Algorand

  • Cryptoasset Report
  • January 4, 2019

Algorand aims to provide a scalable cryptocurrency with low latency via a consensus mechanism electing leaders for each block via a verifiably random function.

Overview

Algorand seeks to achieve transaction finality with latency on the order of a minute whilst scaling to millions of users. One of Algorand’s research papers investigates 1,000 EC2 virtual machines (Amazon’s cloud VMs) supporting a simulation of 500,000 users resulting in transactions being confirmed in under a minute and a throughput larger than that of the Bitcoin network by a factor of 125. Algorand was founded by esteemed cryptographer (RSA prize) and computer scientist (Turing Award) Silvio Micali. Silvio is also the co-inventor of zero-knowledge proofs. Algorand raised $62 million in a 2018 equity round, including from Union Square Ventures and Pillar, and another $60 million in a dutch auction of ALGO in 2019. Algorand’s ecosystem development is in part supported by Borderless Capital, a financial institution that invests in businesses leveraging the Algorand network while also supporting the adoption of the ALGO token as a means of payment. To this end, the institution raised $200 million in August 2019 for its Algo VC Fund. Algorand has had a testnet running since July 2018 and launched its mainnet in June 2019.

Protocol Details

The Algorand network is designed to utilize a fast Byzantine Agreement (BA) protocol whereby nodes seek agreement on a value proposed by a leader, rather than trying to both choose a value and reach agreement. Weighting user’s influence in the consensus process in proportion to their token holdings makes Sybil attacks expensive whilst allowing the system to be open beyond a limited set of trusted servers. Verifiable random functions (VRFs) allow leaders of block production to be selected securely and privately in the absence of interaction (messages sent back and forth between parties). Algorand is partition resilient with a 2/3rd honest majority of nodes, which is the theoretical optimum for such consensus mechanisms. Algorand introduces secret self-selection whereby users locally perform a cryptographic process that may or may not afford them committee member status. Since Algorand does not have a fixed committee, launching a denial of service attack against the network is a highly complex task since it involves figuring out who the committee members are for each block. Algorand utilizes a player replaceability model; meaning that once a user participating in Algorand’s consensus mechanism has propagated a message they can be replaced by another to reduce the risk of their being specifically targeted. In November 2019, the network upgraded to Algorand 2.0 that introduced smart contracts with the addition of the deliberately Turing-incomplete Transaction Execution Approval Language (TEAL), tokenization and atomic transfers.

Asset Details

The ALGO token functions as a general-purpose cryptocurrency and means of payment. The long term circulating supply is projected to be 10 billion, with 3 billion ALGO slated to be sold over the next 5 years in a series of public Dutch auctions; the first auction was completed through CoinList in June 2019 and raised $60 million. A notable aspect about the Algorand auctions is the refund mechanism: depending on the clearing price, buyers are entitled to a partial refund after a 1 year holding period, effectively a put option. If the price is above $1, holders are entitled to a 90% refund. These funds are escrowed in USD through the Algorand Foundation. More information about the Algorand auctions can be found here.