The Algorand platform and its ALGO token, marketed as the cornerstone of the future “borderless economy”, are committed to the cause of balancing stability, scalability and decentralization at no cost to one another.
What Is Algorand?
Algorand was born out of the desire to solve the so-called “blockchain trilemma,” which argues that one can not have full-blown decentralization, scalability and security on one blockchain platform unless at least one aspect is toned down to accommodate the other. In other words, creating a powerful decentralized platform would make it unavoidable, for example, to harm its capacity for security and scalability. The proposed response to this challenge came in the form of the Algorand network, launched in June 2019 as a global project aimed at facilitating the decentralization of the digital economy focused on open and permissionless access, instant verifiability, internally developed Pure Proof-of-Stake protocol, and transaction management framework capable of scaling custom blockchain projects.
Algorand’s central ideology revolves around the concept of “democratic” user participation. Algorand introduces its updated Proof-of-Stake and self-validating transactions instead of the mining-based Proof-of-Work algorithm that Bitcoin and other cryptocurrencies use. This Boston-based initiative was developed by Silvio Micali, a professor at MIT and Turing Award winner, an annual honor known as the Nobel Prize in Computing. Joining Micali is the rest of his blockchain team of experts and researchers. Algorand was listed following a public sale in June 2019, with its booming prices after initial excitement eventually stabilizing. The project’s Algorand Foundation reported the sale manages to raise some USD 60 million.
What Is Algorand Trying to Do?
The project Algorand has set itself a list of goals that depend on the effective implementation of its concept and tech:
- Algorand’s economic innovation would be the development of a blockchain that would give real value to efforts to create a “borderless” economy. Decentralized, safe, scalable, and distributed ledger technology from Algorand is hoped to serve as a bridge with companies and organizations seeking access to untapped markets. That would count for nothing if the blockchain platform were unable to produce adequate output to meet the demands of this type of economy. Centered on its special consensus algorithm, the Algorand blockchain provides instant transaction finality, without the possibility of forking or confusion. That new block, once established, remains forever on the chain, ensuring that all transactions in this blockchain remain final. The network was estimated to be able to process 1,000 transactions per second when the Algorand MainNet was launched, taking it closer to the performance rates of payment networks such as VISA, which is said to manage around 1,700 transactions per second.
- The Pure Proof-of-Stake of Algorand focuses on acknowledging one’s ownership rights over properties as its principal mode of action. This emphasis will make Algorand more at home in its expected financial-industry implementation. To this end, it promotes its Pure PoS as a special consensus algorithm, established by Silvio Micali himself. It features dramatically reduced computing power demand, as well as the ability to settle transactions within a few seconds. The program is capable of finding consensus without the need for central authority, with tolerance for malicious users as long as honest users hold the majority of the stakes. Every user is able to read every block and has the ability to write a transaction in a block to come. Based on the size of their stake in the system measured in the number of ALGO tokens, users may influence the selection of a new block. Users are discreetly picked, based on the theory of randomness, and allowed to propose blocks and vote on block proposals, with the probability of being chosen being proportional to the amount of stakes.
- Algorand is marketed as an open-door forum that anyone can enter without an officially designated gatekeeper authority having given prior approval. Algorand is big on its platform’s openness, which its developers hope will foster the exchange of ideas between different user profiles on it. It works in a manner close to open-source software, with a whole range of players, ranging from small business owners, individual investors and big companies, having access to its permissionless blockchain. The possession of potentially modest computing resources is all that is required. Unlike the approved blockchain that may hamper the capacity for innovation of the users, Algorand users are free to propose new business applications based on the ownership records that are publicly accessible on the blockchain. This will help the company build entirely new markets that would not simply imitate their counterparts in the real world.
How Does Algorand Protocol Work?
Algorand runs on the blockchain which employs a Pure Proof-of-Stake-based decentralized Byzantine agreement protocol. There are many features in the Algorand protocol that should set it apart from similar competing solutions:
- Users are not allowed to use the keys to spend their stakes to get consensus. Instead, Algorand only allows users who wish to participate in the protocol to generate and register their keys for participation. The key is then used to authorize the involvement in making suggestions for an individual account and voting on blocks. Protection is accomplished by using the keys to keep the ALGO tokens secure, even when a participating node may become compromised.
- Verifiable Random Function (VRF)’s position in the Algorand protocol supports the self-selection mechanism whereby users may secretly determine whether or not they were selected to participate in the consensus protocol round. This approach is based on the fact that blocks from Algorand feature a random set of users who are eligible for participation. Every time a new block is committed to Algorand blockchain, the participants are made aware of the seed and the user tests the Verifiable Random Function with the aid of the hidden participation key and the seed selection. VRF operations generate cryptographic proof that is accessible to those wishing to check the findings that follow. The key benefit here is the minimal computing power required to run this function.
How Does Algorand’s Pure Proof-of-Stake Promote Security?
Based on the nature of the Pure Proof-of-Stake Algorand protocol, the entire principle of defending its users from future attacks does not depend on the fear of fines but on rendering malicious acts by a minority of users impossible:
- The owners of the bulk of funds on the site are the only ones capable of stopping transactions by other users. Many who hold much of the funds in their possession are strongly discouraged from participating in unethical acts as this will only help to devalue their properties.
- If they still want to indulge in fraudulent activities, then Algorand’s image as a means of payment will suffer internationally, lowering the universal acceptance and value of the tokens. The owners of those funds would ultimately see their buying power significantly reduced.
At the same time, this approach is focused on the replaceability of the users and the lack of communication among them. Based on the necessity to have the user’s private key to complete the block validation process, malicious users are unaware of who is actually important to the next block generation. Since only users are aware of their selection, potential opponents will find it too late to target a particular user when they finally learn who has been selected as a participant.
Other Technologies and ALGO Availability
Along with the innovations already introduced, the Algorand developers plan to add many new features that would fine-tune this platform’s current capabilities:
- Vault is being proposed as the solution to the blockchain storage problem by Algorand. As the blockchains increase in size, it can become a real challenge to store all of its blocks. Instead, Algorand’s Vault technology aims at fostering improved scalability by efficient onboarding of new users. These users are expected to download and update only one piece of information and start engaging in block construction and storage as soon as they enter the network.
- Digital signature Pixel scheme is the technology by which Algorand aims to reduce its bandwidth requirements via a novel method. The method is based on the ability to combine several signatures of the same message and transform it into a same-length compact signature. At the same time it prevents malicious users from forging signatures on earlier posts.
- Transactions which self-validate are focused on the separation between consensus and storage. Without the need to maintain balances for block verification and individual payments, users would be able to verify the validity of payments.
- Algorand is eventually preparing to support atomic swaps down the track.
As of September 2019, the market cap of the Algorand currency stood at 113 million USD, down from its historic peak of 156 million USD in August 2019. At the same time, out of the total expected supply of 2.8 billion tokens, about 291 million tokens were found in circulation.
ALGO tokens are available on cryptocurrency exchanges such as Binance and others for trading.