All right! That was a fun Sunday afternoon! I went to the meetup in Amsterdam on the 2nd of June and got to know some people behind the project. Always great to see faces and hear Russ from Algorand passionately speak about the project.
This article might turn into a series of articles, so I am going to give you a quick summary of why Algorand has been for quite some time on my radar and for good reason:
- Highly academic team, led by Turing Award Winner Silvio Micali and backed by numerous scientists and all-star professionals.
- No ERC-20 nonsense. For those who know me, I really dislike it when projects distribute a crappy IOU’s that are solely meant for speculation.
- Insane amount of tools for developers.
- No ICO or IEO. It will distribute initially through an on-chain Dutch auction with a 90% refund up to a year.
- Promising Testnet with a lot of codebase accessible. Mainnet this month, along with the first auction (19th of June).
- No forks. No scam shenanigans or undecided consensus on blocks or updates.
- Fair distribution plus incentive schemes.
First jumping a bit back for those who are newer to the blockchain space and this innovative technology.
A blockchain is a means for a tamperproof, transparent and trustworthy public ledger or a distributed database. This is because it's possible for everyone to propose a block and whatever is written in the proposed and accepted block is written once and can be read only — it can't be altered afterward.
There are different methods to establishing this blockchain promise — which holds the key to more efficient and inclusive finance as well as limitless other application such as insurance, elections, Non-Fungible Tokens (for assets), Zero-Proof Knowledge identification.
This means it can provide access for the unbanked(2.2 BN), re-establish trust in financial institutions and solve the inequitable flow of information versus value.
So far the existing platforms haven't been delivering that promise. This is mostly because no one has been able to provable solve the blockchain trilemma. All we have seen so far only represent two out of three of this trilemma — security, scalability, and decentralization.
For blockchain to mature and move out of the experimental sphere; to be effectively used, this trilemma needs to be solved.
Bitcoin, hailed by many as the most secure and decentralized is in fact controlled by 2–3 mining pools and has a 60 minute confirmation time. This means that to be sure your transaction went through, an hour is a bare minimum to have your transaction confirmed. Then there’s the entire debacle on a theoretical possibility of rewinding the blockchain transaction history and thus undoing certain transactions. This was the case and discussed over a $40 million exchange hack. If that exchange would have pulled off a re-org on the Bitcoin chain, the entire disposition of sound, decentralized money would vanish in thin air (write once and read-only, remember?). Besides that, it can’t handle the volume needed without additional layered solutions.
In a nutshell: Bitcoin is slow, expensive and centralised.
Other projects haven’t fared any better, so I am sticking to bitcoin for now.
Other bars to adoption are the size of the market and the lack of liquidity. If there’s no liquidity, Bitcoin can range around $40 per Bitcoin. If there is a liquidity surge, it can jump up to a $1000 in an hour. Fun if you see your holdings increase with 15% in an hour, but it really shows there’s a lack of control and stability. So far speculation is mostly the use case for bitcoin.
Another key element for adoption is the difficulty for developers to build on the blockchain. Smart contracts can possibly be a great innovation and asset to the promise, but so far developers have struggled and flaws have been exploited that resulted in million dollars hacks. To overcome this problem, more and more projects have started to provide the necessary tools for developers. Algorand certainly provides support in this regard.
Algorand demonstrates visionary leadership on how to steer this transformative industry towards adoption, but how do they do it?
First of all, in blockchain, because of the permissionless nature, one has to take in consideration how actors will behave. A blockchain ecosystem is very much like a society.
There is no utopia and there is no society without bad actors. What most blockchain projects propose is a punishment in relation to the offense. Examples:
- If you try to 51% attack Bitcoin, you are better off mining Bitcoin. Meaning you will net yourself a negative if you attack.
- If you are a renegade Block Producer in EOS, you will be expelled and lose your position and rewards.
- In traditional PoS, if you stake your money you get a say. This leads to a) centralization, or b) a situation where losing your stake can be the increasingly attractive cost of doing business as soon as the rewards become exponentially higher.
This method of punishment doesn’t work. Even in countries where hands are chopped off and people hanged for smuggling drugs, goods are still stolen and drugs are still smuggled. This is effectively proven when looking at a lot of minor PoW chains, besides Bitcoin, Ethereum and Litecoin, PoW chains are getting 51% attacked on a regular basis. Next to that, again, we got an exchange proposing a re-org, because they were not happy with the way the network worked against their interest. So even if you don't have the dominant algorithm on your chain, you might as well stop and start from scratch. And that’s what Algorand did. They didn't fork an existing chain. The went back to the drawing board.
The best way to prevent to have anything stolen is to make sure nothing can be taken. The best way to keep everyone on board is to incentivize everyone. The best way to scale is to build in on-chain, from the get-go.
No special favors for big mining facilities. No favors for those with big pockets. To make this work, everyone can participate. No special treatment. No one is excluded. Even the bad actors. Let them try.
What it really comes down to is how a block is produced, no matter the consensus algorithm. We want to create blocks in succession, from point A to B and never backward, immutable and fast. We can't establish this with PoW, because if the difficulty is set too high (fewer forks) we waste too much energy and have to wait too long, and if the block time is lowered (less difficulty), forks will make it impossible to keep track of the longest chain (Nakamoto consensus) or be 51% attacked sooner or later. We can't establish this with a dPOS, because delegates can be A) malevolent or B) become targets when the blockchain space matures. We can't establish this with bonded PoS, because one can simply let the bonded portion be taken and get away with whatever misdeeds are more profitable to the bad actor (of course you can take my million dollars if I can double spend 10 instead, or bankrupt my competitor by preventing important business transactions).
What Algorand did is consider that not all participants are honest, and made it so those dishonest actors can participate, because it's pointless to try and attack the chain — as long as the majority is in honest hands. The consensus protocol is called Pure-Proof-of-Stake, based on Byzantine Agreement. The influence of users on the new block is proportional to the staked Algos (the chain's native currency). Online (participating) users are randomly selected to both propose and vote on blocks.
There is no telling who will be selected and there is no way knowing who will vote on the next block. Blocks are proposed in 1 second and added to the chain. The same process applies to protocol updates. I will most likely write up an in-depth article on the inner working of the consensus and scalability when I have done more research on the matter.
To participate in this process, anyone can join. No special hardware is needed, an old laptop is sufficient.
Algorand is creating a cryptocurrency and a platform. It's not only building a currency that can compete with legacy fiat currencies and transaction systems, but it will also provide the basis for all the necessities required for the new digital economy that technologists envision. Better and safer smart contracts — which are much needed if we go by the exploits seen so far (Ethereum DAO the most infamous).
It’s good to see other projects joining as partners for the ecosystem, like the much anticipated TOP Network (also mainnet coming in June), with existing apps that will migrate to the TOP Network ecosystem. I already wrote some articles on TOP Network and am looking very much forward to the successful launch of this real-world business blockchain project. Another interesting project coming up is Otoy, a graphics rendering platform that couldn’t find any other existing platform to launch on, but were amazed by Algorand’s possibilities and unseen technology.
For now, I am going to leave it at this but will write up how the auction went, it starts at $10 and has a reserve price of $0.10. Growing up in the Netherlands, and being at Dutch auctions, I hope they will follow the same pattern and not sell out at $10!
(Update: there are two new medium posts on the tokenmetrics and other related FAQ that are absolutely worth checking out!)
Looking forward in the future to writing about setting up a node and to use the many tools already available on Algorand. Until then!