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Introduction to Algorand


The Algorand platform and its ALGO token are being promoted by developers as the foundation for a future "borderless economy" that balances decentralization, scalability, and security without compromising each of these metrics.

What is Algorand?

Technically, this is an attempt to solve the already classic "blockchain trilemma", which states that decentralization, scalability and security cannot be effectively combined within one platform. At least one of these components will need to be trimmed to fit the needs of the others. In other words, a large and powerful decentralized platform will almost always have security and scalability issues. Actually, the Algorand project was launched as a refutation of this trilemma. It happened in June 2019, and the goal was announced to promote a decentralized digital economy based on the following parameters:

  • open and unlimited access to information
  • instant verification capability
  • proprietary Pure Proof-of-Stake algorithm
  • transaction management system allowing custom projects to scale

Algorand's philosophy is based on the concept of “democratic user participation”. Instead of the widespread PoW consensus algorithm, which is used in the Bitcoin blockchain and many other popular cryptocurrencies, the platform uses its own "modified" Proof-of-Stake, as well as self-verification transactions.

The project is based in Boston, and its founder, Silvio Micali, is a professor at the Massachusetts Institute of Technology and a Turing Prize laureate (analogous to the Nobel Prize in computing). In addition to him, a well-coordinated team of experts and researchers in the field of blockchain technologies is working on the project. In June 2019, the project's shares went public sale, experienced a short-term excitement and eventually stabilized. The Algorand Foundation, which is responsible for the financial component of the project, reported that the sales raised about 60 million US dollars.

What does this platform do?

The project has set itself a number of goals that are based on the successful implementation of its concepts and technologies. They are as follows:

  • With the help of Algorand, we need to create a blockchain that really works to form a full-fledged "economy without borders". Decentralized, secure, scalable and distributed ledger technology is expected to act as a bridge for many third-party companies to access unused markets. However, if the platform cannot offer adequate performance, then it will fail. Therefore, the project has added the ability to immediately complete and confirm transactions without the risk of repetition or any uncertainty. A unique consensus algorithm is responsible for this. In addition, each block, after its creation, remains in the general chain indefinitely, which ensures that transactions will be unchanged and final. After the launch of Algorand MainNet, it was reported that the network is capable of processing up to 1,000 transactions per second, which is close to the capabilities of traditional payment systems such as Visa, which process about 1,700 transactions per second.
  • Pure Proof-of-Stake consensus algorithm, in which the main mechanism of operation is the ownership of certain assets. It is planned that this mechanism will make traditional financial systems more comfortable to work with Algorand. It was personally designed by Silvio Micali. It is characterized by reduced consumption of computing power and the ability to complete a transaction in seconds. The system works without external regulation and is resistant to malicious internal influences as long as the majority of the participants work honestly. Any user can read the contents of the block and claim to verify the next one. And the probability of being elected is directly proportional to the size of the blocked share in ALGO tokens, however, even those with a small “stack” have chances.
  • Algorand is an "open door" platform that anyone can join without the need for prior approval from an official regulator. This openness, according to the plans of the developers, will also facilitate an active exchange of ideas on the further improvement of the network. In addition, the absence of a “threshold of entry” will allow not only large corporations and medium-sized businesses to connect to the platform, but also individuals. After all, to work they will only need a computer with Internet access and not very large computing power. It is planned that such a variety of participants will make it possible to create new markets, rather than copy existing analogs.

How does the Algorand protocol work?

It is based on Byzantine fault tolerance based on the Pure Proof-of-Stake consensus algorithm. In addition, it has several features that differentiate it from similar projects:

  • Users do not need to use their private keys in the block verification process. Instead, they must generate and register special "participation keys". This separation provides greater security for the account and associated ALGO tokens. Even if the "participation key" is compromised or stolen, attackers will not be able to use the funds in the user's account.
  • Verifiable Random Function (VRF) that allows users to safely determine whether they have been selected to participate in the next round of confirmation or not. Each time a new block is added to the chain, a randomly generated seed is sent to a random set of users claiming the right to verify. Based on this value and the "key to participate", a signature is generated, the authenticity of which can be verified by anyone. The advantage of this process is that it uses minimal processing power while maintaining transparency, security and anonymity.

How does Pure Proof of Stake work?

Unlike classical PoS, this system is not based on large fines for incorrect or malicious confirmation, but on making any malicious actions of the minority in principle impractical.

The owners of a large number of assets are the only ones who can actually prevent someone from making transactions. But it is not beneficial for them to act maliciously, as this will result in the loss of assets if the deception or error is revealed. And if they try to do this, they will damage the reputation of the entire platform, which will immediately affect the universality and value of ALGO tokens. So the advantage from appropriation of other people's funds is leveled by their almost total depreciation.

Also "pure PoS" implies substitutability of users and lack of communication between them. To complete the block certification procedure, you need a specially generated user key. However, attackers cannot know who exactly will become the next verifier in order to steal his data in advance. And when it becomes known, there will be no time left for illegal actions, and nothing can be done with the already verified block, even if there is a key.

Other technologies and capabilities of ALGO

In addition to the existing functions, the developers promise to introduce new ones that will achieve the following:

  • Solving the problem of storing information. As the size of the blockchain increases, block storage will require more and more space. Vault technology solves this problem, allowing you to increase the degree of scalability by connecting new users. They will only need to download part of all the information to their computer so that they can participate in the further creation and storage of blocks.
  • Pixel digital signatures. An attempt to improve throughput through new technologies. The system will be able to aggregate several digital signatures in one message and turn them into a more compact record of a given length. This will also protect older records from signature forgery.
  • Self-checking transactions. It is based on the separation of the functions of storing information and its confirmation. Users will be able to verify other transactions without the need to have a certain balance of funds on the account.
  • Atomic swaps.

As of September 2019, Algorand had a market cap of $ 113 million (up from 156 million in August 2019). And there are about 291 million tokens in free circulation out of the planned supply of 2.8 billion.