What is Algorand (ALGO)?
Algorand is a high-performance blockchain platform with fast and cheap transactions, powered by its proprietary Pure Proof-of-Stake (PPoS) consensus algorithm. It supports smart contracts, decentralized applications and digital asset issuance.
An ecosystem of multiple services from DeFi, NFT and Web3 is developing on the Algorand blockchain, and hundreds of solutions for the traditional economy are running on it.
How does Algorand work?
The main benchmarks for the Algorand project are to develop a zero-carbon blockchain and try to solve the so-called “blockchain trilemma”.
The blockchain trilemma is commonly referred to as the triple challenge of any blockchain related to its three main characteristics: security, decentralization and scalability.
The essence of the blockchain trilemma is that it is impossible to solve all three problems at the same time, and attempting to improve one or two characteristics leads to the deterioration of the third characteristic.
To understand how this works, we need to decompose the platform in terms of all three components of the theorem.
Decentralisation. The developers claim that the project is completely decentralized. Its system excludes any form of interaction with a third party.
Algorand has a secret algorithm for selecting validators – participants in the system responsible for confirming the validity of the data that the network includes in the blockchain. They are selected from among users who have at least one native token of the project in their wallet. Thus, collusion between validators is impossible.
Security. According to the developers, Algorand supports protection against attacks both at the consensus protocol level and at the network level. User account protection is also built into the system.
Performance. The project’s network throughput is about 1000 transactions per second. For comparison, bitcoin has this figure of about 7 transactions per second.
What is Pure Proof-of-Stake (PPoS) and how it differs from Proof-of-Stake (PoS)
The project operates on the basis of its own Pure Proof-of-Stake (PPoS) algorithm, which translates as “Pure Proof”. PPoS is based on the classic Proof-of-Stake (PoS). The algorithm offers an alternative to classic cryptocurrency mining – via staking.
In PPoS, as in PoS, the algorithm selects validators randomly. The Proof-of-Stake system favours those with more coins in their account. The Algorand team considers this approach unfair, as it is oriented towards providing already rich market participants with additional opportunities to earn money.
In Pure Proof-of-Stake, users with a small volume of tokens have more chances to become a validator. The fact is that the protocol selects system participants to validate transactions regardless of the number of assets on their account. This approach increases decentralization and the level of security of projects based on this algorithm.
What is the Algorand ecosystem?
Initially, Algorand developers oriented the blockchain platform towards creating decentralized solutions in various sectors of the real economy. The network began to be used in real estate, public administration, copyright, finance, for issuing tokenized shares, etc.
As the DeFi, NFT and Web3 segments evolved in 2020-21, the Algorand Foundation began to allocate funds to private user destinations. DeFi projects such as Algofi, Yieldly, Folks Finance; NFT marketplaces Abris.io, AB2 Gallery, ZestBloom were launched.
Algorand also launched more than a dozen NFT and P2E games on the blockchain: Algorealm, Aegir Tactics, SK8, Alchemon, Cosmis Champs and others. Algo Gaming guild was launched.
Pros and cons of Algorand
Investors in Algorand can look forward to the following benefits.
Short scaling time: when decentralised finance (DeFi) and smart contracts are mentioned, the first thing that comes to mind is ethereum. Thanks to decentralized applications Uniswap, Aave, MakerDAO and Yearn Finance, Ethereum still dominates DeFi.
However, despite its first mover advantage, Ethereum has a rather slow scaling rate. It runs on PoW consensus and hence cannot process many transactions per second. Right now, Ethereum can handle 15-30 transactions per second (its upgrade to PoS consensus and Ethereum 2.0 is not out yet), Algorand handles just under 1,000 TPS. This number will increase as processing capabilities improve, with an end goal of 46,000 TPS.
Impressive practical application options: more than 100 companies, startups and fintech ventures are based on Efirium, building their decentralised applications (DApps), games and supply chains. By comparison, Algorand has applications for identity protection, insurance, stablecoins, cryptoassets, and government applications.
In fact, there are not many disadvantages to this protocol. The three most significant disadvantages are listed below.
Government regulation: several attempts have been made to prevent the spread of cryptocurrencies in the world. China, Japan, the UK and other countries have issued laws and regulations that directly or indirectly affect the adoption of cryptocurrencies locally.
The ongoing battle with Ethereum: we would have been happy if Algorand was the first protocol to introduce smart contracts and DeFi. But unfortunately, all the glory went to Ethereum. The first word that comes to mind when developers start thinking about DApps is Ethereum, which will be a valuable and important element in the DeFi space anyway. More than 300 developers are working on new projects using the Ethereum protocol.
Conclusion: A quality, reliable, monolithic project, and a good blockchain platform for the development of any other companies, for new interesting partnerships and collaborations.