·

What is Algorand, a next generation blockchain

Posted by
Robert Hoogendoorn

A blockchain with Pure Proof-of-Stake and multiple layers

Algorand is a blockchain designed to facilitate the future of finance and development of dapps. This blockchain uses a Pure Proof-of-Stake, often abbreviated as PPOS. Algorand is the brainchild of Turing Award-winning cryptographer Silvio Micali from MIT, in addition the development of Algorand is supported by the Algorand Foundation. 

The Algorand blockchain has been in development since 2017, after MIT professor Silvio Micali got interested in blockchain technology and in particular in the challenge to create a blockchain that’s decentralized, secure, and scalable. The Algorand mainnet launched two years ago on June 19th, 2019. 

We’ve seen the promise of solving the blockchain trilemma before. However, there’s a strong juxtaposition as improving scalability often means that decentralization gets less. This problem has often been described as the blockchain trilemma, and a variety of projects tried to solve it in different ways. Algorand offers one of the most ambitious attempts to solve the trilemma.

PPOS explained

At the core of the Algorand blockchain is the Pure Proof-of-Stake (PPOS) consensus mechanism. This system allows all ALGO token holders to participate in block production. Around the globe relay nodes have been distributed that push the blocks to participation nodes. The advantage of PPOS is that it’s fast, scalable, and energy-efficient. 

Algorand uses a special consensus protocol to pick the users that produce the next block. Users that hold the most ALGO tokens have the biggest chance to be picked. The idea is that this helps to protect the network against for example collusion, among other forms of cyberattacks. Just to give you an idea, ALGO holders earn approximately 5% APY thanks to these network rewards. 

This method is a strong contrast with other POS blockchains. Often Proof-of-Stake blockchains distribute rewards only to node owners or validators. These can then share rewards with stakers or delegators. Algorand rewards everybody who’s part of the ecosystem. 

Multiple layers straight out of the box

Where other blockchains rely on the development of layer-2 solutions to provide a sense of scalability, Algorand offers these options already. The Algorand blockchain consists out of two different layers. On layer-1 you’ll find all the smart contracts. Here users can for example swap cryptocurrencies or create new blockchain assets. In essence, this first layer is very basic. The real magic happens on their second layer, which can run much more complex smart contracts. These would for example be suitable for the complexity of a complete DeFi powerhouse. 

Thanks to its multi-layered solution and its reliance on PPOS, the Algorand blockchain can support around 1,000 transactions per second (tps). However, according to their latest performance report, they will increase that to 46,000 tps. This will be possible because they process blocks in 0.5 seconds, and each block will soon contain a maximum of 25,000 transactions. However, there’s a 1% chance that the creation of a block is unsuccessful, hence the 46,000 instead of 50,000 tps. 

That’s a lot more than Bitcoin’s 5 tps and Ethereum’s 15 to 30 tps. However, there are blockchain solutions out there that offer a higher throughput. Even the Ethereum 2.0 upgrade promises to increase its transaction throughput to anywhere between 1,000 and 2,000 transactions per second. As a matter of fact, 46,000 tps would put Algorand on par with centralized payment processors like Visa and Mastercard. 

ALGO and ASA

In the layer-1 of Algorand, companies can issue their own tokens. Algorand has developed the Algorand Standard Asset (ASA) standard. The ALGO token is obviously the most important token in the Algorand ecosystem. Users need it to pay for gas fees. The ALGO token has a market capitalization of 10 billion tokens. 

Developers can also easily launch tokens with a variety of use cases. Think about stablecoins, but also governance tokens, utility tokens, and even governance-issued digital fiat. The Marshall Islands is one of the first countries in the world to issue their own national crypto token, and this SOV token exists on Algorand.

Resources to learn more about Algorand

Share this post on social media

Share this Article

Related articles

Related articles

Grants and funding opportunities for your next Algorand dapp

Register now for How to Build Applications on Algorand
© 2018-2021 DappRadar, UAB