What is Algorand (ALGO)

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29 Jan 2024

Algorand is a decentralized open source network that uses a unique Proof-of-Stake mechanism to enable a two-tier architecture and provide a functional harmony between decentralization, scalability and security. Achieving scalability, security, and decentralization on a single blockchain network is a difficult task for most cryptocurrency projects. Algorand aims to provide full decentralization with high-level security and scalability, while achieving 1,000 transactions per second and fast block deadlines.

Algorand was launched in 2019 as one of the blockchain industry's newest emerging projects to provide the foundation needed for emerging and existing businesses in a decentralized economy. ALGO is the native cryptocurrency of the Algorand system and is designed to support the decentralized economy and enable equal participation in it. Algorand participants can enjoy the benefits of fast transactions and earn rewards with ALGO. The system is based on ALGO holders and ALGO block producers, i.e. node operators.

Algorand users can use smart contracts to create new tokens and decentralized applications (Dapps). While Algorand offers more efficient scaling with Pure Proof-of-Stake, it is also an alternative to Ethereum's smart contract functions. With the Algorand Standard Asset (ASA) feature, users can put new tokens on the network or transfer existing assets to the Algorand ecosystem and participate in Algorand's decentralized economy.

How Does Algorand Work?

The Algorand network provides security, scalability, and decentralization in one place, using a Pure Proof-of-Stake consensus mechanism using the Byzantine agreement protocol. Thanks to the protocol, even if a node is hacked, staked ALGO balances held by network participants are protected by unique keys generated through automation.

The network is secured through the Pure Proof-of-Stake protocol and has a system that allows only users who hold the majority of ALGO funds to engage in malicious activities that could compromise the security of other users and the network. However, although some users have this power, the system is based on the interdependence of network participants. If the majority token holder decides to engage in malicious activities, the ALGO value will decrease and user funds will lose value, so malicious activities will not yield results.

Thanks to the effective scaling it offers, ALGO transactions are final and fast and have the potential to process 1,000 transactions per second. Total supply is limited to keep supply under control and add an anti-inflation mechanism to the decentralized economy. All ALGO available in the total supply is initially minted and distributed to ALGO holders and network participants with each new block created. The problem of storage in the blockchain is solved in the Algorand system, as each new user begins to participate in network storage as soon as they join the decentralized economy. Using these features and protocols, Algorand enables a two-layer decentralized network with a variety of utilities.

Who are the Founders of Algorand?

Algorand (ALGO) was developed by veteran cryptographer Silvio Micali, a professor at the Massachusetts Institute of Technology (MIT). Silvio Micali is one of the developers who created many of the well-known cryptography technologies used in some of the top blockchain projects such as Cardano. Micali has also been involved in teams that developed zero-knowledge proofs, verifiable random functions, and other encryption protocols, and has been working in this field since the 1980s.

Algorand was founded by Micali in 2017 and is supported by the Algorand Foundation with the aim of solving the trilemma that scalability, decentralization and security represent in numerous blockchain networks. The idea behind the project was to create a borderless economy. Like most altcoins, Algorand was created to address Bitcoin's shortcomings. While working on Bitcoin in 2015, Micali decided to create his own blockchain network that would provide more efficient scaling, security, and full decentralization. Algorand was finally released after the system was tested for 2 years.

While the Algorand test network was opened for participation in 2019, the main network was launched shortly after.

What Makes Algorand Unique?

What makes Algorand unique is its unique approach to ensuring security, scalability, and decentralization work simultaneously on the same blockchain. Algorand enables faster transactions with the capacity to process nearly 1,000 transactions in a single second and seamless Dapp creation, development and deployment.

Users can create and distribute their own tokens, while network participants build a decentralized economy with a variety of applications and crypto assets. By using Pure Proof-of-Stake, Algorand ensures that all network users participate in the governance of the network and that all network users, including node operators and ALGO owners, are rewarded for their participation. With its unique features and new technology, Algorand is poised to become one of the largest decentralized economies and fastest blockchain networks.

Algorand Advantages

Speed:An ALGO can be sent to anyone's wallet in less than 4.5 seconds. This process takes place by confirming the payment almost instantly, without waiting and wondering whether the payment has been made or not, without checking again minutes or hours later.
Size:The Algorand blockchain is built for billions of users. It means that regardless of the number of users in the chain, each payment will be made in under 4.5 seconds, without any slowdown or confusion.
Reliability:The Algorand blockchain is built in such a way that it is guaranteed that there will be no forks. Forking in blockchains is an issue that can occur when a blockchain splits into more than 1 chain. When a fork occurs, there may be a risk whether the payment is successful or not. With the Algorand in question, forks do not occur, therefore any risks that may occur are prevented by ALGO through its services and this provides a safe environment to the user.
Transparent:The total amount of ALGO was created at the launch of the Algorand blockchain. This launch took place on June 19, 2019 and 10 thousand ALGOs were created. Since the Algorand blockchain operates as a public system, it is also possible to see how many ALGOs are in use in the system.
Secure:While the Algorand blockchain is transparent in many ways, ALGO uses state-of-the-art encryption (unbreakable digital codes) to ensure that all personal and private information in its payments remains that way.

ALGO is one of the fastest, most secure and reliable cryptocurrencies in use today. As the vision of a borderless economy becomes a reality, ALGO will be one of the most critical cryptocurrencies in use. In addition to being designed as a high-performance cryptocurrency, ALGO also performs many other functions for the Algorand community.

Algorand is known as an open-source, decentralized blockchain network that leverages a two-layer structure and a unique variation of the Proof of Stake consensus mechanism to increase transaction speeds and achieve finality. Block rewards of the Algorand blockchain are distributed to all ALGO token holders, offering all ALGO holders the opportunity to earn rewards rather than just block producers.

Algorand Protocol Structure

Algorand has a unique two-layer blockchain structure. The base layer supports smart contracts, asset creation, and atomic swaps between assets. All these transactions occur on the first layer of the Algorand blockchain, which helps ensure security and compliance. In this first layer of the Algorand network, platforms and users can create ASAs that represent new or existing tokens on the Algorand blockchain. This is similar to how ERC-20 tokens work on the Ethereum network.

Regarding security, simple smart contracts on the Algorand platform are executed as Layer-1 Algorand Smart Contracts (Algorand Smart Contract 1); In other words, it means that they maintain the same level of security as the consensus protocol itself. The second layer of Algorand was created to develop more complex smart contracts and decentralized applications. It is this bifurcation of the network between Layer 1 and Layer 2 that allows Algorand to process transactions so efficiently. With more complex smart contracts taking place off-chain, simple transactions can be processed more quickly at Layer 1 without getting bogged down by larger, more complex smart contracts.

Where Does Algorand Get Its Value?

Algorand derives its value from its technology and functionality, as well as adoption, network usage, and certain other factors that can affect Algorand value and market price. One of the factors that gives Algorand its value is the limited supply of tokens. Algorand has a limited supply with 10 billion ALGOs initially issued. These funds are distributed as rewards for joining node operators, end-user grants, and the Algorand Foundation.

Algorand's market capitalization is defined by buying and selling activity, market trends and certain other factors that may affect the price of ALGO.

How Many Algorand (ALGO) Coins Are in Circulation?

Less than a third of the ALGO supply, capped at 10 billion units, is in circulation. As of May 2021, the number of ALGOs in circulation was 3.038 billion. Once the maximum supply is exhausted, no new ALGO coins will be issued. The current maximum supply of 10 billion ALGO tokens was created initially. This limited supply acts as an anti-inflation mechanism, as does Bitcoin.

Algorand Staking Mechanism: Pure Proof of Stake

Algorand uses a unique variation of Proof of Stake called Pure Proof of Stake (PPoS). PPoS is known as a highly democratized PoS consensus mechanism with low minimum staking requirements to join and secure the network. Only 1 ALGO token is required to join the network. In contrast, Ethereum 2.0 requires a minimum stake of 32 ether (ETH), an amount that would create a much higher barrier to entry for users. A low minimum staking requirement can negatively impact network security, as network participants may be less incentivized to behave optimally when they do not have significant value on the network.

How to Choose Algorand Wallet?

While Algorand (ALGO) can be stored in the official wallet called Algorand Wallet launched by the foundation, other options are also available to store, send and receive ALGO.

Hardware wallets or cold wallets offer the most secure option with offline storage and backup. Both Ledger and Trezor offer storage solutions for ALGO. However, hardware wallets may require a little more knowledge and are a more expensive option. Therefore, it may be more suitable for more experienced users to store larger amounts of ALGO.

Software wallets are another option that is free and easy to use. They can be downloaded as smartphone or desktop applications and can be custodial or non-custodial. In customary wallets, private keys are managed and backed up by service providers. Non-custodial wallets use your device's secure elements to store private keys. Software wallets, although useful, are considered less secure than hardware wallets and may be more suitable for users who hold smaller amounts of ALGO or are relatively novice. Popular mobile wallets include Algorand Core Wallet, while MyALGO wallet is also a common choice among Algorand users.

nline wallets (web wallets) are also free and easy to use. They can be accessed from most devices using a web browser, but are considered a hot wallet and may be less secure than hardware or software alternatives. Since you're relying on a platform to manage your ALGO, you should choose a reputable service provider with a solid track record in security and surveillance. Therefore, it is suitable for storing small amounts and for experienced traders who trade frequently.

Kriptomat offers a secure storage solution that allows you to seamlessly store and trade your ALGO tokens. Storing your ALGO with Kriptomat gives you enterprise-level security and user-friendly functions. When you choose our secure platform as your storage solution, buying and selling ALGOs or exchanging them for any other cryptocurrency is possible in just a few minutes.

Algorand's Native Cryptocurrency: ALGO

ALGO is known as the native Algorand cryptocurrency and the cornerstone of the network structure. As part of Algorand's unique protocol design, rewards paid to validators for producing blocks are split and distributed among all ALGO token holders, rather than being given only to block producers. In other words, it means that all ALGO token holders can earn an Annual Percentage Yield of approximately 7.5% as of February 2021. Reward distribution occurs approximately every ten minutes and aims to encourage users to join the Algorand staking platform and accelerate the path towards decentralization. To further streamline this process, users do not need to “stake” the money themselves as part of the block production and verification process, but can hold the ALGO in an uncustodial wallet or on an exchange to access the rewards earned. In this sense, Algorand has reached a point close to automation, as bettors can passively hold ALGO while supporting the network.

There is a hard supply limit of 10 billion ALGO tokens allocated as follows:

3 billion ALGO will be released in the first five years (including the first auction of 25 million ALGO coins).
It is estimated that 1.75 billion ALGOs have been distributed over time as rewards for participating nodes.
2.5 billion ALGOs will be distributed to relay nodes over time.
2.5 billion ALGO, Algorand Foundation and Algorand Inc. reserved for.
0.25 billion ALGO will be distributed for end user grants.

Like many blockchain-based projects striving for an optimally fair coin distribution process, Algorand's ALGO coin decentralization is an iterative process. Because the ALGOrand Foundation currently owns a large amount of ALGO, critics argue this centralizes the protocol in the short term. However, ALGOrand's democratized reward distribution mechanism was built to reduce network centralization over a longer time period.

Algorand provides the perfect environment for developers and Dapp users thanks to the smart use of PoS, which provides scalability, security and complete decentralization. As a relatively new project with new technology, Algorand has not yet fully demonstrated its potential and ability to integrate into decentralized finance. Algorand offers a great alternative for developers who can transfer their tokens to the Algorand blockchain or use the smart contract features of the network to create new tokens and decentralized applications. With the ability to process 1,000 transactions per second, Algorand is definitely one of the fastest blockchain networks on the market.