Algorand

What is Algorand (ALGO)?

Algorand is a decentralized, permissionless, pure proof-of-stake blockchain-based network and ecosystem that aims to be a digital money platform featuring speed, scale, security, and transparency.

With a block creation time of only 4 seconds, Algorand is one of the fastest blockchains in the industry and focuses on the elimination of barriers. Cost is one significant barrier, and ALGO is able to achieve a very low network fee of just 0.001 ALGO.

Compatibility is another major barrier that Algorand is attempting to break down, with the long-term plan of being able to verify other chains via Algorand’s smart contracts.

In the short term, a system of Bridges is in development to enable trustless interoperability with Ethereum and Bitcoin.

When Was Algorand Launched?

Algorand went to the mainnet in June 2019, following its testnet launch just under a year previously. In parallel, Algorand ran an Initial Coin Offering at $2.4 per ALGO that closed on the 19th of that month.

With this ICO, the Algorand Foundation became the first organization to conduct a fully transparent global auction on its own blockchain.

However, prior to this ICO, the Algorand Foundation had already funded the project through a series of ALGO auctions to private investors.

This began with $4 million from Pillar Venture Capital and Union Square Ventures in a seed round, then another sale as a venture round, raising over $60 million.

In the 2019 ICO, 25 million ALGO were sold, but the price collapsed immediately afterward as vesting periods ended and early (mostly institutional) investors were able to dump their tokens on retail investors.

According to Global Coin Research, Algorand’s vesting terms were for close to two years. Still, private placement investors who had purchased ALGO between $0.05 and $0.50 began selling.

On June 26, 2016, The Algorand Foundation wrote a letter to the investor community, claiming that early backers' actions—including token selling and short selling—had introduced unnecessary risks into the project.

To remedy the resulting backlash from these hedge funds’ actions, the Algorand Foundation established a program where all ALGO sold in the ICO could be returned for 90% of the value paid. 

Around 20 million of the 25 million ALGO sold at the ICO were returned under this program.

Who are the Founders of Algorand?

Algorand was founded by Silvio Micali, a professor of computer science at the Massachusetts Institute of Technology. Micali is also a 2012 winner of the Turing Award for his contributions to the theory and practice of secure two-party computation, electronic cash, cryptocurrencies, and blockchain protocols.

With his background alone, Micali could claim to be one of the most qualified people in cryptocurrency, and the Algorand protocol derives mostly from his own work.

Micali authored and published the Algorand whitepaper in 2017, with contributions from Jing Chen, the Head of Theory Research and Chief Scientist at the Algorand Foundation.

How Does Algorand Work?

Algorand is designed to scale without compromising performance and targets enterprise use cases on custom networks.

This is managed thanks to the smart contract language TEAL (Transaction Execution & Approval Language) and the implementation of the Algorand Virtual Machine to aid developers.

What are Smart Contracts?

Smart contracts were added to blockchains, starting with Ethereum, in order to convert cryptocurrencies into programmable money. They allow for the automatic execution of a predefined action when conditions are met.

Smart contracts are transparent and visible to all parties on-chain. They function similarly to a vending machine that, when supplied with the correct amount of funds and the right selection, will give the customer the desired item.

Smart contracts can define rules and automatically enforce them, but interactions with them are not reversible.

These smart contracts have allowed developers to create a vast ecosystem of decentralized applications (dApps), termed as such because they are controlled by the programming logic written into their smart contracts rather than an individual or company.

It is this ecosystem that Algorand strives to be a part of, offering competition to the likes of Ethereum with low fees, low latency, and high speed.

What Makes Algorand Unique?

One of Algorand’s innovations is the "Co-Chain." It functions as a subset of the chain which processes only a portion of the total workload while also communicating with other co-chains to find network-wide consensus.

This is a design similar to Ethereum’s sharding, Cosmos’ Zones, and Polkadot’s Parachains. However, each co-chain is responsible for its own security, whereas in Ethereum and Polkadot, the equivalent subsets share security.

This architecture allows Algorand to process blocks to finality in 4.4 seconds and has seen a throughput of 1,100 transactions per second reached in a production environment. This environment did not consist of smart contract computations, and Algorand has averaged 14 TPS since its launch.

You can view the current statistics of the network on the blockchain explorer.

Algorand’s approach to enabling greater TPS for long-term scaling was to create a relatively small set of permissioned, high-performance, high-cost master nodes, called relay nodes, which required substantial computing power and cost.

While this creates a certain aspect of centralization, Algorand remains capable of providing speed, security, and low-cost transactions to network users. It has already proven a capable blockchain for decentralized applications serving DeFi and NFTs.

How is the Algorand Network Secured?

Algorand is secured by a pure proof-of-stake (PPoS) blockchain protocol. Unlike most other proof-of-stake (PoS) networks, it doesn’t require delegators or participants to lock up value in the network.

Instead, users can simply hold ALGO tokens to participate in the network and its governance.

PPoS achieves consensus by first selecting an ALGO token at random from the outstanding tokens available, allowing its holder to propose the next block. Then, thousands of other tokens are selected randomly to vote so that the block can be validated and approved.

The economic incentive in this system is that holders of more tokens have a greater chance of being selected for this validation committee of sorts. Security, meanwhile, comes from the randomness of selection and the fact that it is tokens that are selected, not holders.

What is the Use of ALGO?

The ALGO token has several uses that allow it to gain value within the Algorand ecosystem.

Like many cryptocurrencies, the network’s native token, ALGO, is used to pay network fees and power decentralized applications built with complex smart contracts.

ALGO is also used as a mode of payment, for providing network security through staking, and in network governance.

Who Controls Algorand?

As an organization, Algorand is structured to comprise a company and a foundation.

The Algorand Foundation manages growth, award funding, cryptographic research, on-chain governance, and node operation. The core development of the Algorand protocol, on the other hand, is overseen by Algorand Inc.

Headquartered in Boston, Massachusetts, Algorand Inc. is a corporation. This element of Algorand’s structure makes it differ sharply from many other cryptocurrency projects, as corporations are for-profit organizations.

While the ALGO token is used for network governance, the control of the protocol is considered by many to be highly centralized given the relatively low amount of ALGO distributed to smallholders or retail investors.

How Much ALGO Is In Circulation?

At its June 2019 genesis, Algorand minted 10 billion ALGO. 25% of this was given to the founders of Algorand and the Algorand Foundation to develop the Algorand ecosystem.

30% of this 10 billion ALGO mint, meanwhile, went to early private investors. Finally, 45% of the supply was saved for rewards and airdrops.

With 3 billion ALGO having been delegated to private investors, the Algorand ICO in 2019 saw just 25 million ALGO tokens on offer to the public. Out of these 25 million ALGO, 20 million were bought back following the post-launch controversy and burned. According to the Algorand Foundation, the circulating supply of ALGO was more than 6.7 billion Algo as of March 2022. The rest are held by the Foundation and are scheduled to be fully distributed by 2030.

How Do You Buy ALGO?

Despite only briefly having clawed back its ICO price, Algorand remains one of the top smart contract platforms and one of the most valuable blockchain projects in the industry. As a result, ALGO is available on most major cryptocurrency exchanges.

You can also buy ALGO on any decentralized exchange in the Algorand ecosystem and in peer-to-peer trading.

Is It Possible to Buy ALGO Instantly?

Algorand is a network with a fast block creation time and high throughput, which means that transactions on-chain are very fast. 4.4 seconds is all you’ll have to wait if you’re purchasing ALGO from within its ecosystem.

Purchasing ALGO on a centralized exchange is also fast, but no actual settlement occurs until you withdraw your ALGO into your own wallet.

How Do You Store ALGO?

ALGO can be stored in a cryptocurrency wallet. These generally come in two forms:

• Hot wallet: These are usually convenient and easy to use, taking the form of lite desktop clients or simple browser extensions. A notable example is the Pera wallet, which is a featured partner within the Algorand ecosystem.
• Cold wallet: These stay completely offline, giving the holder protection against various types of attacks, including hacking.

Algorand’s Energy Consumption

In April 2021, Algorand released an in-depth report on its energy consumption, analyzing the amount of energy consumed by transactions on the Algorand blockchain.

At a consumption of 0.000008 kWh per transaction, the report suggested that Algorand was several orders of magnitude more energy-efficient than Ethereum at 70 kWh/txn or Bitcoin at 930 kWh/txn.

This outcome highlights the energy-saving benefit of using proof-of-stake mechanisms to achieve consensus as opposed to the far more power-hungry proof-of-work.

However, the report also used the assumption of there being 4000 validators and excluded the contribution of relay nodes.

Is Algorand a Good Investment?

Algorand is viewed positively in the community thanks to technology that achieves what it promises by offering a platform that marries high speed and scalability with low fees.

Furthermore, Silvio Micali, Algorand’s founder, is considered one of the most eminent and respected figures in the entire industry. As Algorand’s figurehead, the network has been able to build significant partnerships, including with Limewire and FIFA.

However, Algorand’s level of centralization, both in terms of network participation and ALGO holdings, remains of concern to many.

After the post-ICO dump of ALGO by early investors, Algorand took action to ensure that losses to individual and retail investors were reduced.

However, early institutional investors remain a great risk to new investors in Algorand. In September 2021, the Algorand Foundation announced the pausing and restart of accelerated early backer vesting thanks to market conditions.

This apparent willingness to change vesting rules to allow early backers to take advantage of favorable market conditions is likely a major red flag for any prospective investors.