What is Algorand (ALGO) and how does it work? Exploring its blockchain technology and ecosystem

What is Algorand (ALGO)?

Algorand is a decentralized, open-source network that employs a unique Proof-of-Stake mechanism to support a two-layered architecture, achieving a balance between decentralization, scalability, and security. Many cryptocurrency projects find it challenging to achieve scalability, security, and decentralization simultaneously within a single blockchain network. Algorand aims to achieve full decentralization with high security and scalability, targeting 1,000 transactions per second and rapid block finality.

Launched in 2019, Algorand is one of the newer prominent projects in the blockchain sector, focusing on providing a robust foundation for both emerging and established businesses in a decentralized economy. ALGO serves as the native cryptocurrency of the Algorand system, designed to facilitate participation and support within this decentralized economy. Participants in the Algorand network benefit from instant transactions with ALGO and have the opportunity to earn rewards. The system revolves around ALGO holders and block producers, known as node runners.

Users of Algorand can deploy smart contracts to create new tokens and decentralized applications (dApps), presenting an alternative to Ethereum’s smart contract capabilities with more efficient scaling through Pure Proof-of-Stake. Through the Algorand Standard Asset (ASA) feature, users can introduce new tokens to the network or migrate existing assets into the Algorand ecosystem, contributing to its decentralized economy.

How does Algorand work?

The Algorand network achieves security, scalability, and decentralization through its Pure Proof-of-Stake consensus mechanism coupled with a Byzantine agreement protocol. This setup ensures that even if a node were compromised, the staked ALGO balances of network participants remain protected by unique keys generated through automated processes.

Security in the network is maintained by the Pure Proof-of-Stake protocol, where only users holding the majority of ALGO can potentially engage in malicious activities that might jeopardize others and the network. However, the system relies on the interdependence of network participants. If a majority holder were to act maliciously, it would devalue ALGO and undermine their own funds, making such actions counterproductive.

Algorand’s efficient scaling enables final and instant ALGO transactions, capable of processing up to 1,000 transactions per second. The total supply of ALGO is finite, incorporating an anti-inflation mechanism to regulate supply within the decentralized economy. All ALGO tokens were minted at genesis and are distributed to holders and network participants with each new block creation.

Algorand addresses blockchain storage concerns by integrating new users into the network’s storage system upon joining the decentralized economy. These features and protocols enable Algorand to operate as a two-layered decentralized network with diverse utility.

Who founded Algorand?

Algorand (ALGO) was founded by Silvio Micali, a seasoned cryptography expert and professor at the Massachusetts Institute of Technology (MIT). Micali co-created several foundational cryptographic technologies used in leading blockchain projects, including Cardano, such as zero-knowledge proofs and verifiable random functions. His work in cryptography dates back to the 1980s.

Founded in 2017 by Micali, Algorand is supported by the Algorand Foundation. Its primary goal is to address the scalability, decentralization, and security challenges faced by many blockchain networks, aiming to create a global economy without borders. Like many alternative cryptocurrencies, Algorand was developed to overcome the limitations of Bitcoin. Micali began exploring blockchain technology in 2015 and eventually embarked on creating his own network to achieve superior scalability, security, and full decentralization. After two years of testing, Algorand was officially launched.

In 2019, the Algorand testnet was made accessible for participation, followed by the launch of its mainnet shortly thereafter.

What sets Algorand apart from other blockchain networks?

Algorand stands out due to its innovative approach that integrates security, scalability, and decentralization within the same blockchain. This allows Algorand to achieve rapid transaction speeds, processing up to approximately 1,000 transactions per second, and facilitates the seamless creation, development, and deployment of decentralized applications (dApps).

Participants in the Algorand network can create and deploy their own tokens, contributing to a diverse decentralized economy with various applications and crypto assets. Through its Pure Proof-of-Stake mechanism, Algorand ensures inclusive network governance where all users, including node runners and ALGO holders, are incentivized for their participation.

With its distinctive features and advanced technology, Algorand is positioned to become a leading decentralized economy and one of the fastest blockchain networks.

What attributes contribute to the value of Algorand?

Algorand derives its value from its technological capabilities, functionalities, adoption rates, network utility, and other pertinent factors that impact its market value.

A key aspect contributing to Algorand's value is its finite supply. Algorand has a capped supply of 10 billion ALGO tokens, all of which were minted at the network's inception. These tokens are allocated for various purposes, including rewards for node runners, grants to end users, and initiatives supported by the Algorand Foundation.

The market value of Algorand is determined by trading activities, market trends, and various factors that impact the price of ALGO.

How many Algorand (ALGO) coins are currently in circulation?

Less than one-third of the total supply of 10 billion ALGO is currently in circulation, amounting to approximately 3.038 billion ALGO as of May 2021. Once the maximum supply is reached, no additional ALGO coins will be generated. The entire supply of 10 billion ALGO was minted at the genesis of the network, serving as an anti-inflationary measure similar to Bitcoin.

Other technical data

Thanks to the Pure Proof-of-Stake consensus mechanism and Micali's proprietary protocol, Algorand is poised to integrate into decentralized finance (DeFi), a rapidly expanding sector in blockchain. This system requires less computational power to validate ownership of funds.

Designed to tolerate a small number of malicious users, the system operates effectively when the majority of stakers actively support the financial ecosystem. Pure Proof-of-Stake enables Algorand to scale by increasing transaction throughput. Users are randomly selected for the opportunity to propose and validate transactions in new blocks, ensuring equal participation across the network. The probability of selection is proportional to the amount of ALGO staked by each participant.

How does the Algorand network ensure its security?

The security of the Algorand blockchain is ensured through its Pure Proof-of-Stake mechanism, where users with the majority of ALGO staked can potentially attempt malicious activities. The network is designed to automatically withstand a few malicious users as long as the majority of participants act honestly and support the Algorand blockchain.

Even if a malicious user were to gain a majority stake in ALGO, compromising the system would devalue ALGO and consequently diminish the value of the malicious user's holdings.

How to use Algorand?

Algorand serves as a platform for developing decentralized applications (dApps) using smart contracts. It combines scalability, security, and decentralization within a single blockchain, offering fast transaction finality and instant transactions for users. Algorand aims to play a crucial role in decentralized finance (DeFi) by providing a highly scalable environment for both users and developers. ALGO, the native cryptocurrency of the Algorand network, is utilized for making payments, deploying dApps, participating in staking, and can also be traded on the market.

How does one select an Algorand wallet?

Algorand (ALGO) can be stored in the official wallet provided by the foundation, Algorand Wallet, or in various other options available for storing, sending, and receiving ALGO.

Hardware wallets, such as Ledger or Trezor, offer the highest level of security with offline storage and backup capabilities. They are typically more complex to use and come at a higher cost, making them suitable for storing larger amounts of ALGO and experienced users.

Software wallets provide a free and user-friendly alternative, available as mobile or desktop apps, and can be custodial or non-custodial. Custodial wallets manage and backup private keys for you, while non-custodial wallets store private keys securely on your device. These wallets are convenient but considered less secure than hardware wallets, suitable for smaller amounts of ALGO or less experienced users. Algorand Core Wallet and MyALGO are popular choices among software wallets.

Online wallets, or web wallets, are also free and easy to use but operate via web browsers and are considered less secure (hot wallets). Users should choose reputable platforms with strong security measures and custody practices. They are ideal for holding smaller amounts or frequent trading by experienced users.

Kriptomat offers a secure storage and trading platform for ALGO, ensuring enterprise-grade security and user-friendly functionality. Buying, selling, or exchanging ALGO is efficient and secure on their platform.

Algorand's proof of stake

Algorand does not support mining since the entire supply of ALGO coins was generated at the network's inception. Instead, it employs a unique form of Proof-of-Stake, developed by its founder. This consensus mechanism requires staking ALGO to maintain network operations efficiently and sustainably, consuming less computational energy compared to Proof-of-Work.

Choosing Algorand

Algorand creates an optimal environment for developers and dApp users by leveraging its innovative Proof-of-Stake (PoS) mechanism, ensuring scalability, security, and complete decentralization. As a relatively new entrant in the blockchain space, Algorand has yet to fully demonstrate its potential and integration into decentralized finance (DeFi).

For developers, Algorand provides an attractive platform where they can migrate tokens to its blockchain or utilize its smart contract capabilities to deploy new tokens and decentralized applications (dApps). With the capacity to handle 1,000 transactions per second, Algorand stands out as one of the fastest blockchain networks available today.