Algorand (ALGO) is a blockchain platform that allows businesses to create scalable, secure and reliable applications.
It is an open-source project, which means that anyone can assess its code and contribute to its development. Developers can also build or host other crypto and blockchain projects on it.
Its native coin is also called ALGO, and users of the platform use it to pay processing fees. ALGO token also secures the platform, and users earn it as a reward.
What is the problem in blockchain Algorand seeks to solve?
Recently, innovations fueled by blockchain technology have emerged in diverse industries — from banking and finance to gaming and entertainment.
However, all blockchains — from the most popular (like Bitcoin or Ethereum) to the lesser-known (like Fantom or Cosmos) — face a common problem. It is called the blockchain trilemma.
The blockchain trilemma refers to the idea that a blockchain must sacrifice at least one of three important properties to be effective. These are security, scalability, and decentralization.
In 2019, Silvio Micali, a cryptography and information security expert, and his team of developers solved this problem when they invented the Pure Proof of Stake (PPoS) consensus protocol and Algorand.
Proof-of-Stake (PoS) vs Proof-of-Work (PoW) vs Pure-Proof-of-Stake (PPoS)
Most blockchains create new coins or tokens using either of two methods – proof-of-work PoW) and proof-of-stake (PoS).
Proof-of-work requires nodes (computers) to compete to solve complex math puzzles. The correct answer validates a new block, and the first to get it earns coins as a reward.
However, computers used in proof-of-work consume a lot of energy, leading to criticism on its effects on the environment.
As a result, proof-of-stake emerged as a safer, more eco-friendly alternative. It requires holders of a coin to deposit or stake their crypto to be used to validate new blocks of transactions.
The blockchain then creates a voting system to decide who validates new coins. People who stake more coins have higher chances of being chosen as validators.
When a new block is successfully verified and added to the blockchain, the validators earn some coins as a reward for staking.
Algorand uses a pure proof-of-stake method. Unlike proof-of-stake, it doesn’t require users to stake their coins nor selects a few users to act as validators.
Instead, all the users propose and vote on the blocks directly; therefore, attackers cannot target a specific set of users.
It is like saying, “an attack on one is an attack on all”. That way, it is almost impossible for a hacker to harm the whole system since the security of the platform depends on the honesty of the majority.
What makes Algorand Unique?
- Low energy consumption: It does not use high energy-consuming mining farms.
- Faster transaction speed: The entire community agrees on the next block and confirms transactions with minimal delays. That means the blockchain processed more blocks in less time.
- Delegation: Token holders can delegate their tokens if they wish to participate in the consensus.
- Low fork probability: Users can rely on a new block as soon as it occurs. Algorand assures that users do not have contradictory views of confirmed transactions.
- True decentralization: The network randomly selects proposers and committees. Doing so ensures that a small group of miners or validators do not control the entire network.
- Governance: Community token holders can suggest updates to the protocol updates and agree on its development.
How does Algorand compare to Ethereum?
Many crypto enthusiasts see the Ethereum and Algorand blockchain platforms as rivals. They both host other blockchain-based projects and use smart contracts.
However, a major difference between Ethereum and Algorand is that the latter uses the proof-of-work (PoW) method.
Although Ethereum is gradually switching to the proof-of-stake method, Algorand remains more energy-friendly.
Also, Algorand processes transactions faster than Ethereum. It takes about four seconds to process a block of transactions, compared to 12-14 seconds on Ethereum.
In conclusion
Algorand might be a relatively new blockchain platform, but it is gaining traction in the blockchain industry.
With further improvements, more blockchain-based projects might be able to effectively deliver on all three areas of security, scalability and decentralisation.
