Algorand arose to end the three main problems that other blockchains commonly face: security, scalability, and decentralization.
Algorand works to overcome this trilemma without sacrificing quality or efficiency in any of its aspects. Silvio Micali, a professor at MIT, created the project. He aims to build a borderless economy with this Boston-based open-source software company.
Algorand Consensus: Pure PoS
Algorand implements the Proof-of-Stake (PoS) algorithm to achieve shorter transaction times, provide tools that facilitate the technological evolution of the blockchain and a lower energy footprint.
Specifically, their consensus algorithm that they have called Pure PoS is responsible for linking network security with the honesty of the majority, in a much more effective way than with Delegated Proof-of-Stake, Liquid Proof-of-Stake, or Bonded Proof-of-Stake. In addition, this algorithm does not sanction lousy behavior. Some failures are unavoidable, such as low activity time or security failures, such as validating the same block twice.
Algorand makes fooling a minority impossible and deceiving a majority stupid. The protocol will work fine as long as 2/3 parties are honest. The Cardano blockchain also uses a PoS consensus protocol.
Two types of nodes build the network working simultaneously to guarantee its proper functioning. They are called the "relay nodes" and the "participation nodes." They both use the same software. The difference is in their configuration.
The relay nodes: They are responsible for maintaining the connections between the nodes. They have high-performance network connections that allow efficient communication paths. These nodes decongest the network by accruing protocol messages from the participating nodes and other relay nodes connected to them. These nodes deduplicate, verify signatures, and further validation steps, finally propagating only valid messages. Anyone can run these nodes.
Participation nodes: Connected to the relay nodes, they act as the system's user agents, proposing and voting for blocks on behalf of the user's participation within the consensus algorithm that has previously authorized them. Anyone can also run this type of node.
This process divides into two phases through lotteries, known as "cryptographic classification," which makes the process very fast.
Proposal phase: A token is randomly selected, and its owner has to propose the following blocks. The chosen person is hardly known to the rest of the network during the propagation phase. Once it is known, it is too late for anyone to interfere. This algorithm sets the same power to any selected token.
Voting round: A committee is formed randomly by randomly selecting 1,000 tokens. They approve the block proposed by the first user. This way, they make a very secure protocol against adverse attacks since nobody knows who to target.
Some notable features of this protocol are:
Low calculation requirements. You don't need super-powerful computer equipment or even create mining farms to be competitive.
Delegation. Those who own tokens can delegate them to participate in the consensus.
Quick agreement. An agreement with each new block and confirm transactions with latency in the order of one minute while scaling to many users.
Resistance to Hard Forks. The new blocks are 100% reliable, ensuring that no user can have a divergent view of the confirmed transaction.
Real decentralization. Components are randomly selected. In this network, we do not find a selected group in the command.
Governance. Algorand community token holders can propose protocol changes, among other improvements.
Algorand's TestNet and MainNet
On 2020 April 16, Algorand launched its test network (TestNet). Subsequently, on June 20, the launch of the MainNet took place together with the inaugural ALGO auction, which presented its blockchain, its native token, and made it circulate for the first time in the market. The team planned that it would last for more than 5 hours. However, the high demand meant that it would finish in just four.
These were the words of the Algorand Foundation after the launch of the MainNet:
"We consider this auction to be only the first step, albeit a crucial step, on a long road to a more just world, where everyone can participate in economic prosperity," said Dr. Tal Rabin, Head of research of The Algorand Foundation. "The Algorand platform has a decentralized design to ensure broad and global participation."
ALGO is the platform token (digital currency). An Initial Coin Offering (ICO) in which the project managed to raise about $60 million. It is currently in position number 68 in the market capitalization ranking. Although it is not a privileged position, it could gain positions and occupy a good place in the ranking if it proves what it claims.
Initially, the issuance of the tokens will be done annually through an auction of 600 million ALGO. These auctions occur on Algorand's blockchain with a monthly target of 50 million ALGOs per month.
The team chose the auction mechanism as the token distribution method because they believe that the market should set both the value of their token and their platform. Other aspects that they highlight as advantageous about auctions are their efficiency and transparency.
The simultaneity they achieve when conducting online auctions allowing people from all over the world to access it. On the other hand, the blockchain allows everything that happens to be recorded in your transaction history so that it can be verified by anyone, confirming that the auction worked well.
The team has established a total offer of 10 billion ALGO that will be distributed over the first five years of the network as follows:
3.0 billion: by auction during the first five years.
1.75 trillion: reward for participation.
2.5 trillion: relay node runners.
2.5 billion: Algorand & Algorand Foundation, INC.
0.25 trillion: Subsidies to end-users.
They have created a rebate program to reduce supply if demand falls, allowing auction buyers to sell tokens to the Algorand Foundation. The company also intends to incorporate other incentive mechanisms to the current ones to maintain community support in the long term. Rewards for participation will come from transaction fees once the 1.75 trillion tokens earmarked for rewards have been used up. These rewards will be distributed every 500,000 blocks, which will take place approximately every month.
Don't panic. The transaction fees are minimal. The team expects Smart Contracts and other better ones to drive rate growth to ensure that the rewards drive network engagement over the long term. The following table shows the projected rewards for the next eight, which, as I said, will take place approximately every month. As can be seen, the reward is initially lower, and increases as the supply of ALGOs grows.
The fraction of tokens earmarked for end-user grants are intended for developers and community members who continue to advance the Algorand community's goals and contribute to the network. Its distribution will be made through competitions and other events.
Some featured use cases.