Algorand：The permissionless and Pure Proof of Stake Infrastructure for Decentralized Finance & Generative NFTs

2022-05-09, 06:44

The Algorand Foundation was founded in 2017 but did not launch its main network until June 2019. Among the diversity of blockchain technologies, the blockchain focuses on scalability and consensus mechanisms challenges. The main feature of ALGORAND is its Proof-of-Stake consensus protocol, which selects validators at random based on the staked coins.

These stakers on ALGORAND have the chance of validating the proposed block, which a randomly selected committee then verifies. All transactions recorded in the blockchain are considered complete once the block has been added. As soon as the block is deemed not to be valid, a new user is chosen as a validator, and the process begins again.

Despite its decentralization, the system's main strength is that every stakeholder can serve as a validator.

Algorand (ALGO) is both a digital currency and a blockchain platform. Like major payment processors like Mastercard or Visa, Algorand is designed to process many transactions simultaneously. In this way, Algorand is a direct competitor to Ethereum since it can be used to host other cryptocurrencies. Using ALGO, the platform's native currency, Algorand secures the blockchain and pays processing fees for transactions utilizing the Algorand platform.

As an open-source blockchain, Algorland's code is visible to anyone. The Algoorand protocol uses a concept called pure proof-of-stake (PPoS), in which network operators are chosen from ALGO coin holders.

With its network, Algorind aims to speed up transactions and reduce the time for transactions to be considered final, hence expanding the potential use cases for cryptocurrency.

Algorand, which launches in 2019, seeks to achieve these attributes by choosing a unique design approach from how cryptocurrencies have traditionally been designed.

Algorand is notable for distributing its ALGO cryptocurrency to all holders of a certain amount of the currency in its wallets with each new block it introduces into its economy.

In addition, Agorand allows users to generate smart contracts (programmatic agreements for building decentralized applications) and tokens that can represent both new assets and already existing assets.

As a result, early ALGO private sales to fund the platform's development attracted several venture investors.

What is ALGO?

ALGO is a native coin of Algorand that will have 10 billion coins distributed across the globe by 2030. Upon each newly forged block, a new ALGO is sent to wallets holding specific ALGOs. To receive these ALGO rewards, you must have at least one ALGO in a non-custodial wallet.
Algo holders receive this reward roughly every ten minutes and can earn a yield of up to 8%. Using this mechanism, the ALGO coin is one of the easiest cryptocurrencies to make money passively, as you can "passively stake" the coin to generate income.

Who created ALGO?

The company was founded by computer scientist and Massachusetts Institute of Technology (MIT) professor Silvio Micali, who established a distinguished career when Algorand was launched.

His work with his colleague Shafi Goldwasser won him the 2012 Turing Award, a prestigious honor in computer science.

Micali is credited with making cryptography more of a "precise science" by formalizing some of the basic concepts that constitute the building blocks of the field, as the Association for Computing Machinery awards the award annually.

He co-authored the Algorand white paper in 2017 with Jing Chen, a professor at Stony Brook University. In addition, other academics and cryptographers have built on this foundational work in white papers available on the project's website.

The Algorand Foundation, a Singapore-based corporation established to advance the technology, has provided funding for this pilot. In addition, the Foundation received an allocation of ALGO tokens to support their work.

What Problem Does Algorand Attempt To Solve?

The cryptocurrency industry faces three challenges: scalability of the network, speed of transactions, and network security.

Cryptocurrencies like Bitcoin and Ethereum have progressed in securing and speeding up the network. Still, one thing needs to be addressed: the scalability of the network, which is measured in TPS, or transactions per second.

Boggiano says Algorand aims to solve the blockchain trilemma (scalability, decentralization, security) and democratize finance.

Bitcoin is the slowest, clocking in at just five transactions per second. The Ethereum network is capable of 13 transactions per second. Currently, Algorand is capable of processing 1,300 TPS, and it aims to be able to process 3,000 TPS in the future. In addition, algorithms such as Algorand are about to add "instant finality" to the blockchain, which means that transactions can never be reversed, modified, or contradicted. The scalability of the network will greatly improve due to this feature.

The traditional cryptocurrency networks like Bitcoin, Ethereum, and others are normally quite congested. As a result, transactions are expensive and processed slowly. By reducing gas fees and allowing transactions to proceed more quickly, the Algorand network aims to solve this problem," says Sharan Nair, Chief Business Officer, CoinSwitch Kuber, and Member of Blockchain and Crypto Assets Council (BACC).

Consensus Mechanism

Every user-initiated transaction on a cryptocurrency network is approved or disapproved by a consensus mechanism. Blockchain-based crypto(s) such as Bitcoin and Ethereum rely on PoW (proof-of-work) mechanisms, which consume much energy and computing power.
While Ethereum is working towards becoming an energy-efficient PoS method, it has not yet been fully implemented, and other alternative crypto coins like Algorand and Polkadot, and Solana have been dubbed as Ethereum killers since they are both more efficient and cost-effective than Ethereum.

The Pure PoS mechanism is the focus of Agorand's work. In the pure PoS system employed by Algorand, holders will select committees at random from among themselves to verify and approve the next block. Furthermore, due to the VRF (Verifiable Random Function) invented by the founder of Algorand, a unique cryptographic tool can now randomize data in a blockchain," says Gaurav Dahake, CEO and co-founder of Bitbns.

In Algorand's blockchain network, a small group of miners will receive a reward block of the company's token ALGO for lending their computing power to the network. To maintain fairness, the users are chosen at random, regardless of the value of their assets pledged to the blockchain. Due to this tweaked mechanism, Algorand can perform transactions at an unbelievable speed.

It is a method of achieving distributed consensus. This is different from other Proof of Stake blockchains, which require staker/validators to lock up tokens to participate in the validation process. "In pure PoS, participants' power is proportional to their stake, and blocks are proposed and validated by random selection," explains Boggiano.

What makes Algorand valuable?

In the case of Algorand, its technology is still new, meaning it has not yet been extensively tested against real-world conditions.

ALGO is a cryptocurrency that may be deemed valuable by users who believe Algrorand's technical features make it likely to become the blockchain of choice for developers looking to develop and release new forms of decentralized applications.

In addition to Algorand, investors may consider proof-of-stake blockchains as a possible addition to their cryptocurrency portfolio if they believe that this technology will ultimately prove to be more successful in the marketplace.

What are ALGO's use cases?

There are three primary uses for ALGO, as with many other native coins:

1. Transaction fees on the Algorand Network can be paid using ALGO. As a result, fees for Algorand are much lower than for networks like Ethereum (ETH) and Bitcoin (BTC). For example, transactions cost only $0.0014 as of January 2022.

2. Algorithms may be staked to make themselves eligible for selection as block proposers or validators.

3. Wallets that do not guarantee custody of ALGO can earn rewards with every successful block added to the chain.
In the third use case, the average user is provided with a significant incentive for investing in ALGO. It is unnecessary to work with a Decentralized Application (DApp) or wait for a lock-up period to start earning. This is handled automatically by smart contracts. Furthermore, ALGO publishes a list of projects that utilize blockchain technology, many of which require ALGO as a component.

2021 in retrospect for Algorand

Algorand was chosen to provide network and technological ecosystem infrastructure for Hivemind Capital Partners' $1.5 billion funds. A significant milestone for Algorand, which wants ALGO to be used in a wider range of applications.

The company has also developed its decentralized app protocol called Algofi, which includes two main functions: Tinyman, an Algorand/DEX, and Algomint, a digital asset minter that connects Algorand with other blockchain networks. As part of its plans, Algofi will also launch its stable coin, AlgoStable (STBL).

According to various media outlets, Algofi's co-founders John Clarke and Owen Colegrove said, "Our goal with Algofi is to create projects that support real-world financial activities at scale-projects which institutions can ultimately utilize."

Gate.io provides a platform where traders can transact ALGO 24/7.

Conclusion

Algorand has focused heavily on scalability and decentralization, just like other alternatives to Bitcoin and Ethereum.

The Pure Proof of Stake consensus mechanism using VRFs makes it an attractive technology for decentralizing power, as proof of stake is a unique consensus mechanism.

Author: Gate.io Observer: M. Olatunji
* This article represents only the views of the observers and does not constitute any investment suggestions.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.

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