What is Algorand (ALGO)?

By iTrustCapitalMay 16, 20224 minutes read
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Understanding Algorand (ALGO)

Algorand is a cryptocurrency and decentralized blockchain platform built on a proof-of-stake consensus method. It was founded in 2017 by Silvio Micali, a professor at MIT, with the goal of solving the “blockchain trilemma.” Algorand's native cryptocurrency is ALGO. 

Keep reading to explore exactly what Algorand is and how it works. Read about some projects hosted on the platform and get a brief history of Algorand and ALGO.

What is Algorand (ALGO)?

Algorand is a blockchain-based platform that is powered by the ALGO cryptocurrency. The platform supports smart contracts written in TEAL, an assembly-like language interpreted by the Algorand Virtual Machine (AVM). Algorand as a blockchain maintains a focus on scalability, security, and efficiency—the three components of the blockchain trilemma—by using a novel consensus protocol known as pure proof of stake

Blockchain-based contracts on the Algorand platform are smart contracts that may include smart signatures. Let’s examine each of these:

  • Smart contracts: On the Algorand platform, smart contracts are blockchain-based contracts that are persistent, meaning that the contract logic is continually accessible by many users based on the contract’s programming. 

  • Smart signatures: Algorand supports smart signatures, which contain instructions for the automatic execution of a smart contract’s code. Smart signatures can allow for more efficient execution of smart contracts. 

The Algorand Foundation oversees the blockchain’s ecosystem growth, awards funding, and manages cryptographic research, among other responsibilities. Working in tandem with the Foundation, Algorand Inc.—a Boston-based private corporation owned by Algorand’s founder—manages the core development of the Algorand protocol.

How does Algorand (ALGO) work?

The Algorand blockchain uses a consensus mechanism called pure proof of stake to operate the network. Pure proof of stake generally follows a three-step process

  • Block proposal: A committee of users is selected purely at random to propose a new block. This process uses "cryptographic sortition" and takes into account the number of ALGO tokens held by each user when determining the committee’s membership.

  • Soft vote: The next phase uses a Byzantine Agreement protocol to conduct a soft vote on the proposed block. Cryptographic sortition is again used to randomly form a new committee for the soft voting process.

  • Vote certification: Another new voting committee is formed to achieve final consensus on the new block. Once the vote is certified, the block is added to the Algorand blockchain.

The roles of Algorand's participants change with every block, providing greater protection against targeted attacks. All Algorand network participants are generally eligible to earn rewards, paid in ALGO. ALGO is also the currency used for transaction fees.

Projects hosted on Algorand

The Algorand blockchain hosts an ecosystem of projects, all of which use ALGO to transact on the Algorand platform. According to Algorand, hundreds of projects are being built on the blockchain, including:

  • PlanetWatch:PlanetWatch is a gamified way for anyone to earn rewards for air quality monitoring. Participants can earn PLANET tokens distributed on the Algorand blockchain.

  • The Marshall Islands: The Republic of the Marshall Islands is creating its own national digital currency known as the Marshallese sovereign, or SOV. SOV is being launched on the Algorand blockchain.

  • Asia Reserve Currency Coin (ARCC): Also known as ARCC.one, the Asia Reserve Currency Coin (ARCC) was released by the International Blockchain Monetary Reserve (IBMR.io). Launched to address poverty in emerging markets, the coin uses Algorand to operate a microfinance platform.

  • Yieldly: Yieldly is a decentralized finance platform that uses Algorand-based smart contracts. Yieldly can enable users to earn staking rewards, win prizes, and swap their ALGO for other assets.

  • ANote Music: A non-fungible token (NFT) marketplace, ANote Music connects musicians with their audiences and allows users to support artists by investing in royalties.

  • IDEX: IDEX is a decentralized smart contract exchange that can support high volumes of real-time trading. 

  • Republic: Republic is an investing platform that lets anyone invest in early-stage ventures. Republic’s profit-sharing token, the Republic Note (NOTE), is built on Algorand.

Algorand vs. Ethereum 

Ethereum and Algorand are both blockchain platforms that support smart contracts and ecosystems of projects. The biggest difference between Algorand and Ethereum is the consensus mechanism used to operate each blockchain.

Ethereum uses a proof-of-work consensus mechanism, which requires network participants—miners—to compete to solve complex mathematical problems. Proof of work requires extensive computing power and energy, which can negatively affect the speed and cost of transactions. Proof of stake, used by Algorand, is generally not energy intensive because validation authority is based on coin ownership rather than computing power.

Algorand also differs from Ethereum because it includes a mechanism specifically designed to scale the blockchain. Algorand uses something called Verifiable Random Functions (VRF) to enable the randomized selection of committees, resulting in more decentralized participation that can more easily scale. 

A brief history of Algorand

Algorand has a short but eventful history. The blockchain was first conceived of in 2015 by Massachusetts Institute of Technology (MIT) professor Silvio Micali, a recipient of the Turing Award for his contributions to computing machinery. Algorand’s whitepaper was published in 2017.

In February 2018, Algorand raised $4 million in a seed round of venture capital funding. Later that same year, Micali and his Algorand team completed a Series A fundraising round for $62 million.

The Algorand test network was launched to the public in April 2019 and the main blockchain went live in June 2019. On June 19, 2019, Algorand conducted a Dutch auction of ALGO to put the currency into circulation. The Algorand Foundation was additionally founded in 2019.

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