No Forks and Pure Proof of Stake - Algorand (ALGO) | Full Guide
Today we are going to introduce you to one of the most exciting blockchain projects in the space – Algorand. They have made a lot of noise recently after acquiring several high-value partnerships. At its core lies an innovative consensus protocol called pure proof-of-stake (PPOS). The protocol allows developers to build scalable blockchain-native solutions for real-world use cases and aims to boost DeFi adoption. The Algorand Foundation is based out of Singapore and it has the following three core properties:
Silvio Micali – The man behind Algorand
Before we go any further, let’s introduce ourselves to the brains behind the project. Silvio Micali is one of the greatest cryptographers who has ever lived. In 1989, along with Shafi Goldwasser and Charles Rackoff, he created zero-knowledge proofs. Along with that, he is known for his work on public-key cryptosystems, pseudorandom functions, digital signatures, oblivious transfer, and secure multiparty computation. Some of his doctoral students have been legends in their own right like Mihir Bellare, Bonnie Berger, Shai Halevi, Rafail Ostrovsky, Rafael Pass, Chris Peikert, and Phillip Rogaway. Micali was awarded the Turing award in 2012 for his contribution to cryptography.
Algorand – Pure Proof-of-Stake
Since there are no central authorities, such as a board of directors, who make decisions on the protocol directions. How does anything get done in a decentralized system? This is where consensus mechanisms come in. The idea is to have an algorithm that collects consensus from the entire network regarding a particular query. As long as most of the network gives their thumbs up, the query is good to go.
Bitcoin achieved consensus with a method called proof-of-work (POW). This is how it works:
While it’s hard to argue against the security provided to the Bitcoin blockchain, the problem with POW is that it is highly unsustainable. The main problems being:
This is why the newer protocols are opting for a more virtual consensus mechanism that doesn’t require you to spend real-world resources. One of the most popular forms of these virtual consensus algorithms happens to be proof-of-stake.
What is Proof-of-Stake?
This is how proof-of-stake or POS works:
Algorand’s consensus is a slight variation of the traditional POS, called pure proof-of-stake (PPOS).
What is pure proof-of-stake?
In traditional POS systems, your stake acts in the same way as your hashing power does in POW systems. However, the problem with this approach is that it embraces the “rich get richer” concept. The validators who already own a large number of tokens in the system will get more chances to mine blocks and get richer.
PPOS enables Algorand to adopt a more egalitarian approach. ALGO token holders are randomly and secretly chosen to add blocks to the main blockchain. The holders are chosen irrespective of the size of their stake. This method ensures that:
The security of the overall economy is tied to the whole network instead of a wealthy few. This increases the overall decentralized quality of the network and ensures that the system is as secure as possible and safe from potential 51% attacks. In Algorand:
PPOS vs BPOS
BPOS stands for bonded proof-of-stake, which is a system where people lock up a stake in the ecosystem and:
The main advantage of PPOS over BPOS is that it doesn’t hold your stake hostage. Users are free to spend their stake anytime they want since it’s stored in their wallets. On the other hand, in BPOS, users have to set aside their stakes and completely forget about it during the consensus process.
PPOS vs DPOS
Another interesting POS approach that has become quite famous is delegated proof-of-stake. Championed by EOS, delegated proof-of-stake emphasizes speed over decentralization by choosing certain delegates in the network who are in charge of the consensus process.
In EOS’ case, 21 delegates/block producers are voted from the network and they take care of the overall network health. Block Producers are voted into power by the network users, who each get several votes proportional to the number of tokens they own on the network (i.e., their stake).
The biggest problem here is pretty obvious. If you have a limited number of block producers who know each other, what stops them from joining forces and taking over the whole system? DPOS is inherently centralized. PPOS, on the other hand, is the most decentralized variation of the POS algorithm.
Properties of Algorand
#1 Algorand Standard Assets (ASA)
The native token of the Algorand ecosystem is ALGO and the projects built on top of it will have tokens that follow the ASA system. When you create applications or assets on top of other blockchains, you’ll need to put in additional code or shift the asset to layer-2, which can be a logistical nightmare.
With the ASA feature, you just need to create a simple Layer-1 token, which will have the following properties:
#2 Atomic Swaps
Atomic swap is a protocol that allows you to exchange or swap one cryptocurrency for another, without having to go through a centralized platform. Algorand’s layer-1 atomic swap has the following properties:
#3 Algorand Smart Contracts Layer-1 (ASC1)
Unlike other protocols, Algorand executes its smart contracts in layer-one, which makes it a lot more secure. Algorand uses an innovative new language called “TEAL” or Transaction Execution Approval Language to code ASC1s. The type of smart contracts that can be created using this protocol are:
#4 Algorand Co-Chains
Public chains aren’t efficient for enterprise use since they need to carefully monitor who all can access the stored data for compliance and privacy reasons. The Algorand co-chain is a special, permissioned version of the Algorand blockchain. A permissioned blockchain allows enterprises to:
Co-chains have the following features:
#5 The Mule Framework
Algorand developers created a framework called “Mule,” which generalizes the concept of a unit of automation. The properties of Mule are as follows:
#6 ALGO Grants Program
The grants program aims to accomplish Algorand’s vision of creating a borderless economy by attracting developers into the ecosystem. The 250 million ALGO (around $43 million) grants program will be allocated to deserving developers across four major categories:
Fangfang Chen, Head of Operations at the Algorand Foundation, said:
“We believe that a public, permissionless, pure proof-of-stake blockchain with an open-source approach is fundamental to delivering on the vision of a borderless economy. As part of its vision of enabling a broad and active blockchain development community, the Algorand Foundation is committed to supporting that community as they explore the opportunities for innovation that exist within the Algorand blockchain ecosystem.”
These 250 million tokens will be distributed based on the quality of the project submitted. As of now, the Foundation is conducting the initial evaluation of the projects. Later on, the community will get to decide on which projects should receive grants via voting.
#7 Algorand Wallet
The Algorand Wallet is the Algorand’s official mobile wallet that allows users to hold, transact, and request Algos or any ARC-01 asset. The wallet allows you to access your various accounts along with their respective public and private keys.
Using the wallet will provide an additional security layer towards:
It’s impossible to talk about Algorand without mentioning some of the partnerships that they have made in recent times. Let’s take a look.
This guide should inform you about everything that you need to know about Algorand. Its consensus protocol and underlying technological offerings have made it one of the most successful new projects in the space. Backed by a brilliant team and with a plethora of high-value partnerships, this is a project that you must look out for.