One of the most important features of blockchain is that, as a public and distributed ledger, it eliminates the intermediaries that are typically required during transactions. However, to be effective, it must meet three requirements: security, scalability, and decentralization. The Algorand project claims to be able to quickly process multiple transactions without sacrificing any of these requirements.
Algorand is a public, open-source blockchain based on the PPoS (Pure Proof of Stake) consensus protocol and developed by the Algorand Foundation. Algorand was created by renowned cryptographer Silvio Micali, a leading cryptography researcher and winner of the 2012 Turing Award.
How does Algorand work? The PPoS consensus mechanism
A key feature that makes Algorand highly scalable is the PPoS (Pure Proof of Stake) consensus mechanism. This protocol allows multiple transactions to be processed quickly without compromising decentralization. Algorand randomly selects validators and blockchain proposers from among all those who have staked and generated a participation key. In essence, it builds a new block in two stages:
- One token is randomly selected with equal probability from among all those in circulation, it proposes a block and distributes it.
- Subsequently, using the same mechanism, another thousand tokens are selected, which are responsible for verifying the block that was proposed earlier.
This mechanism is called a “cryptographic lottery” and is programmed to resolve the issue in a microsecond. This is a very important factor, as it virtually eliminates the risk that the validator of the selected block will be identified in time and, therefore, subjected to attempts at damage by an attacker. Because any staker can become a potential validator, the security of the Algorand network is more decentralized than when using a selected set of validators, which is used by other types of Proof of Stake networks.
In a nutshell, the Algorand protocol is:
- Secure, because it does not allow any entity to alter the chain, either directly or on behalf of someone else. The cryptographic lottery and verification phase timings ensure that everything runs smoothly, seamlessly, and linearly.
- Scalable, because the computation time is one microsecond regardless of the computer used.
- Decentralized, because each token has the same power as another token, without exception.
In Algorand, since only one block can have the necessary committee vote threshold, all transactions are final as soon as they are added to the block. Once a block appears, you can count on it staying there forever, and thus transactions become final instantly. Therefore, the chances of a fork in the Algorand blockchain are practically zero.
What is the ALGO token?
ALGO is the native utility token of the Algorand blockchain. Its maximum total supply is 10 billion coins, which will be distributed by 2030. Like many other utility tokens, it is mainly used to secure the Algorand blockchain and pay very low fees for processing transactions on the Algorand platform. ALGO can be staked to have a chance of being selected as a proposer or block validator. Unlike PoS blockchains, Algorand does not require a minimum stake, which is a significant barrier to entry for the average user. One of the most important features of this token is that it can be held in a non-custodial wallet to earn rewards with each block successfully added to the chain, without the need to interact with a DeFi application.
Algorand ecosystem
There are already many examples of ALGO token usage, ranging from the financial sector to the data protection sector. Several international companies have decided to use the Algorand blockchain to develop innovative solutions. Some examples are listed below:
- Circle, a global financial technology company at the center of innovation in digital currencies and open financial infrastructure. Circle is the issuer of the USDC stablecoin, and Algorand is helping the company build the foundation for developing a wide range of scalable, secure, and compliant financial applications.
- SIAE, a public economic institution and membership base for copyright management. SIAE is using Algorand to develop a new open ecosystem for copyright management, made possible by Algorand’s decentralized and scalable representations.
- Algofi, a fast and inexpensive crypto lending marketplace built on the Algorand blockchain, which makes decentralized lending widely accessible.
