Algorand is a blockchain created in 2017 by Silvio Micali, a cryptographer, and professor at MIT, which went public in 2019. Its new PPoS (Pure Proof-of-Stake) consensus mechanism solves the «Blockchain trilemma,» allowing it to be a scalable, secure, and decentralized platform.
In this article, you will learn about the consensus mechanisms, which are essential elements of understanding the operation of a blockchain. Also, what makes the Algorand protocol different in solving the problems of other blockchains, and why it is a positive proposal.
Algorand Background
In 2017, a team led by Silvio Micali, a cryptographer, and professor of computer science at MIT, created Algorand. Micali was a Turing Award winner and recognized for developing various protocols for modern cryptography, such as Zero Knowledge Proof.
Micali saw enormous potential in blockchains and cryptography to create a system that could provide fast and irreversible transactions. However, he realized the limitations faced by various blockchain platforms that suffered from the «Blockchain trilemma.» So, he worked together with a colleague from MIT, Nickolai Zeldavich, and a team to develop Algorand, announced in 2019.
All team members are internationally recognized: men and women, researchers, mathematicians, cryptographers, economists, and business leaders who work to ensure that the platform is inclusive and sustainable in the future.
The «Blockchain trilemma»
Cryptocurrencies are more secure, scalable, and decentralized than traditional money. Despite this, the «Blockchain trilemma» states that you cannot have these three characteristics without sacrificing at least one. Algorand solves this through its consensus mechanism called Pure Proof of Stake (PPoS). PPoS is a variation of the well-known Proof-of-Stake (PoS) consensus method.
Algorand Structure
Algorand has a unique two-layer blockchain structure. Layer 1 can run simple processes, such as smart contracts or creating different tokens and NFTs, which helps ensure its security and compatibility.
However, complex smart contracts can take up more space on the blockchain and need more computing power. Therefore, these processes are reserved for layer 2, verified outside of the main blockchain.
Since the main net launched in 2019, Algorand has had four updates, including low-cost smart contracts and layer 2 solutions for multi-network interoperability. They also allow the deployment of protocols to carry out exchanges between several cryptocurrencies with simultaneous transactions. Finally, they offer the ability for users to create fungible tokens and non-fungible tokens, such as NFTs.
Algorand, an Option for NFTs
There are several reasons why creating NFTs on Algorand is a good idea. One of the most important is that Algorand does not have forks; it can never be divided into two or more networks, so it is very secure and prevents the duplication of digital works of art.
Another important reason is its minimal environmental impact since it uses a unique consensus mechanism whose technology requires less energy than other blockchains.
Pure Proof of Stake (PPoS), Algorand Consensus Mechanism
When a cryptocurrency is transferred from an exchange to a digital wallet, the transaction is added to the most recent block on the blockchain. The consensus mechanism refers to how all the network nodes reach an agreement on the information of each block.
The consensus mechanism of the first blockchains
Many blockchains like Bitcoin use Proof of Work’s consensus mechanism (PoW). It is secure and decentralized, but it’s not scalable at all. Algorand’s consensus mechanism is designed to correct this problem by preventing forks and providing instant confirmations.
Like all blockchains, transactions on Algorand are grouped into blocks. However, it does not work with miners with ample computing power that propose new blocks, such as Bitcoin and other protocols. Algorand nodes are randomly selected with a random check function. It is an open-source cryptographic technique co-created by Micali known as Pure Proof of Stake (PPoS).
How does the PPoS consensus mechanism work?
Proof of Stake (PoS) is the predecessor of the PPoS consensus mechanism, which works like a lottery. The odds of being selected to propose a new block depend on the number of tokens a node has. Thus, the more tokens you have, the more likely you will submit a new block on the blockchain. Consequently, this node receives the incentive of the cryptocurrency in question.
Algorand’s consensus mechanism, Pure Proof of Stake (PPoS), works. A random token from the network is selected every few seconds; if it meets the conditions to promote the next block, the owner receives the incentive and proposes the next block. This process repeats continuously every four seconds.
How does PPoS Solve the «Blockchain Trilemma»?
This mechanism is scalable because it requires minimal computing power to verify blocks since thousands of transactions can occur every second. The network is secure because only the token owner notices when a random token is selected. It prevents hackers from having a clear point of attack. Finally, it is decentralized since the group of participants changes randomly, which contains a small group to have control of the network.
A New Consensus Mechanism that Avoids Carbon Emissions
Algorand is the first blockchain to use the PPoS consensus mechanism, ensuring minimal environmental impact. PPoS is not based on a computationally intensive proof-of-work. Instead, the power required to run a node is minimal and requires devices as simple as a Raspberry Pi. Compared to other blockchains, the CO2 emission impact of creating digital goods and transactions on Algorand is infinitely less.
Cryptocurrencies excite visionaries and idealists for the sake of decentralization. However, concerns soon arise that they require a lot of energy to run on so-called «mining farms,» which have a negative environmental impact. However, this new consensus mechanism created for Algorand offers a promising alternative for a more friendly future with our planet.
FIFA Announces Partnership with Algorand for the World Cup Qatar 2022
This month Algorand has just become the official FIFA blockchain platform. These two instances established an agreement that Algorand would provide FIFA with the official wallet solution with blockchain support.
Algorand is one of the most secure blockchains, as it allows for recording and distributing non-editable data through the blockchain. It ensures a safe and tamper-free exchange of securities and assets such as NFTs. In that sense, Algorand will also be in charge of assisting FIFA in developing its digital asset strategy.
Updated on May 30, 2022, by Sarahy Uribe.
Translated from Spanish on June 2, 2022.
F.A.Q. Algorand
It is a blockchain created in 2017 by Silvio Micali, cryptographer, and professor at MIT, and made public in 2019.
Algorand has a unique two-layer blockchain structure. Layer 1 can run simple processes like smart contracts or creating different tokens and NFTs, which helps ensure its security and compatibility. However, complex smart contracts can take up more space on the blockchain and need more computing power. Therefore, these processes are reserved for layer 2, verified outside of the main blockchain.
The consensus mechanism refers to how all the network nodes reach an agreement on the information of each block. When a cryptocurrency is transferred from an exchange to a digital wallet, this transaction is added to the most recent block on the blockchain.
A random token from the network is selected every few seconds. If this token meets the conditions to promote the next block, the owner receives the incentive and proposes the next block. This process repeats continuously every four seconds, with new tokens randomly selected.
Cryptocurrencies are more secure, scalable, and decentralized than traditional money. Despite this, the «Blockchain trilemma» states that you cannot have these three characteristics without sacrificing at least one.
This mechanism is scalable because it requires minimal computing power to verify blocks. The network is secure because only the token owner notices when a random token is selected. It prevents hackers from having a clear point of attack. Likewise, it is decentralized since the group of participants changes randomly, which contains a small group to have control of the network.
