Seems Like Every Layer 1 is Pumping! But What About Algorand (ALGO)? Is There Any Room Left For This Once Hyped Project??

By Michael @ CryptoEQ | CryptoEQ | 28 Mar 2022


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  • Algorand has put together a highly experienced and professional team led by founder, Silvio Micali, a Turing Award winner and MIT professor in computer science.

  • The well-credentialed team and permissioned relay node system make for an attractive combination to enterprise and government use cases, as proven by the announcement that the Marshall Islands would be leveraging the Algorand blockchain to launch a national digital currency.



  • The Algorand network is run by ~100 permissioned, relay nodes controlled by the Algorand Foundation that also were given preferential early investing rounds and predetermined future token allocations.
  • Algorand suffers from extremely concentrated token distribution in which >60% of the token supply is controlled by founders and private insiders.
  • Despite only launching in 2019, Algorand’s “state bloat” is already worse than Bitcoin’s (13 year history) and Ethereum’s (~7 years history) which requires more specialized hardware to maintain the chain’s history, leading to further centralization.
  • Algorand launched into a crowded sector and has failed to gain any meaningful adoption and traction, even as other smart contract blockchains that launched at similar time (Solana, Terra, Avalanche) have done so. See price chart below compared to ETH performance beginning ~Feb 2020.




Use Case

In the original whitepaper published in 2017, authors Silvio Micali and Jing Chen cite the shortcomings of the Proof-of-Work (PoW) consensus protocol utilized by Bitcoin and Ethereum as creating technical barriers to further scalability and adoption. Additionally, due to the high computational demands of PoW, not only are PoW blockchains wasteful, but they naturally concentrate wealth in the hands of those able to permeate the high barrier to entry in terms of computational requirements.

To circumvent this, Algorand was designed to be as openly accessible and distributed as possible. This is done by ensuring all participating users on the network hold equal status and by making it possible for anyone holding ALGO to participate in block propagation and consensus.


Primary Use Case

The primary purpose of the Algorand network is to provide the most robust, open-source, accessible smart contract platform within the crypto space. The network’s native currency ALGO is heavily utilized for supporting the ever-growing ecosystem of protocols, marketplaces, and dApps. Put simply, Algorand serves as a digital money platform with ALGO being the designated currency of choice powering its expanding economy.

Due to Algorand’s consistent manner of being transparent, participation and interest in the network has come far easier than other smart contract platforms. Additionally, block propagation is completely random and not dependent on burning ALGO to participate, adding to the security of the ecosystem.

Despite being a young project, Algorand has been deployed in a handful of real-world use cases. These use cases stretch from supporting the Bitcoin wallet in El Salvador to providing a decentralized platform for healthcare transactions. While the ecosystem is still expanding, the Algorand blockchain is already being used as originally intended.



It’s important to note that from an idealist cryptocurrency advocate, Algorand falls short in many respects including:

  • Permissioned, relay nodes controlled by the Foundation
  • Earmarking 200 million ALGO for early backer/relay node incentives (again, only entities close to and approved by the Foundation can run a relay node to get these rewards)
  • Having a for-profit company (Algorand, Inc.) behind the project equipped with its own governing officers
  • Having >50% of the token supply controlled by founders and private insiders
  • Stating on record that the foundation built the project to include the abilities to execute “account freezing” and “clawbacks”
  • Having a formal document in place (created by and voted through by early investors) that outlines how early investors can/will sell ALGO at a profit (EIP-11252019AF: Conditional Accelerated Vesting)
  • To quote the document, “The proposal also incorporates accelerated vesting under positive market conditions”
  • An example from September 2021

An additional vulnerability for Algorand is the issue of “state (chain) bloat” and network sustainability. State growth refers to how quickly the blockchain’s computational load grows. Full nodes (relay nodes in Algorand) store the network’s entire history from genesis and must be able to validate the entirety of the network’s state. Blockchains that scale by simply increasing the block-space and throughput per unit of time (Binance Smart Chain and EOS) also greatly increase their state growth. Those chains are short-term solutions that lead to long-term unsustainable networks. 

Blockchains designed for greater TPS, like Algorand or Solana, also run into state growth and centralization issues. However, like the “Ethereum killers” of the 2017 era, their designs are also not long-term scalable/sustainable. Algorand has chosen to enable more TPS by creating a small set of permissioned, highly-performant but high-costing master nodes in the form of relay nodes. Aside from the obvious centralization around permissioned nodes, relay nodes require substantial computing power and cost, pricing out most people from the process. On top of this, the cost/burden to store the entire ledger is growing faster than Bitcoin or Ethereum, who have 100-1,000x ALGO’s adoption and usage. 

As of Q2 2022, Algorand’s relay node was ~800GB after only two years of existence, a handful of dApps, and less than 5,000 daily users. For comparison, Bitcoin, which has been around for 13 years and has tens of millions of addresses, is ~365 GB. For a more direct comparison between L1 smart contract platforms, Ethereum has been around for six years and facilitates orders of magnitude more economic and smart contract activity at only  ~330 GB

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


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