Algorand recently announced a new set of features for smart contracts, which will without a doubt open the door for Algorand to the DeFi applications in the very close future. The core of those features is core Layer1 smart contracts, which are stateful. This means that they persist in the state of the value of a given set of variables and parameters on the network.
This is something that we can already see on Ethereum blockchain, where the state is stored within a contract scope and it would be a variable number of things or a variety of things for example like mapping addresses to token balances at any given time.
Algorand is taking a unique approach to the storage space problem on the blockchain. It is kind of a hybrid approach, where as much data as possible is stored at the user account level keeping the minimum possible amount of information within the scope of the code itself, which reduces the burden on the network.
The base smart contracts built in an assembly-like language, which is fast and native to the computer, and then executes the smart contract at the foundational layer of the algorithm network like consensus. Its results in the transactions are then super-fast and cheap, which then is a great opportunity to be used at the DeFi applications.
Earlier this year, Algorand brought several improvements to their blockchain. They called it Algorand 2.0. Algorand 2.0, therefore, brings the following improvements to their blockchain:
Algorand standard asset (ASA)
This functionality allows the issuance of any new assets in a standardized way. These can take various forms:
Fungible assets such as central bank digital currencies (CDBC), stable coins or utility tokens.
Non-fungible assets such as sport event or concert tickets, Cryptokitties, Cryptomonsters, etc.
However, restricted versions of fungible and non-fungible assets can also be created, which can be used to create various licenses and certificates.
In this case, the word restricted means that these assets cannot be sent to all addresses within the Algorand ecosystem, but only to, say, "allowed" ones. These allowed addresses will probably be linked e.g. with the name of the owner and this is the way Algorand wants to comply with the regulations. It can be assumed that this will be the standard in the future.
This functionality allows you to quickly, cheaply and securely send multiple assets to multiple accounts at once. In the traditional economy, this is due to a credible legal system.
It's a bit more complicated on blockchain, but Atomic Transfers provides an elegant solution that allows more use cases, such as simplified and accelerated debt settlement, efficient financing and so on.
Algorand Smart Contracts (ASC1)
Algorand Smart Contracts is a form of smart contracts that allow you to manage transactions using pre-programmed templates. The language used to program these smart contracts is called the Transaction Execution Approval Language - TEAL. Using TEAL, people have the opportunity to program smart contracts like Escrow, collective financing, or collateralized debt.
For example, the Smart Contracts algorithm allows you to exchange an asset with an unknown person, under predetermined conditions. An intelligent contract will serve as a mediator and guarantee that both parties get what they have agreed on, and there is no danger that one party will deceive the other and, in some way, get rich at the expense of the other. ASC1 can be used as well as for smart crowdfunding, where the funds are collected in advance, but returned if the goal of crowdfunding is not completed.
With those significant improvements to the protocol such as stateful smart contracts, Algorand has become one of the other DeFi platforms and, with its ingenious improvements that no other project has, will hold the position of a strong player.
The algorithm is capable of reaching minimum 1000 TPS with a block time of 4-5 seconds. Along with the fact that the blockchain is forkless so no orphan blocks can be created, which is formally confirmed by Runtime Verification, we definitely have something to look forward to.
The success of Algorand will, of course, depend on the interests of the community and especially the partners or customers who want to take advantage of this platform and thus improve the functioning of their current or future business. Getting started in this is always difficult and it will not be easy to enforce, partly because it has not been tested in succession, and over time, larger companies will realize that it actually works for smaller companies. Secondly, because this field is already dominated by the Ethereum project, which is the first DeFi platform in the world and many dApps and DeFi projects are already running on it.
Ethereum already has its customers and is also known for companies that have not yet entered the world of blockchain. The main barrier to the entry of larger companies is the problem of scalability. That is why Vitalik Buterin, the founder of Ethereum, decided to move from the PoW concept towards PoS, which is faster and cheaper to use. But it will certainly not be easy and it will take a lot of time and work.
Algorand will try to use this period to strengthen its position and possibly take over Ethereum challenger. Algorand has its customers as well and there are many of them, in the following article we will look at who this is, what these collaborations mean for the Algorand ecosystem, and you can also look forward to some firsts.
With using the advantages of Digital asset standards of Algorand, and while Ethereum became pricey and overcrowded, this is the real chance for Algorand to grab some attention. And to become the DeFi sought-after blockchain project nowadays!