Algorand (ALGO) Coin Review
Algorand is designed to bridge the gap between traditional finance and blockchain technology and facilitate the future of finance. It is creating next-generation financial protocols and products focusing on scalability, decentralization, and speed. Algorand is solving problems that other competing blockchains are facing. So, let’s dive into the details.
|Consensus Mechanism:||Permissionless Proof-of-Stake (PPoS)|
Table of Contents
- What is Algorand?
- How Does Algorand Work?
- What is ALGO Token?
- How to Buy ALGO?
- Where to Store Algorand?
- Algorand’s Future (Roadmap)
What is Algorand?
Algorand (ALGO) is a cryptocurrency, and an open-source decentralized blockchain platform for fast and secure global transactions, for building powerful decentralized applications (dApps) and services.
Algorand runs on its unique Pure and permissionless Proof-of-Stake (PPoS) consensus protocol to make the network secure. It has a two-tiered structure to increase transaction speeds processing over 1,000 transactions per second (TPS), and achieve transaction finality in less than five seconds. But first things first.
Algorand history in brief
Algorand was founded in 2017 by MIT professor and computer scientist Silvio Micali. He has been involved in cryptography since the 1980s and co-invented verifiable random functions, zero-knowledge proofs, and many other cryptographic technologies currently used in blockchain projects.
In June 2019, Algorand Foundation announced the first auction and the official mainnet launch. It also formally verified to never fork the blockchain for greater assurance about their protocol. Algorand has become the first blockchain to provide immediate transaction finality.
In 2020, The Algorand Foundation launched two accelerator programs: Algorand Europe Accelerator and Algorand Asia Accelerator. These programs support promising projects and developers interested in building on Algorand to help the Algorand grow and thrive.
How Does Algorand Work?
Algorand Protocol Structure
The Algorand blockchain protocol consists of two layers:
- The base Layer 1 is used for running smart contracts and processing atomic swaps between crypto-assets. On this layer of the Algorand blockchain users and platforms can also create new Algorand-based standard Assets (ASAs). They represent new or existing tokens on the Algorand network similar to ERC-20 tokens on the Ethereum blockchain.
Basic smart contracts on the Algorand blockchain perform as Layer-1 Algorand Smart Contracts (ASC1s). This means they support the same level of security as the consensus protocol itself. Algorand’s ASC1 smart contracts offer a scalable and cost-effective solution. They can also automatically enforce customized logic and rules. Although ASC1 smart contracts can serve the most advanced applications, they also come with easy-to-use templates. This allows non-technical users to incorporate smart contracts into their financial products.
- The Algorand Layer 2 runs for more complex smart contracts and dApp development, stacking on additional functionality.
This network division between layers allows Algorand to process transactions so efficiently. Since more complex smart contracts operate off-chain, simple transactions can be processed faster at Level 1.
Algorand Proof of Stake
Algorand blockchain runs on a decentralized Byzantine agreement protocol. It uses an adapted version of Proof-of-Stake (PoS) consensus mechanism, known as ‘Pure Proof-of-Stake’ (PPoS) with high throughput, fast time to finality, and high security. The protocol idea is that any member of the Algorand network can participate in proposing and voting procedures to create new blocks and accumulate rewards.
All they need is to generate a valid participation key to become a Participation Node and only 1 Algorand (ALGO) coin as the minimum, unlike, for example, Ethereum, where the minimum staking balance is 32 ETH. These rewards are automatically claimed whenever the next operation (the sending or receiving of some ALGO) takes place on the user’s address.
Participation Nodes are coordinated by Relay Nodes, another type of Algorand network node. Relay Nodes facilitate communication among participation nodes and do not directly participate in proposing or voting.
Algorand’s Pure Proof-of-Stake process has several features:
- If a block is written to the blockchain, it can never be changed. This is called ‘instant finality’. Algorand | The Blockchain for FutureFi | Algorand
- If a block seems to be malicious, the network will enter recovery mode. While the old block is discarded from recovery mode, a new block leader can be selected and voted on.
- A node can not get slashed (have its balance reduced) for proposing a bad transaction. The network just enters recovery mode and moves on.
- Each block reward is distributed proportionally among Algorand (ALGO) token holders, unlike many other PoS blockchains, generally distributing block rewards to validators. Validators, in their turn, may or may not be required to share these rewards with stakers or delegators.
- The Algorand protocol is strong enough to withstand any number of bad actors across the network, as long as most of the total ALGO amount is in honest participants’ hands. This is because potential bad actors don’t know the exact participant they should attack to hack the network. Moreover, even if bad actors can establish vulnerable participants to attack, by this time the target blocks have already been confirmed, and a new selection round initiated.
- The minimum requirements to participate in an Algorand node operating include a 100GB SSD, 4-8GB of RAM, and 10 MBit broadband.
- Algorand works in a permissionless environment. It does not require approval from any trusted authority and allows all users to join and participate in the system.
Algorand Block Production
In the Algorand blockchain a block production is produced in two phases:
- During the first block proposal phase, the Algorand protocol randomly and secretly selects a token using a lottery system to participate in its consensus protocol. Then the token owner (the user) proposes the next block. This process is called ‘cryptographic sortition’.
- In the second soft voting phase, among all current tokens in the system, 1 000 tokens are randomly selected. The owners of these tokens (participation nodes) are selected to be part of a phase-2 ‘committee’.
This committee is responsible for ensuring that no overspend, double-spend, or other problems have occurred in the current block. If a committee agrees that all is well, the block of the first user is added to the blockchain. The participants change each round and learn about their participation after the fact.
With this block production type, two blocks cannot be proposed simultaneously for the same slot. It means that there should never be a fork in the blockchain. Once a block appears, it has already achieved consensus, and users can rely on it immediately, eliminating network latency. It also helps protect the network against collusion and other attacks.
What is ALGO Token?
ALGO is a native Algorand cryptocurrency token and the cornerstone of its network structure. Algorand Foundation holds the ALGO token to contribute to the Algorand blockchain’s stability and support its ecosystem building, research, and community.
ALGO cryptocurrency features
- Algorand’s rewards for producing blocks are distributed among all ALGO coin holders, instead of just block producers. The only requirement is that the coins are held in a non-custodial wallet.
- Users don’t have to ‘stake’ the coins as part of the block production process. They can hold ALGO tokens in a non-custodial wallet or on an exchange to access earned rewards. In this way, Algorand has achieved near automation, since stakers can passively hold ALGO while also supporting the network.
- ALGO coin reward distribution takes place about every 10 minutes.
- Overall ALGO crypto token supply capitalization is 10 billion ALGO coins, which is distributed as follows:
- 3 billion ALGO will be released into circulation over the first five years.
- 1.75 billion ALGO as rewards for participation in nodes.
- 2.5 billion ALGO to relay nodes.
- 2.5 billion ALGO are reserved for the Algorand Foundation.
- 0.25 billion ALGO for end-user grants.
- ALGO token is being increasingly embedded into DeFi applications built on Algorand, as well as on alternative blockchains through synthetic ALGO coin versions, including Wrapped ALGO (wALGO), an ERC-20 token that can be exchanged 1:1 for ALGO.
Algorand Use Cases
- ALGO crypto token is used as a payment facility to pay for fees within the network.
- ALGO token stakers secure the Algorand network and receive rewards in ALGO tokens.
- Similar to other cryptocurrencies, Algorand is created to be used as a payment currency for buying and selling goods and services.
- Tether (USDT) cryptocurrency uses Algorand’s network and can perform over 1000 transactions per second in a decentralized, scalable, and secure way.
- Yieldly, the world’s first borderless and interconnected DeFi platform developed on Algorand, has built the first set of DeFi smart contracts for Algorand. Yieldly lets users stake, pool, and swap ASA assets. With Yieldly, ASA tokens can seamlessly flow between all major protocols, including Algorand. One of the use cases is an Algorand – Ethereum bridge, providing low-cost near-instant token swaps between ecosystems.
- Opulous, the music copyright NFTs launch platform, uses ALGO to allow musicians to request funding for their next project through decentralized finance.
- Meld Gold optimizes the gold supply chain and delivers secure, seamless access to the gold acquisition. It allows investors to make transactions in real-time, reducing the gold procurement volatility. Meld Gold uses Algorand’s advanced protocol to deliver gold that is traceable, fungible, transferable, and redeemable.
Using the Algorand ecosystem, Meld will tokenize digital gold in the form of a Meld Digital Gold Certificate. These tokens are equal to one gram of physical gold in value and will be supported by the Algorand Wallet. This will allow digital gold holders to monitor the value of their assets and transact with other wallets quickly and securely.
- The Marshall Islands use Algorand to build the world’s first national digital currency, known as the Marshallese sovereign (SOV).
- In August 2021, the leading Latin American Blockchain financial infrastructure company Koibanx announced about signing a cooperation agreement with the government of El Salvador to develop its blockchain infrastructure on top of Algorand’s technology.
How to Buy ALGO?
Currently, ALGO cryptocurrency is in the top 30 crypto-assets according to market capitalization. The token is supported and listed on over 100 crypto exchanges, including Binance, Coinbase, Kraken, etc. You can also buy ALGO using Guarda Wallet. Here’s how to do it:
- Log in to your Guarda Wallet account.
- Click Buy.
- Find ALGO in the list of cryptos.
- Choose the needed amount and click Buy.
Where to Store Algorand?
Algorand crypto assets, like any other assets, require to be stored in a safe place. This means that the wallet you choose should have the highest level of security.
Guarda is a non-custodial multi-currency crypto wallet available for all platforms – web, mobile, and desktop. It allows you to buy, store, and exchange Algorand in one place. To create a Guarda cryptocurrency wallet:
- Open the website.
- Click Create ALGO Wallet.
- Choose to create a new wallet if it is your first Guarda wallet.
- Create a strong password, confirm it, and store it in a secure place.
- Download your wallet backup and also store it securely and preferably offline.
Algorand’s Future (Roadmap)
- According to Algorand’s founder update, the key items to improve in 2021 are blockchain performance and scalability through a range of upgrades.
The major changes in the features are as follows:
- The reduction of Block finalization time from 4.5 seconds to 2.5 seconds.
- The growth of Finalized TPS (transactions per second) from 1,000 to 46,000.
- Increasing the number of transactions in the chain from 5,000 to 25,000 with the same Block Proposal time of 0.5 seconds.
- According to the updated 2021/22 roadmap of Yieldly, DeFi platform developed on Algorand, there are four improvements, connected with ALGO:
- Dynamic staking pools and world-first bridge solutions (ASA-ERC20) for other projects (ASA, ERC-20 etc).
- Implementation of ALGO purchasing on Yieldly platform.
- Integration of standardised NFTs on Algorand.
- YLDY – ALGO Swap. This product will pave the path for fully-fledged DeFi on Algorand.
- According to the long-term model up to 2030 and beyond, proposed by the Algorand Foundation, Algorand is going to launch a new community reward system.
It benefits the existing and future participants, who take part in the governance of the Algorand ecosystem and prove their commitment by locking their Algos for a potentially long term (initially one year). The participants shall be rewarded higher for their work than the current network rewards they will replace.
This new rewards system will be funded by the allocation of previously unassigned funds from within the 10B Algo, and will be distributed using a new, fully decentralized decision-making process:
- Community rewards: 2.5B tokens will be initially locked, and allocated toward rewards to be distributed over 10 years via automatically operating smart contracts optimized to control inflation and achieve scarcity over time.
- Ecosystem support: 1.25B tokens will be locked in a smart contract and periodically unlocked every 10 years with no more than 200M unlocked in any given year.
- Any tokens unused in a given period, will be re-locked and set to unlock monthly, following the initial 10 year period.
Algorand is a young ecosystem rapidly gaining momentum. Combining innovative technology with simple designs, Algorand provides a net of blockchain-based tools and services with no barriers to entry. Using the Pure Proof-of-Stake consensus mechanism, Algorand aims to solve the blockchain trilemma of being scalable, fast, secure, and decentralized.