What is Algorand (Algo)? Why is Algorand a Blockchain to Watch?

Algorand is a blockchain-based decentralized network designed to fix the scalability issues of first and second-generation blockchain networks while maintaining the highest standards of decentralization. The network is dedicated to supporting the adoption of cryptocurrencies while providing fast transaction speeds at a reasonable price.

Its Pure Proof of Stake Consensus Protocol makes it a leading choice for most crypto investors.

What is Algorand (Algo)?

Fast speed, better security, and improved decentralization are the three core concepts of this decentralized network. This open-source blockchain network doesn’t only support transactions between users but also allows them to create smart contracts on its platform.

Furthermore, the developers can also build decentralized apps (Dapps) and decentralized finance (Defi) applications on this network. The programmers can also take advantage of Algorand Standard Asset (ASA) to create their own tokens.

Algorand vs Ethereum

Algorand is claimed to be the Ethereum killer because it provides fast transaction speed with a very low transaction fee. Algorand can process 1,300 transactions per second and the team is working on achieving a maximum limit of 3,000 transactions per second. On the contrary, Ethereum can process only 12-15 transactions per second.

However, Ethereum will be able to process 10,000 transactions per second once the Ethereum 2.0 is launched. Thus, Ethereum has the potential to beat Algorand in the future. The higher gas fee is also a bigger problem on Ethereum. Ethereum has a bigger userbase as compared to Algorand because it’s the leading blockchain in this category.

However, many users have now migrated to Algorand because it has a very low gas fee. And the users don’t have to wait for their transactions to be processed because the process completes within a few seconds.

Algorand Brief History

Silvio Micali, the MIT professor and cryptography pioneer, created the Algorand in 2017 and the project was officially launched in June 2019. Algorand Foundation is a Singapore-based nonprofit organization responsible for fundraising and further development of the project. The foundation was launched in 2019 and it has a significant role in the governance and research of this project.

The Algorand Foundation funds most of its activities through the ALGO token because it’s one of the biggest holders of ALGO tokens. However, the private company Algorand Inc. manages the technical development work within the network.

How Does Algorand Work?

Algorand uses a Pure Proof of Stake consensus protocol to process hundreds of transactions quickly and anonymously. The problem with the standard Proof-of-stake consensus mechanism is that it’s only limited to the validators who have staked a large amount of ALGO tokens.

Similarly, the Proof-of-Work consensus mechanism is only suitable for those who have large mining pools. Algorand’s Pure Proof of Stake (PPoS) consensus protocol works a bit differently. It randomly chooses the validators from a group of people who have staked their ALGO tokens.

Unlike the standard PoS consensus mechanism, Algorand doesn’t require a minimum stake. It means anyone can become a validator by locking their ALGO tokens in a specified wallet. Thus, it provides better decentralization as compared to standard PoS and DPoS protocols because more users participate in transaction processing.

Proposal Step

The users generate a participation key by staking their ALGO tokens. Thus, they start operating the participation nodes. These nodes can communicate with each other through Algorand relay nodes. The network chooses the block proposers using a Verifiable Random Function (VRF).

The identity of the validators is kept secret until a new block is proposed. However, the proposers can prove their legitimacy by demonstrating their VRF output.

Soft Vote Stage

After the submission of the block, the network randomly selects the participation nodes for the soft vote committee. The voting power is determined based on the amount of ALGO tokens a node operator has staked. The proposed block that has the lowest VRF hash is selected through the votes. Thus, the hackers can’t manipulate the process as it’s impossible to predict the lowest VRF hash.

Certify Vote Stage

In this stage, the integrity of the transaction is verified to prevent the double-spending problem. The block is added to the public ledger after the committee’s certification. Otherwise, the block is rejected and the network selects a new block following the same procedure. However, malicious users aren’t penalized in a PPoS consensus mechanism which is a controversial aspect of this protocol.

What Are the Use Cases of ALGO Token?

Algo is the native token of the Algorand network that is used for several purposes within the network. With a circulating supply of 6.7 billion tokens, ALGO has a market cap of $4.5 billion. The remaining 3.3 billion tokens will be released by 2030 because it has a total supply of 10 billion tokens.

Transaction Fee – The ALGO token is used to pay the transaction fee within the platform. The users need to pay $0.0014 worth of ALGO tokens per transaction.

Staking – The users can become validators by staking their ALGO tokens to earn rewards for validating transactions.

Governance – The users can also participate in the network’s governance depending on the amount of Algo tokens they hold. They can vote for several proposals and they can also suggest new proposals for the network’s growth.


Algorand is one of the leading Ethereum competitors playing an essential role in the mass adoption of cryptocurrencies. It provides a faster and more affordable transaction processing system while providing support for smart contracts and decentralized apps. It provides the highest standards of decentralization with its Pure Proof of Stake consensus protocol. If you need more information about how Algorand works, feel free to leave a comment below.

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