Algorand blockchain

Gepubliceerd op 3 juli 2022 om 11:20

Algorand (ALGO) is a blockchain platform that is expected to become the future of finance. ALGO is also referred to as the Ethereum killer. ALGO has the potential to equal Ethereum and perhaps even surpass it in terms of users. ALGO describes itself as efficient, transparent and secure. In this blog I will discuss what ALGO is.

What is Algorand? Ethereum killer?

In order for the blockchain to function properly, the scalability, decentralisation and security of the blockchain must be optimal. These three aspects must also be balanced. One aspect must not be inferior to another. With Bitcoin and Ethereum, decentralisation and security are high. Bitcoin and Ethereum are decentralised at the core and the digital signature and consensus protocol (Proof of Work) ensure that the blockchain is secure and prevents errors and scams.

Bitcoin and Ethereum score a lot worse for scalability. This is a well-known problem. Compared to VISA, bitcoin and Ethereum can process far fewer transactions per minute. Scalability is the ability of a blockchain to process transactions per second. One reason why scalability lacks behind is that the blockchain of Bitcoin and Ethereum use the Proof of Work consensus mechanism. This consensus protocol takes a lot of time and energy to process a transaction.

Bitcoin can process about 7 transactions per second, Ethereum about the double. That is a fraction of what regular payment systems like Visa can do, which can process about 1700 transactions per second.

As the blockchain becomes, so to speak, congested with the number of transactions, transaction costs also come into play. The more transactions, the more expensive it becomes. The Proof of Work consensus mechanism is also not very practical because energy consumption is high. Another factor for Ethereum is that it is not only intended as a crypto/payment method, but is also a platform where applications can be built using smart contracts. This makes scalability a bigger problem.

Ethereum is in the process of being upgraded to version 2.0. Ethereum is moving to the Proof of Stake (PoS) consensus through an update. Ethereum is moving away from electricity consumption. The scalability should also improve with this update. Many people are hopeful, but the question is whether scalability will actually be improved.

It is not only Ethereum that is looking at the scalability problem of the blockchain. Algorand does so too, for example. Algorand has an innovative consensus system that should ensure that scalability, security and decentralisation are optimal.

Pure PoS

Algorand has a consensus protocol called the Pure Proof of Stake (PPoS). The PPoS is a variant of the PoS. The PoS is next to the Proof of Work the best known consensus protocol. The Proof of Work and the PoS are ways of reaching consensus in the verification of transactions in the blockchain. The Proof of Work uses a lot of electricity to verify a transaction on the blockchain. All miners/nodes have to solve a hashing puzzle. The node that does this the fastest gets to process the transaction on the blockchain. The node receives a block reward for doing so. The miners/nodes at the PoS also verify transactions on the blockchain. However, this is different at the PoS. The PoS is not about solving a hashing puzzle. The PoS is about the person who may verify a transaction on the blockchain if a validator/wallet (the node) has staked the most crypto.

Algorand's PPoS is not very different from the PoS. It also goes through validation and staking. The participation key and the verifiable random function should make the process of validation (verifying and staking a transaction on the blockchain) faster, more efficient and cheaper.

Participation key?

With the PPoS, all users/nodes of the Algorand network can act as validators and verify transanctions on the blockchain. You only need Algo's crypto. This is essentially different from the Proof of Work consensus which requires a lot of energy and hardware to mine. This is not necessary with the PPoS.

The difference between the PPoS and PoS lies in the fact that everyone who has an Algorand account and has 1 or more Algorands in the Algorand account can act as a validator. Validators need a participation key to be able to act as a validator. This is automatically provided when creating the Algorand account. PPoS can be run on a simple computer with only a few Algo in the account (the wallet).

Verifiable Random Function

Consensus is reached through two rounds of voting. Then a transaction can be added to the blockchain. By means of the Verifiable Random Function (VRF) a validator is selected to participate. Validators are selected on reliability and the amount of Algorand a validator has. This is done via an algorithm. A random validator is selected, a lottery.

First, new - reliable - validators are appointed during a 'soft vote'. These validators cast a vote in the final round to select the validator to verify the transaction on the blockchain. A new committee of validators is appointed for each round. This process ensures that security, scalability and decentralisation are optimised. This is because these votes are fast. A block can be validated within a few seconds. Algorand's transactions per second are therefore many times higher than Ethereum's.

Algorand smart contracts

Smart contracts are smart software. A smart contract is executed automatically if preset conditions are met. It therefore has an if X then Y algorithm. So with smart contracts you no longer need an intermediary because the smart contract eliminates that. No one needs to check if the transaction took place according to the conditions. If all the conditions are met, the smart contracts executes it.

The smart contracts on the Algorand Smart Contracts (ASC) has two variants: the Stateless and the Stateful smart contracts.

Stateless smart contracts are used to approve transactions. These smart contracts are written in a proprietary Algorand programming language called Transaction Execution Approval Language (TEAL). The signing is done with a Logic Signature. The signature is put through TEAL if all the conditions/values of a smart contract are true. If these are correct, then the signing will take place. Thus, Algorand has a signature system all its own.

Stateful smart contracts are meant for implementing an application. The stateful smart contracts indicate the status of the smart contract (code is still working?) and the state in general (everything is still working properly?).

Algorand Standard Assets (ASA)

These are standardised assets that can be the basis of all kinds of tokens. These can be non fungible tokens for a game or collectible series, or fungible tokens to make stable coins or other coins. The name of these assets are ASA (Algorand Standard Assets). They have the same properties as all Algorand tokens in terms of speed, compatibility and security. 

With Algorand Standard Assets you can represent stablecoins, loyalty points, system credits, and in-game points, just to name a few examples. You can also represent single, unique assets like a deed for a house, collectable items, unique parts on a supply chain, etc. There is also optional functionality to place transfer restrictions on an asset that help support securities, compliance, and certification use cases.

Algorand organization

Silvio Micali is a professor at MIT and has received a prestigious Turing Award, one of the highest honours for development in computer science, for his work. Micali and his team came up with the solution to the trilemma of blockchain (scalability), which is the basis of the Algorand ecosystem.

Steven Kokinos is the CEO of Algorand. Together with COO W. Sean Ford and Micali they form the leadership team of Algorand. In addition there is a team of 10 people who fulfill various roles within the leadership team. Furthermore, the team has a number of advisory groups in the areas of science and cryptocurrency.

Algorand Token (ALGO)

ALGO is the native token in the ecosystem. ALGO can be used for staking at the PPoS. ALGO is available on the various exchange platforms such as Binance, Huobi exchange, Okex, Kraken and Coinbase. The ALGOs can be stored in an Algorand wallet. This is a wallet that was developed by Algorand itself.

Algorand has been available on various exchanges since 2019 and has a market capacity of over USD 10 billion as of 2 January 2022. The token has a maximum supply of 10 billion tokens. As of 2 January 2022, over 6 billion are in circulation (64%). The lowest price ever for an ALGO token was 0.10 USD, in March 2020 during the big crash of that year. 

ALGO critics

What Algorand wants to solve (scalability) is a problem that has gripped the blockchain world for a long time. Algorand's technology is well put together and the team is good. There is a lot of knowledge in the Algorand team. The foundations of Algorand are therefore very strong. A recipe for success, you might say. But Algorand's price remained somewhat stable in 2020 and 2021. There were big spikes in the price. But the price was nowhere near that of Ethereum. The price is still relatively low, but that does not mean that things are going badly. On the contrary! Algorand is doing very well. The team regularly speaks about the project and is active online. There are also more and more collaborations with other companies, such as Arrington Capital.

What could be the reason that the price of ALGO is lagging behind Ethereum? There are many crypto on the market that want to do the same as ALGO and ''kill'' Ethereum. So the competition is fierce. As for the basics, there is nothing to worry about. ALGO could therefore become a lasting success. The only question is whether this success will be spectacular or whether it will always remain an average player in the crypto field.

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