Algorand Blockchain Overview
An independent, decentralized blockchain network called Algorand was created to offer a safe, effective, and expandable platform for a range of uses. The “blockchain trilemma,” which entails striking a balance between security, scalability, and decentralization within an expanding blockchain network, is its main objective.
Founding and Vision
- Algorand was designed by MIT computer science professor Silvio Micali, a famous cryptographer. Micali co-invented verifiable random functions and zero-knowledge proofs.
- Algorand’s mainnet launched in 2019, however the concept for the site first surfaced in 2017. In terms of speed, decentralization, and security, its vision focusses on resolving the shortcomings of current blockchain protocols.
- The Algorand blockchain is maintained and made accessible to both individuals and businesses by the Algorand Foundation.
Core Technology
- Mechanism of Consensus for Pure Proof of Stake (PPoS)
- Pure Proof of Stake (PPoS) is a special version of the Proof of Stake (PoS) consensus technique used by Algorand. It implemented PPoS for the first time in a public blockchain protocol.
Difference from PoW and PoS
- In contrast to Proof of Work (PoW) processes, which were utilized by Ethereum and Bitcoin in the past, PPoS offers more scalability, lowers the danger of centralization, and does not waste resources. PoW permits temporary forks as well, which lengthens the time needed to validate transactions.
- Large deposits are not necessary to become a validator with PPoS, which sets it apart from traditional PoS. Decentralization is improved and the barrier to entry is greatly reduced since anyone with just one ALGO token can approve blocks and take part in the consensus process.
- Because it chooses validators at random, independent of their investment size, the PPoS process is intended to avoid the “rich getting richer” problem that some PoS systems have.
How PPoS Works
There are three steps in the PPoS consensus process for every block:
- Block Proposal: Participants confirm their ALGO holdings, and block proposers are chosen at random. There is a greater chance of selection for those with more ALGOs.
- Soft Vote: Verifiable Random Functions (VRFs) are used by nodes to ascertain whether they have been chosen for voting. Users can verify their election and create unchangeable proof using the verifiable pseudonymous outputs that VRFs provide, all while protecting the selection from attackers.
- Certify Vote: To certify the block, a committee runs extra checks (for instance, double or excessive spending). The block that the leader selects must be accepted by the verifiers.
No Forging: By using a Byzantine agreement (BA) protocol in conjunction with Algorand’s PPoS technology, the blockchain is prevented from splitting or forking into separate chains. Instead of forking if parties are unable to come to an agreement, the blockchain pauses or slows down momentarily. This ensures that confirmed transactions are unchangeable.
Security Features
- Byzantine Agreement Protocol: When combined with PPoS, this protocol establishes a single, verifiable source of truth, chooses how users join the decentralized network, and discourages fraudulent conduct.
- Weighted Users: If the proportion of honest users in the system is more than two-thirds, the protocol can tolerate dishonest users.
- Consensus by Committee: A small, randomly selected committee is tasked with overseeing each phase of the process to ensure scalability and a sufficient number of honest participants.
- Participant Replacement: By speaking only once, committee members shield themselves from being targeted by enemies after their identities are made public.
- Cryptographic Sortition: Because this process chooses committee members in a private and non-interactive manner, enemies are unaware of who to target until they start taking part.
- Environmental Friendliness: Compared to PoW, Algorand’s PoS approach uses almost less electricity, which makes it ecologically friendly. This is a major advantage.
Network Structure and Performance
- Node Types: Two categories of nodes make up the Algorand network:
- Relay nodes: They serve as hubs for the network, keeping Algorand connected to other nodes. Although they don’t “mine” ALGO, the Algorand Foundation has set up a system of rewards for them.
- Participation nodes: To validate transactions and get paid for their work, these supply the processing power.
- Speed and Scalability: Algorand’s design aims to provide instantaneous transaction finality and great performance. It has a transaction processing speed of around 10,000 TPS. The average block finalisation time is 2.5 to 4.5 seconds. Because gossiping is how messages are spread, the system scales regardless of the overall number of users.
- Low Costs: Due to its exceptionally low transaction fees, Algorand has a minimum charge of around 0.001 ALGO. Until a specific daily transaction threshold is reached, the Algorand Foundation now receives all transaction fees; governors will then choose their future.
ALGO Token
The native coin of the Algorand blockchain is called ALGO.
- Purpose: Its primary function in the Algorand ecosystem is to facilitate the payment of petrol fees, goods and services. Participation, decentralized governance, staking, and funding for ecosystem projects are also encouraged.
- Supply: Thirty percent of the 10 billion ALGO tokens that are available for purchase will be made available to the general public. The remaining funds are distributed to the Algorand team and investors, the Foundation treasury, node running incentives, and end-user awards.
- Not Mineable: Instead of being “mined” by computer hardware, ALGO is staked by users to earn rewards.
Smart Contracts and Development
Decentralized apps (dApps), such as supply chain solutions, NFTs, and Decentralized Finance, can be developed with Algorand.
- Two-Tiered Architecture: Algorand’s blockchain architecture is two-tiered:
- Layer 1 (On-chain): Supports atomic exchanges, basic Algorand smart contracts, and the production of Algorand Standard Assets (ASA), which stand in for new or existing tokens. Ethereum’s on-chain smart contract execution is comparable to this.
- Layer 2 (Off-chain): Designed for more intricate off-chain dApps and smart contracts. Transaction fees are decreased by this technique, which stops traffic from slowing down the network.
- Programming Language: The bytecode-based stack language known as Transaction Execution Approval Language (TEAL) is used to write smart contracts on Algorand. The Algorand development portal has extensive documentation and is easy to understand.
- High Adoption: The development of DeFi has been widely used in Algorand; noteworthy projects include global sensor networks (Planetwatch), cross-chain platforms (Yielding), NFT platforms (Opulous), and stablecoins (Tether, USD Coin).
Staking and Governance
Users can take part in governance and contribute to network security by staking their ALGO.
- Becoming a Governor: By committing their ALGO for a ninety-day voting term and taking part in votes on blockchain and community problems, ALGO holders can become “governors.”
- Rewards: Awards for governance are given to participants at the end of the 90-day voting period. Algorand first offered a reward system for reaching consensus, however this program was discontinued in April 2022 and governance-based rewards took its place. Participation in governance activities and the amount staked determine the yield.
- Ease of Staking: ALGO accrues automatically over time and can be staked immediately through the official mobile wallet software (iOS and Android).
Limitations
- The DeFi ecosystem in Algorand is expanding, however some regions have seen slow growth.
- One major drawback is that it is incompatible with the Ethereum Virtual Machine (EVM). This makes it more difficult to transfer smart contracts to Algorand from other blockchain networks.
Algorand vs Ethereum
The blockchain platforms Ethereum and Algorand both facilitate the development of dApps and make use of Proof of Stake and smart contracts.
- Speed and Cost: Compared to Ethereum, Algorand often offers far lower transaction costs and is faster overall.
- Staking Requirements: Users can join validation pools with any amount of Ethereum, but activated validators must have a 32 ETH stake. Any ALGO holder is able to take part in consensus in Algorand.
- Token Standards: Ethereum’s ERC-20 token standard and Algorand’s ASA are similar, however unlike ERC-20 smart contracts, which always send traffic to Ethereum’s network, ASAs can be operated off-chain to reduce fees, which raises petrol prices. Applications that use ERC-20 and ASA can communicate with each other with bridges.
- Forking: While Ethereum (which has historically used proof-of-work) and other established cryptocurrencies permitted brief forks, Algorand is unable to do so.
Algorand is a Layer 1 blockchain protocol that, with its Pure Proof of Stake consensus process, was created to solve the blockchain trilemma. It offers exceptional security, instant transaction finality, great performance, and total decentralisation at extremely cheap transaction costs.