When the renowned San Francisco-based crypto exchange Coinbase listed Algorand’s cryptocurrency ALGO in July 2020, its price soared to more than 30% and 400% in just 24 hours, in daily average price and volume, respectively.
And although it has had its ups and downs, in recent months, the cryptocurrency has managed to position itself among the top 20 most popular cryptos in the world, with a market capitalization that already exceeds $12 billion.
But what makes Algorand unique and is Algorand halal?
What makes Algorand unique is its Pure Proof of Stake (PPoS) protocol, its non-forkable blockchain, block transactions that are validated in less than 5 seconds, and being able to stake on the blockchain with just 1 ALGO token. Yes, just one! And yes, Algorand is halal and has sharia approval from a sharia governing body.
So, Algorand isn’t just another third-generation blockchain.
It turns out that Algorand is a blockchain project that promotes the honesty of its users so that they are the ones who decide what functions and what price the coin will have, and it has been developed by Silvio Micali, winner of the Turing award.
Today, you’ll learn what Algorand is, what the project is all about, what are its goals, features, its acceptance in the Islamic world, and its future prospects. Algorand is a really interesting project.
What is Algorand?
The Algorand project, which is currently based in Boston, is a blockchain project that launched its testnet to the general public on April 16, 2019, and also launched its cryptocurrency ALGO for the first time at the end of June that same year while simultaneously launching its mainnet.
As already mentioned, this blockchain was developed by Silvio Micali, winner of the Turing Award, an acknowledgment given each year to those who have contributed significantly to the field of computer science. Micali is also a teacher at the Massachusetts Institute of Technology (MIT) and a co-creator of the zero-knowledge proof concept.
The developers see Algorand as the “future of finance”, and they are striving to solve the three main problems facing blockchains today:
And it looks like they may succeed!
Algorand has a consensus mechanism called “Pure Proof of Stake” or PPoS that allows the validation of transactions by utilizing a technology called Verifiable Random Function (VRF). VRF randomly selects committees – committees are people who are holding ALGO in a non-custodial wallet* on the blockchain – to verify transactions in a manner where the members of the committee have no knowledge of each other. This randomized selection repeats itself every time a new transaction must be validated and this mechanism also provides solid security of the blockchain.
*If you are holding ALGO in a custodial wallet then there may be some differences in how rewards are earned when validating transactions. You must check with the custodian who manages the wallet.
Algorand wants to make it possible for any user who has a minimum amount of ALGO to have the right to participate in the blockchain consensus. A truly democratic and decentralized system.
In addition, Algorand is a “permissionless” type blockchain, which aims to create a transparent system in which all its users can achieve success through their decentralized projects and applications.
The above results in a system that allows solving the aforementioned security, scalability, and decentralization problems, while providing great speed, transaction optimization, and low costs, also avoiding the generation of any unnecessary forks – it’s non-forkable. Yes, you cannot fork the blockchain.
What makes Algorand unique
The backbone of Algorand’s scalability and speed lies precisely in its PPoS protocol. This protocol derived from the well-known Proof of Stake (PoS) used by other cryptocurrencies such as Cardano – and soon Ethreum 2.0 – has the objective of allowing greater resistance to Byzantine failures, while providing great speed in the generation and validation of blocks within the network.
In parallel, PPoS can support a large number of users concurrently and scale seamlessly as the number of validators on the network increases. The result of this is that Algorand is capable of handling around 2,000 transactions per second (tps) on its network without problems.
In fact, the results obtained in some tests show how far this network can go. For example, the highest number of transactions recorded on the network occurred on March 4, 2021, when the blockchain was able to handle almost 40 million transactions in a single day, an average of 451 tps with a peak of 1,153 tps.
If we add to this a block generation time of 4 seconds on average, this leaves us one of the fastest blockchains today.
As already mentioned, any user who holds ALGO in their wallet can participate in the PPoS system; PPoS removes the barrier of having to do forced staking as it’s done today since there is no requirement to leave your ALGO staked for any period of time.
Remember that in PoS it’s necessary to own and block a specific amount of tokens for a specific amount of time to participate in the process of selection, generation, and validation of blocks and transactions.
On the contrary, PPoS allows to diversify and decentralize the block generation process to a greater extent, making this mechanism a much more decentralized system than PoS – something more similar to Bitcoin’s Proof of Work (PoW).
Another additional advantage that this brings is that PPoS eliminates the need for its users to expose their spending keys to reach consensus.
Again, any user who wishes to participate in the protocol to validate transactions and earn rewards can simply create a wallet, put ALGO in their wallet, and they can stake and earn rewards easily. Here is a link to Algorand’s official wallet.
Other key features of Algorand
The main feature of the Algorand project is its public and open-source blockchain. The PPoS consensus mechanism promotes the performance, security, and openness of a decentralized network, making Algorand a project that is able to compete with well-known financial and payment brands. But in addition to this, the development team points out the following characteristics as key properties of the Algorand protocol:
Low calculation requirements
Since the blockchain is PPoS, mining farms consuming large amounts of energy aren’t necessary, so it has a very low environmental impact.
The entire community agrees to the next block and confirms transactions in mere seconds allowing the blockchain to scale easily to serve many users.
Token holders can delegate their assets in order to participate in the network consensus and they can do so with just one ALGO token.
Minimal bifurcation probability
As soon as a new block appears, users can be sure it’s valid. Even if the network is temporarily partitioned, there won’t be divergent views of any confirmed transaction – which means, no forked blockchain insha’Allah (God willing).
The network is not controlled by a few groups of miners or validators, as the validators are randomly selected.
Token holders can propose changes to the protocols and agree on which direction the network evolves.
Scientific research and influential partners
Algorand has the collaboration of more than 500 organizations that are already developing a whole series of DApps and financial products to build a robust ecosystem.
Total token distribution
It has a total supply of 10 billion ALGO tokens, of which there are already 6 billion in circulation.
Algorand will favor the implementation of stablecoins within its network as a way to create a bridge between traditional finance and DeFi. In this sense, USDC will be the first stablecoin to make use of Algorand’s scalability and speed features to process its transactions.
The goal is DeFi
In addition to the features that I’ve already mentioned, at the end of 2019, the team behind the project proposed two new features to be implemented on layer 1 of the platform:
- The generation of fungible tokens
- The execution of multiparty atomic transfers (AT)
These features become part of the consensus protocol but maintain the original features of the blockchain, exclusive to Algorand. These solutions are essential for the development of applications in the DeFi environment and the tokenization of financial assets, such as derivatives, options, swaps, and other similar securities.
As an example of this, we have the so-called “Dutch Auctions” with which Algorand generated its token distribution. Such auctions were held onchain and on a global scale thanks to this new paradigm. In addition to this, the development team is carrying out a complementary project called “FutureFi” or Future Finance, which is nothing more than the maximization of DeFi properties.
The objective is to create a second onchain layer that allows scaling the capacities for the development and execution of smart contracts on the network, as well as a decentralized data storage system, among other features.
It’s noteworthy that all this work is under construction and is being supported by several recognized companies, universities, and communities that are part of the crypto world.
Aside from DeFi, Algorand is also positioning itself to be a world leader in central bank digital currency (CBDC) development and management for nations worldwide.
Algorand central bank digital currency
Aside from its features that make it a solid blockchain, Algorand is actively seeking out partnerships with governments seeking to develop their own central bank digital currency (CBDC). Outside of China, The Marshall Islands is also a country that has successfully deployed a CBDC for their nation called SOV and the SOV CBDC is built on the Algorand blockchain.
This, in my opinion, is a very important and strategic move made by the Algorand Foundation. They are positioning themselves as the go-to blockchain for government-issued CBDCs while also running their native decentralized ALGO crypto.
There is no doubt that their blockchain’s speed of processing transactions, ability to scale in order to manage a heavy volume of users, and security by having a non-forkable blockchain make it a very attractive blockchain for governments seeking to deploy their own CBDC and it should also prove beneficial to holders of ALGO.
Is Algorand halal?
Yes, Algorand is halal. Recently, Algorand has been certified as a Sharia-compliant project. This certification has been granted by the Bahrain-based Shariya Review Bureau (SRB) and opens the possibility for Algorand to enter a market of more than $70B made up of investors who follow Islamic law.
The reason behind this is that Algorand seeks to be an inclusive project in which everyone can participate, regardless of their beliefs or religion.
Obtaining this type of certification is not within the reach of many similar blockchain projects, since for this it is necessary that the aforementioned project is free of any type of financing or profit from activities prohibited by Islamic law, such as accrued interest on loans, gambling, alcohol, among others.
Algorand is seeking to have every DApp built on the blockchain reviewed for sharia compliance. This is no small task.
Most blockchain projects focus on creating artificial incentives that help regulate user behavior. Instead, Algorand gives users the ability to decide for themselves what to do with the cryptocurrency and what its value will be.
The above statement should give us a clue as to what the future may hold for Algorand: its success will depend primarily on its community.
On the other hand, although the performance of ALGO has not been the best in recent months – especially when we compare it with other similar projects, such as Polkadot – many experts have positive future predictions for this project.
Speaking in numbers, at the time of publishing this blog post, ALGO has managed to climb to position itself among the 20 largest cryptocurrencies by market capitalization, already above $11B and with a fully diluted market of $18B and a current price slightly more than $2.
Algorand is another one of those big next-gen blockchain projects that promise big changes to the ecosystem – all for the better – and the team behind the project is working hard to reward investor loyalty.
This has been reflected in the improvements added in Algorand 2.0 and is one of the reasons why the project has managed to climb positions until it is among the hottest crypto assets of the moment.
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