Last week, Algorand, a little-known cryptocurrency compared with the big names like Bitcoin and Ethereum, rose 20.76 per cent and has piqued investors’ interest. In the past quarter, Algorand moved up by 35.44 per cent, and in the past year 357.57 per cent, according to data from coinmarketcap.com on 26 December.
Most cryptocurrencies claim to have a goal and solve a problem. Algorand, too, has a goal—to solve the blockchain trilemma—scalability, decentralization and security.
What sets Algorand apart is it’s speed and advanced capabilities. “Algorand is fast, low cost, decentralized, carbon negative, and has advanced smart contract capabilities. Algorand can process thousands of transactions per second with instant finality and with transaction fees of fractions of a penny. Other blockchains can be much more expensive,” says Kristin Boggiano, Member of Blockchain and Crypto Assets Council (BACC) and Co-Founder and President of CrossTower, a global crypto trading platform.
Let us find out what Algorand is all about, how it is dealing with the blockchain trilemma and why it’s known as the Ethereum killer.
What Is Algorand?
Massachusetts Institute of Technology professor Silvio Micali, who is also a Turing award-winning computer scientist made the Algorand blockchain accessible to the general public in 2019 with a maximum supply of 10,000,000,000 Algo (its native token). Algorand Foundation is the umbrella organization, housing the core blockchain research team for cryptography and computer science led by cryptographer Tal Rabin.
“Algorand serves as the infrastructure layer on which we can build crypto networks, decentralized apps (dapps) and crypto tokens. It is one of the most prominent layer 1 blockchains available in the ecosystem” said Santosh Yellajosula, Member of Blockchain and Crypto Assets Council (BACC) and CEO, Xfinite, a decentralized entertainment ecosystem built on the Algorand Blockchain.
What Is Algorand Trying To Solve?
Three problems are plaguing the cryptocurrency industry—scalability of the network, speed of transactions and security of the network.
Major cryptocurrencies like Bitcoin and Ethereum have been trying to solve the speed and security issue to some extent but the one thing that is still left to be addressed is the scalability of the network which is measured by transactions per second or TPS.
“Algorand is a smart contract platform trying to solve the blockchain trilemma (scalability, decentralization, security) and help democratize finance,” says Boggiano.
Bitcoin is the slowest in this department at just 5 TPS. The Ethereum network can do up to 13 TPS. Algorand can currently process up to 1,300 TPS and aims to process up to 3,000 TPS sometime in the future. Algorand is about to add “instant finality” to the blockchain, which means transactions can never be contradicted, modified, or reversed. This feature will significantly improve the scalability of the network.
“Bitcoin, Ethereum and other traditional cryptocurrency networks are typically very congested. Transactions are processed slowly and are expensive to make. The Algorand network aims to solve this problem by reducing gas fees and making transactions faster,” says Sharan Nair, Member of Blockchain and Crypto Assets Council (BACC) and Chief Business Officer, CoinSwitch Kuber.
How Does It Work?
All cryptocurrencies work on a consensus mechanism to approve or disapprove every user-initiated transaction on its network. Legacy crypto(s) like Bitcoin and Ethereum work on a PoW (proof of work) mechanism which requires huge computing power and, hence, consumes more electricity. There is another consensus mechanism called the PoS (proof of stake), which is less power-intensive.
Ethereum is trying to move to the more energy-efficient PoS mechanism but that is not yet fully operational but Algorand and some other alternative crypto coins like Polkadot and Solana are sometimes dubbed as the Ethereum killer as they are being more cost-effective and energy-efficient than Ethereum.
Algorand works on the pure PoS mechanism. “The pure PoS system which Algorand employs, randomly selects committees from the participating ALGO holders to validate and approve the next block in the chain. This randomisation is a result of a unique cryptographic tool called the VRF (Verifiable Random function) invented by Algorand’s founder, that seeks to solve the blockchain trilemma,” says Gaurav Dahake, CEO and co-founder, Bitbns.
In Algorand’s blockchain network, only a select set of miners will be given a reward block of its token ALGO after they have successfully lent their computer’s processing power to the network. The users are picked randomly, irrespective of the size of the assets they have pledged to the blockchain, thereby maintaining a fair chance for everyone. This tweaked mechanism is what allows Algorand its incredible transaction processing speed feature.
“It is a mechanism to achieve distributed consensus. ‘Pure’ refers to users not having to lock up or bond their algos to participate in this process, which differs from other PoS blockchains that require stakers/validators to lock up tokens to be able to participate in validating transactions. In pure PoS, users’ power is proportional to their stake and participating users are randomly selected to propose/validate blocks,” says Boggiano.
How Has The Year 2021 Been For Algorand?
Algorand was selected as a strategic partner for providing network and technological ecosystem infrastructure for a $1.5 billion fund which is run by Hivemind Capital Partners. This was a significant milestone for Algorand which is trying to get more use cases of its native token ALGO.
Algorand has also launched its crypto decentralized ecosystem app protocol called Algofi, which has two main functionality services included in its ecosystem—Tinyman, an Algorand-based decentralized exchange (DEX), and Algomint, a digital assets minter that provides a bridge between Algorand and other blockchain networks. Algofi will also start mining its own stable coin called AlgoStable (STBL).
“Our goal with Algofi is to develop projects that support real-world financial activity at scale–projects that institutions can ultimately use,” said Algofi co-founders John Clarke and Owen Colegrove, as reported by various media organisations.