Algorand: A Blockchain Breakthrough in Speed and Efficiency

Summary

Algorand is an open-source, decentralized blockchain network that leverages a two-tiered structure and a unique variation of the Proof-of-Stake (PoS) consensus mechanism to increase transaction speeds and achieve finality. Algorand’s block rewards are distributed to all ALGO coin holders, offering all ALGO holders an opportunity to earn rewards instead of just block producers.

Contents

What is Algorand?

Algorand is a decentralized network built to solve the blockchain trilemma of achieving speed, security, and decentralization simultaneously. Launched in June 2019 by computer scientist and MIT professor Silvio Micali, Algorand is a permissionless and open-source blockchain network upon which anyone can build. Algorand is designed to be a payments-focused network with rapid transactions and a strong focus on achieving near-instant finality — that means processing over 1,000 transactions per second (TPS) and achieving transaction finality in less than five seconds.

Algorand Protocol Structure

Algorand has a unique two-tiered blockchain structure. The base layer supports smart contracts, asset creation, and atomic swaps between assets. All of these processes take place on Layer 1 of the Algorand blockchain, which helps ensure security and compatibility.

Algorand Staking Mechanism: Pure Proof of Stake

Algorand uses a unique variation of Proof of Stake called Pure Proof of Stake (PPoS). PPoS is a highly democratized PoS consensus mechanism with a low minimum staking requirement for participating in and securing the network — only 1 ALGO coin is required to participate. By contrast: Ethereum 2.0 requires a minimum stake of 32 ether (ETH), an amount which establishes a much higher barrier to entry for users. Conversely, a low minimum staking requirement may adversely affect network security, as network participants may be less incentivized to behave optimally when they don’t have substantial value staked on the network.

Algorand Block Production Under PPoS

On Proof-of-Stake networks, validator nodes are selected at random to confirm the transaction data in a block. Algorand’s PPoS consensus mechanism utilizes a two-phase block production process consisting of proposing and voting. Any member of the Algorand network can participate in the proposing and voting procedure by staking ALGO and generating a valid participation key to become a Participation Node. Participation Nodes are coordinated by another type of Algorand network node — Relay Nodes — which facilitate communication among participation nodes and do not directly participate in proposing or voting.

Algorand’s Native Cryptocurrency: ALGO

ALGO is the native Algorand cryptocurrency, and is the cornerstone of its network structure. As part of Algorand’s unique protocol design, the rewards paid to validators for producing blocks are split and distributed among all ALGO coin holders, rather than being awarded only to block producers. This means that all ALGO coin holders can earn about 7.5% annual percentage yield (APY), as of February 2021. Reward distribution takes place about every 10 minutes and is intended to encourage users to join the Algorand staking platform and accelerate the path to decentralization.

  • 3 billion ALGO to be released into circulation over the first five years (including the initial auction of 25 million ALGO coins)
  • 1.75 billion ALGO estimated to be distributed over time as rewards for participation nodes
  • 2.5 billion ALGO will be distributed over time to relay nodes
  • 2.5 billion ALGO are reserved for the Algorand Foundation and Algorand Inc.
  • 0.25 billion ALGO to be distributed for end user grants

The Algorand Foundation

Launched in 2019, Algorand is a relatively young protocol. A non-profit organization called the Algorand Foundation oversees the funding and development of Algorand Inc. and the Algorand protocol itself. The Algorand Foundation supports developer education in universities and educational settings. Its Global University Program includes prestigious universities like MIT, UC Berkeley, and other leading institutions around the world. The Algorand Foundation also sponsors blockchain events, hackathons, educational classes, and certifications.

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