or traded on cryptocurrency exchanges.

Who uses Algorand?

Algorand is used by a wide range of organizations and individuals, including financial institutions, government agencies, and developers building decentralized applications. Some notable users of Algorand include Circle, the USDC stablecoin issuer, and the Republic of the Marshall Islands, which issued a digital sovereign currency on the Algorand blockchain.

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