Algorand is a blockchain protocol that allows anyone to build applications and transfer value on a decentralized, permissionless network. It was founded by Silvio Micali in 2017, a professor at MIT who is renowned for his work in cryptography. The protocol uses a decentralized agreement system called Pure Proof-of-Stake (PPoS) to address the three main challenges that blockchain technology faces: security, scalability, and decentralization.^[1]

Overview

The Algorand blockchain relies on a decentralized Byzantine agreement protocol called Pure proof-of-stake (PPoS), which can tolerate an unlimited number of malicious users as long as honest users (those who follow the protocol) hold more than two-thirds of the total stake on the network. The protocol is based on three key concepts: transactions, blocks, and consensus. Transactions are the basic units of account in the Algorand network and are used to transfer value. They are verified by all participating nodes in the network. Blocks are collections of transactions that are bundled together and verified by the consensus algorithm. Consensus is the process by which blocks are verified and checked to ensure that they meet the requirements of the Algorand protocol. It also rewards users who participate in its operation.^[2][3]

Architecture

Protocol Structure

Algorand consists of two layers. Layer 1 is primarily used for the creation and management of assets, such as tokens, and the execution of simple smart contracts. These assets and contracts are known as Algorand Standard Assets (ASAs) and Algorand Smart Contracts (ASC1s), respectively. Layer 2 is reserved for more complex smart contracts and dApps. This separation allows simple transactions to be processed more efficiently on Layer 1, without being slowed down by more complex activity on Layer 2. ^[14]

Pure Proof-of-Stake

In contrast to proof-of-work (PoW), which requires a significant amount of energy to validate transactions, Pure proof-of-stake (PPoS) relies on randomly selecting holders of the Algorand (ALGO) cryptocurrency who have staked their tokens and generated a participation key to validate each block in the chain. Because participating in malicious activity would negatively impact the value of their ALGO, holders are incentivized to act in the best interests of the network. PPoS allows for the creation of new blocks without requiring significant energy consumption.^[1]

Unlike proof-of-stake (PoS) blockchains, Algorand does not have a minimum stake requirement, making it easier for users to become validators by staking their tokens. The influence that a user has on the creation of a new block is proportional to the number of tokens they own. This ensures that the security of the network is distributed among a larger number of users, rather than being concentrated in the hands of a few large stakeholders.^[3][8]

Core Protocol

To participate in the Algorand protocol, users must generate and register a participation key, which allows them to take part in the creation of new blocks. Each block in the Algorand chain includes a random seed that determines which users will be selected as validators. These users are selected through a process called Verifiable Random Function (VRF), which uses their private participation key and the selection seed. The selection is done randomly and secretly, and only the chosen user knows if they have been selected. Other users do not know who will generate the next block until the chosen user participates in the consensus process. When a new block is proposed, a group of voters, or a committee, is chosen to vote on it. Consensus must be reached for the block to be approved and added to the blockchain.^[3][8]

Consensus Steps

Block Proposal

Firstly, accounts are chosen to propose new blocks. All nodes in the network verify the accounts and use a process called Verifiable Random Function (VRF) to determine if the account has been selected to propose a block. If the account is selected, the information is disseminated through the nodes to confirm that the account is a valid proposer. This process allows the Algorand network to select accounts to propose new blocks in a secure and transparent manner.^[3][8]

Soft Vote

After the accounts are selected to propose new blocks, the nodes in the network use the Verifiable Random Function to determine which accounts have been chosen to have a "soft vote." This process involves filtering the proposals to confirm the block, and votes are used to select the proposed block with the lowest VRFCertify value, which helps to ensure the security and integrity of the protocol.^[3][8]

Certify Vote

After the accounts have been selected to participate in the block proposal process and the proposed block with the lowest VRFCertify value has been chosen, a new committee is selected to check the block proposal. Similar to the previous stage, each node goes through its managing accounts to participate in the voting process. When a quorum is reached, the node creates the new block and writes it to the ledger. This helps to ensure that the new block is valid and meets the requirements of the Algorand protocol.^[3][8]

State Proofs

In September 2022, Algorand announced a protocol upgrade that introduced State Proofs, which allow for trustless cross-chain communication, an increase in performance from 1,200 to 6,000 transactions per second, and new tools to facilitate development and introduce on-chain randomness capabilities for dApps. These features establish Algorand as a leading Layer-1 blockchain for real-world Web3 applications, including sports, music, central bank digital currencies, and decentralized finance. State Proofs are an interoperability standard that enables secure connections between blockchains and external systems without requiring trust in intermediaries.^[13]

Use Case

In December 2022, Algorand announced that their ecosystem would be utilized to support bank and insurance guarantee platforms in Italy. A digital securities platform, backed by blockchain technology, is being developed by the Catholic University of Milan's Research Center on Technologies, Innovation, and Finance. The project is part of Italy's National Recovery and Resilience Plan, which aims to stimulate economic recovery in the country following the COVID-19 crisis.^[15]

ALGO

ALGO is the cryptocurrency that is used on the Algorand blockchain. It was launched in June 2019, along with the mainnet for Algorand. The initial coin offering for ALGO took place in June 2019 at a price of $2.4 per token. ALGO is used to facilitate transactions and reward users who participate in the operation of the Algorand network.^[4]

Tokenomics

At the inception of the Algorand protocol, 10 billion ALGO tokens were created. These tokens are distributed through various channels, including community incentives and support for the ecosystem. The Algorand Foundation holds a portion of the total ALGO supply, with 1,757.26 million allocated for community and governance rewards, 1,176.05 million for ecosystem support, and 363 million for the foundation endowment. The distribution of ALGO tokens is designed to support the growth and development of the Algorand network.^[5]

Sustainability

Algorand claims to be the "world's most powerful and sustainable blockchain." According to its founder, the protocol was designed with a focus on sustainability from the outset, and through partnerships with organizations focused on sustainability, such as ClimateTrade, Algorand is committed to being a sustainable blockchain. By prioritizing sustainability in its design and partnerships, the protocol aims to contribute to the broader goal of promoting environmentally-friendly technology.^[6]

Algorand developed a public blockchain that runs on a version of proof-of-stake, which drives electricity consumption to almost zero…on a fundamental level - Silvio Micali

Algorand Foundation

The Algorand Foundation is a non-profit organization established to support the development and adoption of the Algorand blockchain, including protocol governance, token dynamics, and open-source development within the Algorand ecosystem. It collaborates with the ecosystem on creating projects and initiatives that help drive the adoption of the Algorand blockchain.^[12]

The foundation also supports the education of developers in universities and other educational settings through its Global University Program, which includes institutions like MIT and UC Berkeley. The foundation also sponsors blockchain events, hackathons, educational classes, and certifications. In 2020, the Algorand Foundation launched two accelerator programs, the Algorand Asia Accelerator, and the Algorand Europe Accelerator, to support ongoing projects and developers interested in building on the Algorand blockchain. These programs provide comprehensive support, from strategy formulation to launch, to help projects succeed and contribute to the growth of the Algorand ecosystem.^[14]

The Algorand Foundation Board is composed by Kieron Guilfoyle, Pino Persiano, and Staci Warden. Some of their featured projects include Folks Finance, Algofi, Gard, Tinyman, Humble Defi, Pact, Lofty AI, Algodex, Nfdomains, and C3.^[12]

Team

The team behind Algorand consists of researchers, mathematicians, cryptographers, economists, and leaders from global businesses. The founder, Silvio Micali, is a renowned figure in the field of cryptography, having received the Turing Award and the Godel Prize.^[7]

Other important members include:

• W. Sean Ford, Interim CEO
• Paul Riegle, CPO
• Jing Chen, Head of Theory Research and Chief Scientist
• Yossi Gilad, Head of Systems Research and Chief Technology Officer
• Gary Malouf, Head of Engineering
• Regina O’Brien, Head of People and Talent
• Chris Peikert, Head of Cryptography
• Michele Quintaglie, CMO
• Anne T. Warner, General Counsel

Decipher Conference

Decipher Conference is an annual gathering organized by Algorand where builders, founders, investors, and strategists reunite to discuss the protocol’s future. During the event, participants can engage in conversations, networking, and hands-on sessions exploring the ecosystem. ^[9]

Decipher 2024 is set to take place in Barcelona, in June 2024. ^[16]

Decipher 2021

The first edition took place in Miami, Florida, from November 29 to 30, 2021. Some of the speakers included Michael Arrington, the Founder of Arrington Capital, Meltem Demiors, the Chief Strategy Officer of CoinShares, Antony Scaramucci, the Founder and Managing Partner of SkyBridge Capital, and Perianne Boring, the Founder, and President of the Chamber of Digital Commerce. The INNOVATE Global Hackathon took place during the event, where participants could participate in one of the following categories: Open Track, the Future of Finance (FutureFi) Track, and the Digital Art / Collectibles Track. Prices over $100,000 worth were given.^[10]

Decipher 2022

Decipher 2022, held in Dubai from November 28 to 30, attracted over 2,000 attendees, an increase from the previous year. Several significant announcements were made at the conference, including the introduction of Algorand Ventures by the Algorand Foundation, which will provide funding and support to those building and investing in the Algorand ecosystem. St. Vincent De Paul Disaster Services also unveiled Kokua, a disaster relief platform built on the Algorand blockchain. Additionally, the Algorand Foundation announced its support for USDC on the Binance exchange and the appointment of Anil Kakani as the India Country Head to lead the AlgoBharat initiative.^[11]

2024 Roadmap

Algorand is implementing incentives for achieving consensus and transitioning to a peer-to-peer (P2P) gossip network. These changes are designed to enhance user control and increase the autonomy of the blockchain network. ^[17]

The Sicilian Defense: Dynamic round times

With this upgrade, block times are expected to average less than three seconds. The flexibility of dynamic round times will benefit builders by improving the efficiency and scalability of the Algorand network. End-users will experience quicker confirmations, similar to point-of-sale transaction speeds, resulting in seamless interactions with the blockchain. ^[17]

This protocol upgrade was approved by the Algorand network through a vote on January 10th and was implemented on January 17th. ^[17]

The Ruy Lopez: AlgoKit 2.0

AlgoKit 2.0 offers a comprehensive toolset designed to facilitate the building, testing, and deployment processes on Algorand. It includes a straightforward ten-minute onboarding process for users. Additional upgrades are planned for AlgoKit throughout 2024, with enhancements to localnet and sandbox to provide a more enriched experimenting environment. The introduction of Python unit testing aims to assist users in writing secure code, while a visual debugger tool will aid in identifying and resolving issues efficiently. ^[17]

The Queen’s Gambit: Non-archival relays

As the network grows, relay nodes have to manage the increasing energy requirements of both transmitting data efficiently and storing the full ledger history. Transitioning a higher proportion of relays to non-archival status aims to make the network more efficient and environmentally friendly, while also reducing the costs associated with running non-archival relays. While these relays will continue to function, they will serve as a value-added service, contributing to a more streamlined Algorand ecosystem. ^[17]

The Réti: Consensus incentivization

Algorand will implement direct incentives for participation by adjusting the L1 behavior to reward block producers. This adjustment is anticipated to increase the staking of Algo and the number of consensus nodes, leading to improved network security and decentralization. ^[17]

The Capablanca Variation: P2P gossip network

Algorand is transitioning away from the relay structure to a peer-to-peer (P2P) gossip network, similar to the operation of Bitcoin and many other cryptocurrency networks. In this model, data flows directly between consensus nodes, reducing reliance on relay nodes and promoting decentralization. ^[17]