What is Algorand (ALGO)?


Algorand, is a blockchain platform that employs a Proof of Stake consensus mechanism for swift and seamless transaction processing. Furthermore, Algorand facilitates the development and deployment of dApps, thereby positioning itself as a formidable competitor to other blockchain platforms in the crypto market like Ethereum.

Algorand is secure, scalable, and energy-efficient, which makes it an ideal choice for businesses and organizations looking to leverage the power of blockchain.

ALGO, Algorand’s native cryptocurrency, is used to secure the blockchain and to pay for transaction fees.

Key Takeaways

  • Algorand (ALGO) is a decentralized, open source blockchain designed as a fast, secure, and scalable, platform for building and hosting dApps.
  • Secured by its native token – ALGO, Algorand uses the so-called pure proof-of-stake consensus algorithm, which allows for fast and efficient transactions without mining required.
  • The platform’s development and maintenance are governed by Algorand Inc, overseen by the Algorand Foundation.

The platform is open-source, which means that anyone can view and contribute to its codebase. The platform uses a protocol called pure proof-of-stake (PoS) to recruit network validators from the pool of users.

How does Algorand work?

Algorand’s blockchain has its own two-tiered structure, with the network’s base layer supporting smart contracts, atomic swaps, and asset creation, known as Layer 1.

On the Layer 1, users and platforms can create Algorand Standard Assets (ASAs). They represent tokens built and deployed on the Algorand blockchain, same as the ERC-20 tokens we know that function on Ethereum. The Layer-1 Algorand Smart Contracts (ASC1) maintain the same security level as the whole consensus protocol itself.

Algorand’s second layer hosts smart contracts that are more complex as well as dApp development. This network separation into Layer 1 and 2 allows for efficiently processed Algorand transactions. Simple transactions complete more quickly on Layer 1 without causing it to slow down by larger and more complex smart contract variations.

Pure Proof-of-Stake

Algorand’s blockchain technology uses a unique version of Proof-of-Stake known as Pure Proof-of-Stake (PPoS). The PPoS consensus mechanism is highly democratized and requires a low staking minimum to participate in and secure the network – where only 1 ALGO is needed. This is in contrast to Ethereum 2.0, which demands a minimum staked amount of 32 ETH, which creates a higher entry barrier for participants. However, a low minimum requirement for staking may impact the network’s security. Network participants can be less motivated to act optimally given the fact that they do not have a significant value at stake within the network.

PPoS Block Production

PoS randomly selects validator nodes to confirm a block’s transaction data. Algorand’s PPoS consensus uses a two phase process that includes proposals and voting. Any network member can participate in this process by staking their ALGO tokens and generating the valid participation key that makes them a Participation Node.

Another network node type called Relay Nodes facilitates the coortination of Participation Nodes. These nodes facilitate the communication between Participation Nodes but do not take any direct part in any voting or proposing.

During the phase of proposal, the network chooses a random block leader for the next block’s proposal. Block leaders get elected using Algorand’s VRF – verifiable random function. It’s a mechanism that randomly selects nodes weighted by their stake size. The network secretly assigns a block leader via a participation key that’s private. Only they know that they’ve been assigned in proposing a block.

What the verifiable random function provides is a cryptographic form of proof allowing the block leader to quickly prove their selected status. An approach like this provides additional security for the network since malicious actors do not know who the designated leader is by the time of the next block proposal. A method like this effectively reduces the chance of targeting the network block leader to compromise the entire network.

Voting Stage

After the block proposal phase, voting is the next stage. A voting committee randomly selects Participation Nodes. The committee is responsible for making sure that no overspend, double-spend, or any other issue occurs in the new block.

When a quorum agrees on everything being okay, they add the new block to the network. When the network detects malicious activity, it enters recovery mode, where the network discards the proposed block. At the same time, the consensus chooses a new block leader.

Algorand does not use slashing, meaning a node can not have its stakings reduced as a penalty when they propose a bad block. Rather, the network goes to recovery mode, and it continues the processing of transactions. While this keeps up the efficiency and speed by quickly recovering from errors, there have been criticisms of this aspect of Algorand’s block production. The criticism mainly derives from the fact that it lacks any specific mechanism needed to punish the dishonest behavior.

With this block production method, the network never proposes two blocks for the next slot simultaneously. This eliminates the possibility of forking the blockchain. When they produce the next block, it has achieved consensus already, and users immediately rely on its validity, reducing network latency.

Algorand Development

Algorand is relatively new, since it launched in 2019. It is overseen by Algorand Foundation, a non profit that supports Algorand Inc. and the protocols development.

The foundation commits to developer education and sponsors, hackathons, events, educational content, as well as certifications. Algorand Inc is the private company that deals with the network’s core development.

Despite being a relatively new crypto player, the Algorand blockchain has already established itself as a competent platform with rich technological innovation, support, as well as numerous real-world use cases. Its coin rewards structure and consensus mechanism are setting a new industry standard, with high expectations on what its future is going to breed.

Algorand FAQ

Frequently asked questions about ALGO.

Who created Algorand (ALGO)?

Silvio Micali, an MIT professor of computer science is the founder behind Algorand. Micali is amongst leading researchers in cryptography and known for his work in the development of zero-knowledge proof systems – a core component of many modern blockchain technologies.

He also co-authored a paper on the concept of Byzantine Agreement, the key principle behind lots of distributed ledgers, where he includes Algorand. He has received several awards for his work, including the notable Turing Prize.

How can I stake ALGO?

On October of 2020 Algorand launched its community governance initiative. This makes ALGO holders able to vote and make decision’s about the platform and its future. Users pledge their ALGO for a 90-day voting period to participate and be eligible.

Algorand’s mobile wallet app allows ALGO holders to stake their tokens immediately. To do so, users can simply deposit their ALGO. The wallet will then automatically stake the funds and begin accruing more ALGO over time. The coin’s market cap and circulating supply determines ALGO price.

How does the Algorand Network secure itself?

The Algorand blockchain is a decentralized and permissionless protocol that uses a pure proof-of-stake (PoS) mechanism for block validation. Unlike other blockchain protocols that use proof-of-work (PoW) where the root block is validated by a randomly selected group of validators using computing power, in pure proof-of-stake all validators know one another and only need to come to a consensus on the next block in order to create a new block.

Final Thoughts

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