What is Algorand & How it Actually Works?

Name	Algorand
Consensus Algorithm	Pure Proof of Stake (PoS)
Symbol	ALGO
Overview	Algorand is a digital currency and smart contract platform designed for scalability, safety, and decentralization. It offers fast transaction finality and has no mining, resulting in lower transaction fees. The mainnet went live in June 2019, and it can process around 1 million transactions per day as of December 2020.
Technology	– Pure Proof of Stake (PoS) blockchain
	– Built on Byzantine consensus
	– Uses Algorand Virtual Machine (AVM)
	– Smart contracts in TEAL, Clarity, Reach, and Python languages
Native Token	Algo
	– Lightning-fast transactions (under 4 seconds)
	– Scalable for any transaction volume
	– Secured by Pure Proof of Stake consensus
	– Low transaction costs
Team, Foundation & Investor	– Node Running Grant (25%)
	– Public Sale (30%)
	– Participation Rewards (17.5%)
	– End User Grant (2.5%)
Volume (As of 10th April 2022)	$86,969,502
Total Supply	7,063,112,021
Circulating Supply	6.63 billion ALGO
Crowd Sales	Total of $126 million raised through 11 rounds of investment
Funding	– Jan 28, 2021: Secondary Market – NA
	– Dec 1, 2020: Initial Coin Offering – NA
	– Aug 31, 2020: Venture Round – NA
	– Jun 19, 2019: Initial Coin Offering – $60M
	– Jun 1, 2019: Seed Round – NA
	– May 31, 2019: Seed Round – NA
	– Oct 24, 2018: Venture Round – $62M
	– Aug 31, 2018: Venture Round – NA
	– Jul 23, 2018: Venture Round – NA
	– Feb 15, 2018: Seed Round – $4M
Country	Singapore
Name of Organization	Algorand Foundation Ltd.
Year Incorporated	2017
Registered Address	1 George Street, #10-01, One George Street, Singapore
Dispute Resolution and Governing Law	Singapore

Who Are the Founders of ALGORAND?

Name	Designation	Education	Experience
Silvio Micali	Founder	– University of California, Berkeley: Doctor of Philosophy (Ph.D.) in Computer Science	– 9 years of experience
		– University of Toronto: Postdoc
		– Sapienza Università di Roma: Bachelor’s degree in Mathematics

Links:

• [Website]
• [Twitter]
• [Whitepaper]

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What Is Algorand?

Algorand serves as an autonomous and decentralized blockchain network with a wide array of secure, efficient, and scalable applications. It was purpose-built to cater to the future of finance and stands as the pioneer in offering a pure proof-of-stake (PoS) foundational blockchain.

At its core, Algorand’s technology encompasses a suite of high-performance layer 1 blockchains that deliver robust security, scalability, privacy, and definitive transaction finality. In the realm of blockchain technology, a layer-1 blockchain signifies a set of innovative solutions designed to enhance the fundamental protocol, primarily focusing on improving scalability. Within this domain, two primary approaches, namely consensus protocol enhancements and sharding, hold prominence.

Algorand demonstrates the capacity to accommodate a substantial number of users while ensuring swift transaction confirmation with latency on the order of mere minutes. Even in scenarios where some users may act maliciously, or the network experiences momentary partitions, Algorand provides the assurance that users will never encounter conflicting views regarding confirmed transactions. In contrast, existing cryptocurrencies often permit temporary forks and necessitate a significant period to attain high-confidence transaction verification, typically measured in hours.

What Is the Algorand Foundation?

The Algorand Foundation, established as a non-profit organization in 2019, plays a pivotal role in nurturing and advancing the Algorand ecosystem. This foundation’s multifaceted mission encompasses funding initiatives, development efforts, community engagement, research, and governance within the blockchain sphere.

One of the notable endeavors undertaken by the Algorand Foundation involves educational initiatives targeted at developers within educational institutions. Additionally, it actively supports various projects within the Algorand ecosystem through accelerator programs, fostering innovation and growth.

However, it’s important to clarify that the technical development work is primarily carried out by the private entity Algorand Inc., which is distinct from the foundation.

The Algorand Foundation is also a significant holder of ALGO tokens, utilizing these holdings to fund its wide-ranging activities, including ecosystem development and support.

Notably, the Algorand blockchain, overseen by the Algorand Foundation, is accessible to any entity, be it a company or an individual, seeking to utilize its capabilities. Algorand’s core focus areas for technical innovation encompass performance, interoperability, scaling, as well as the integration of layer-2 smart contracts and both private and public blockchain models.

Furthermore, Algorand aims to enhance its functionality by addressing key aspects such as payment scalability and off-chain computing through the implementation of layer-2 scaling solutions. These innovations collectively contribute to Algorand’s vision of providing a robust and versatile blockchain platform for a wide range of applications.

How Does Algorand Work?

Algorand’s scalability is indeed a notable feature, and it is primarily driven by its innovative Pure Proof of Stake (PPoS) consensus mechanism. This protocol enables Algorand to efficiently process a large number of transactions without compromising decentralization, addressing some of the scalability challenges faced by other blockchain consensus mechanisms.

In traditional Proof of Stake (PoS) blockchains, scalability often comes at the expense of centralization, with a small number of validators holding large stakes dominating the process of block approvals. Similarly, Proof of Work (PoW) blockchains can suffer from centralization concerns as large mining pools tend to have a competitive advantage.

Algorand’s PPoS consensus mechanism takes a different approach by randomly selecting validators and block proposers from a pool of participants who have generated a participation key. The probability of being chosen is directly proportional to the participant’s stake in the network. While it’s true that larger stakeholders have a higher chance of being selected, Algorand doesn’t impose a minimum stake requirement, making it more accessible to a broader range of users. This lack of a minimum stake requirement reduces a significant barrier to entry for average users, promoting a more inclusive and decentralized network.

Furthermore, Algorand’s security model, with every staker who runs a node being a possible validator, enhances decentralization compared to blockchain networks with a predefined set of validators, as seen in Delegated Proof of Stake (DPoS) systems.

As a result of these design choices, Algorand’s Pure Proof of Stake protocol achieves impressive performance metrics. It delivers blocks with instant finality approximately every 3.7 seconds on average, and it can process up to 6,000 transactions per second (TPS). These characteristics make Algorand well-suited for various applications that require both speed and security.

Pure Proof of Stake (PoS) vs Proof of Stake

Aspect	Pure Proof of Stake (Pure PoS)	Proof of Stake (PoS)
Validator Selection	Random selection based on stakes and chance	Based on the amount of cryptocurrency staked
Minimum Stake Requirement	Often no minimum stake requirement	Typically requires validators to stake a minimum amount of cryptocurrency
Accessibility	More inclusive, open to a broader range of participants	Accessible primarily to those with larger stakes
Centralization Risk	Reduced risk of centralization due to randomness in selection	Potential for centralization when a few large stakeholders dominate
Security Model	Uses stakes as collateral for honest behavior	Validators risk losing staked cryptocurrency for malicious actions
Energy Efficiency	Energy-efficient, as it doesn’t involve energy-intensive mining	Generally more energy-efficient than Proof of Work (PoW)
Finality	Often offers instant finality, making transactions irreversible	Finality depends on block confirmation times and security parameters
Examples	Algorand, Some variations of Ethereum 2.0	Ethereum (transitioning from PoW to PoS), Tezos, Cosmos
Inclusivity	Designed to promote decentralization and broader participation	Can be less inclusive due to minimum stake requirements

Algorand Protocol Structure

Algorand’s innovative blockchain architecture is characterized by a two-tiered structure. In this setup, the foundational layer, known as Layer 1, serves as the hub for various essential functions such as smart contracts, asset creation, and atomic swaps between assets. These critical operations all occur on the Layer 1 of the Algorand blockchain, ensuring a high level of security and compatibility.

Within the first layer of the Algorand network, both platforms and users have the capability to create Algorand Standard Assets (ASAs). These ASAs act as representations of tokens, whether they are new or pre-existing, on the Algorand blockchain. This functionality resembles the way ERC-20 tokens operate on the Ethereum network. It’s important to note that in terms of security, simple smart contracts executed on the Algorand platform function as Layer-1 Algorand Smart Contracts (ASC1s). This means that they inherit the same robust security measures as the consensus protocol itself, ensuring their integrity.

The second layer of the Algorand network is specifically designated for more intricate smart contracts and the development of decentralized applications (dApps). This segregation of functions between Layer 1 and Layer 2 is what enables Algorand to process transactions with remarkable efficiency. By moving complex smart contracts off-chain to Layer 2, simple transactions can be swiftly processed on Layer 1 without being hindered by the computational demands of larger, more complex smart contracts. This architectural distinction is a key factor in Algorand’s ability to deliver rapid and efficient transaction processing.

What Are the Use Cases for ALGO?

Category	Projects
DeFi & Stablecoins	– ALAMMEX: A DEX aggregator for finding the best swap prices.
	– AlgoDex: A DEX with an order book model for trading Algorand Standard Assets.
	– C3: Decentralized markets with cross-chain settlement powered by a cross-margining clearing engine protocol.
	– Folks Finance: A capital markets protocol for lending and borrowing on Algorand.
	– Gard: The first stablecoin on Algorand with governance features for drawing lines of credit.
	– Humble Swap: A DeFi AMM-style exchange for swapping, pooling, and earning on assets.
	– Pact: A mobile-first trading platform with deep liquidity and low transaction fees.
	– TinyMan: A decentralized trading protocol offering an open and safe marketplace.
Art & Music NFTs	– Rand Gallery: An NFT marketplace for buying and selling Algorand NFTs.
	– Abris: A green solution for minting and selling digital art.
	– Aorist: A climate-forward NFT marketplace for artists.
	– Republic: Security NFTs with royalty rights in music.
	– CryptoSlam: An NFT platform aggregating notable NFT sales data and upcoming drops.
	– Stoi: An ecosystem for creators with a MicroDAO (mDAO) creation platform and membership tokens.
	– Dequency: The world’s first blockchain-powered synchronization licensing platform.
	– Opulous: Revolutionizing the music industry with Music Fungible Tokens (MFTs).
Gaming	– Aegir Tactics: A digital card game for competitive play.
	– Alchemon: Developing collectible and tradeable NFTs.
	– AlgoMond: An upcoming trading card video game with monsters minted on Algorand.
	– Fracctal Monsters: An innovative NFT monster taming game.
	– Play Alloy: A gaming platform ecosystem for gamers, developers, and influencers.
	– Polynize: Building a game platform for real-world missions and rewards for innovations.
	– Zone: A GameFi platform with on-chain gaming challenges, yield farming, and NFTs.
	– AlgoSeas: A pirate-themed idle NFT staking game on Algorand.
Bridges & Oracles	– AlgoMint: Implementing synthetic versions of BTC and ETH on Algorand.
	– Flare: Facilitating secure trustless interoperability between ALGO and other tokens.
	– ICON: Integrating Algorand into ICON’s BTP Interoperability Ecosystem.
	– London Bridge: A trustless Algorand/Ethereum bridge for integrating with other blockchains.
	– Messina: Interoperability between Ethereum and ERC20 tokens with Algorand.
	– Wormhole: A cross-chain bridge for Algorand.
	– pNetwork: Enabling assets and NFTs to move freely between blockchains.
	– Gora: A next-generation oracle network connecting blockchain to the real world.
Infrastructure	– AIKON: Providing cross-chain identity and wallet solutions.
	– AlgoExplorer: An advanced Algorand Block Explorer.
	– Blockdaemon: Orchestrating complex networks across multiple clouds and data centers.
	– Bloq: Building infrastructure and applications for DeFi, Mining, the Metaverse, and more.
	– Bleumi: A Payments Orchestration Platform for business owners.
	– Chainalysis: Providing transparency for the global economy built on blockchains.
	– Cudo: Offering scalable compute resources for blockchain developers.
	– CurveGrid: Offering MultiBaas blockchain middleware for easy development on multiple platforms.
	– Dedit: Allowing notarization of digital documents on the Algorand blockchain.
	– GetBlock: A Blockchain RPC provider offering API access to various blockchains.
	– Mentat: Developing an open-source SAP connector and Enablement API for Algorand.
	– Metrika AlertHub: Providing real-time notifications for relevant events on the Algorand network.
	– Orion Protocol: Aggregating liquidity for DeFi.
	– PARSIQ: A blockchain monitoring and workflow automation platform.
	– Pocket Network: Offering node providers for decentralized access to blockchain data.

What makes Algorand so unique?

Algorand stands out in the world of blockchain technology due to several key features and innovations that address the blockchain trilemma, which involves balancing scalability, speed, and security. Here’s how Algorand achieves this:

1. Pure Proof of Stake (PPoS): Algorand employs a unique consensus mechanism known as Pure Proof of Stake (PPoS). Unlike traditional Proof of Stake (PoS) systems where validators with the highest stake are selected to create blocks, PPoS randomly selects validators, irrespective of their stake. This approach avoids the issue of the “rich getting richer” and ensures a more decentralized network.
2. Byzantine Agreement Protocol: PPoS is coupled with a Byzantine Agreement (BA) protocol, which determines how participants can join the decentralized network, discourages fraudulent activity, and establishes a single verifiable source of truth. The BA protocol allows Algorand to achieve consensus on new blocks with low latency and no forks, ensuring quick transaction confirmations.
3. Verifiable Random Functions (VRFs): Algorand utilizes verifiable random functions (VRFs) to select users in a private and non-interactive manner. VRFs generate proof that their outputs are accurate, enhancing the security of the Byzantine agreement mechanism.
4. Two-Tiered Blockchain Architecture: Algorand adopts a two-tiered blockchain design to maintain speed while running complex applications. The Layer 1 tier handles Algorand Standard Assets (ASA), atomic swaps, and simple smart contracts, while the Layer 2 tier is for more complex smart contracts and decentralized applications (dApps). This approach ensures scalability and fast transaction processing.
5. Staking for Security: To enhance security, Algorand allows anyone holding ALGO, its native cryptocurrency, to participate in staking and help secure the network. The chance of being chosen as a validator is determined by the quantity of ALGO held compared to other users interested in staking.

To address specific challenges, Algorand employs several techniques:

• Weighted Users: The protocol can tolerate dishonest users as long as honest users holding the majority of the stake follow the protocol’s recommendations.
• Consensus by Committee: BA assigns protocol steps to small committees chosen at random based on user weights, ensuring scalability while maintaining trustworthiness.
• Participant Replacement: To mitigate attacks on committee members, each member can only speak once during the protocol, making them less valuable targets for adversaries.
• Cryptographic Sortition: Committee members are selected confidentially and non-interactively through cryptographic sortition, preventing adversaries from targeting specific users.

Algorand’s combination of PPoS, BA, VRFs, two-tiered architecture, and staking for security addresses the blockchain trilemma by offering scalability, speed, and security in a decentralized and efficient manner.

Conclusion

Algorand, self-proclaimed as “the future of finance” on its website, has garnered significant attention due to its strong focus on developing cutting-edge technology in the realms of DeFi (Decentralized Finance) and NFTs (Non-Fungible Tokens). With a core team dedicated to pushing the boundaries of innovation and a prestigious list of partnerships, Algorand, under the guidance of a world-renowned cryptographer, appears to be the frontrunner in the global competition to dominate the smart contract space.