Algorand aims to solve the three main problems faced by blockchains, called the blockchain trilemma.
Mission
Algorand is the decentralized infrastructure that runs Algo and other Algorand Standard Assets (ASA). These assets can come in the form of fungible tokens, NFT’s, stable coins, etc.
An advantage of co-chains building on the Algorand protocol includes instant finality, low fees, and performance when handling hundreds of millions of transactions per day.
1). Security
- Without security, you have a mutable, unreliable public ledger.
2). Scalability
- Without scalability in mind, you would only have a small network to transact with, transactions would be slow, and you wouldn’t be able to participate in the democratic approach of a global economy.
- A blockchain that didn’t have scalability in mind, will always have issues scaling in the future, whether that is through vertical/horizontal scaling or protocol changes such as sharding.
3). Decentralization
- Without decentralization, a few users would have near-total control of the network, be able to create attacks on the network and delete existing blocks, making the ledger useless.
Protocol
- Algorand uses a pure proof of stake (PPoS) protocol for its blockchain
- This means that the Proof of stake can be seen as a democratic approach where the likelihood of a user being chosen, and the weight of its vote, are directly proportional to its amount of staked tokens.
- Algorand’s specific use case relies on the promise to transact and finalize as fast as possible. This is important as other blockchains or protocols can utilize this instant finality, especially in financial systems wherein today’s current technology, can take days to clear or finalize payments.
Important differences to other PoS approaches
DPoS (Delegated Proof of Stake)
- A few users on the blockchain are empowered to choose the next block, this goes against Algorand’s mission of creating a borderless and decentralized system)
BPoS (Bonded Proof of Stake)
- Similar to DPoS, only a select amount of users can choose the next block by staking/bonding their assets, which will be locked up or if misbehaving, will have their assets confiscated
Use cases
- Tether allows users to store, send and receive stable coins. These digital tokens are pegged to the US dollar, Euro, etc. USDT (Tether) is the most widely traded cryptocurrency in terms of transaction volume and has the fifth-largest market cap of all cryptocurrencies.
- Circle is a global financial technology firm that enables businesses to use the power of stable coins and public blockchains for payments, commerce, and financial applications worldwide.
- Algorand is working with Circle and USDC to create a foundation for developing a wide range of scalable and secure financial applications.
Final words (not financial advice)
Algorand caught my eye back in January 2021. I’m currently working on blockchain technology in the aviation industry.
With the sheer amount of cryptocurrencies and Infrastructure as a Service (IaaS) projects, Algorand stood out to me both as a consumer and developer.
This project, its intended use cases, clear previous and learned experience from top cryptocurrency projects; Algorand has set itself up to be a major player, I’m very interested in seeing what 2021 and further have to offer.
I plan to write more about the technicals of Algorand, possibly an introduction to development on Algorand’s platform, and an explanation of advanced topics within the blockchain ecosystem.
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Sources:
Algorand Standard Assets (ASA)
Use cases:
- https://www.algorand.com/ecosystem/use-cases/circle
- https://www.algorand.com/ecosystem/use-cases/tether
