The objective of this introductory chapter is to explain how the pure proof of stake is making Algorand decentralized.
What is Decentralization?
Decentralization means the division of a group of functions and activities into relatively autonomous units with overall authority and responsibility for their operation delegate to the time of the cacti unit.’—Earl. P. Strong
In other words, Decentralization can be viewed as an extension of delegation.
Let us take a look at some of the advantages of Decentralization as a whole:
Quick Decision Making
Better Control and Supervision
Quick Decision Making: Decentralization brings the decision-making process closer to the scene of action. This leads to quicker decision-making of lower-level since decisions do not have to be referred up through the hierarchy.
Executive Development: When the authority is decentralized, executives in the organization will get the opportunity to develop their talents by taking initiative which will also make them ready for managerial roles. The growth of the company greatly depends on talented executives.
Better Control and Supervision: Decentralization ensures better control and supervision as the subordinates at the lowest levels will have the authority to make independent decisions. As a result, they have a thorough knowledge of every assignment under their control and are in a position to make amendments and take corrective action.
What is Proof of Stake?
The proof of stake consensus algorithm was introduced back in 2011 on the Bitcointalk forum to solve the problems of the current most popular algorithm in use, “Proof of work.”
While they both share the same goal in reaching consensus in the Blockchain, The process of reaching the goal was quite different.
Proof of stake is a type of consensus algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. In PoS-based cryptocurrencies, the creator of the next block is chosen via various combinations of random selection and wealth or age.
How Does it work?
The proof of stake algorithm uses a pseudo-random electoral process to select a node to be the validator of the next block based on a combination of factors that could include:
History of Pure Proof of Stake
The Proof of Stake concept was originally pioneered by Sunny King and Scott Nadal in the white paper for Peercoin. While the credit for the overall idea absolutely belongs to them, Peercoin was a hybrid consensus, using a combination of Proof of Work and Proof of Stake.
The first implementation of a Permissionless, Pure Proof of Stake consensus was with Algorand, which launched its main net in June 2019.
Algorand, Inc. is a technology company founded by cryptography pioneer, Turing award winner and MIT professor, Silvio Micali. He designed the Algorand platform with an internationally recognized team of researchers, mathematicians, cryptographers, and economists—from first principles—to guarantee true decentralization, scale and security.
What is Algorand(ALGO)
Algorand is a public blockchain and protocol that aims to deliver decentralization, scale, and security for all participants. Its native currency is the ALGO. Algorand uses a permissionless, pure proof-of-stake protocol: all users who hold ALGOs are automatically eligible to participate in all functionalities of the protocol, including participating in consensus by proposing and voting on blocks, in proportion to their stake (how much ALGO they have).
What is Algorand used for?
The public version of the Algorand blockchain is primarily designed to enable other developers to create new kinds of applications fueled by cryptocurrency.
The platform has been used in real estate, copyright, microfinance, and more.
Algorand aims to solve the three main problems faced by blockchains today, also known as the blockchain trilemma: security, scalability, and decentralization.
In Algorand’s consensus algorithm, called Pure PoS, the network ties its security to the honesty of the majority.
Why Build on Algorand?
Transaction latency under 5 seconds optimizes the end-user experience
1,000 transactions per second throughput offer a point-of-sale speed that scales billions of transactions with ease
The Algorand transactions finalize immediately
The Algorand blockchain never forks, which means all transactions are final
It is fully Decentralized: Decentralization by design means there is no de facto central authority
Low transaction costs (negligible transaction fees 0.001 Algo) represent significant savings over time
A true technology partner: An accessible team of experts are enabling developers across the world to build on Algorand
How does Algorand run consensus?
Algorand, as a truly decentralized consensus mechanism solves many issues with Bitcoin such as:
Wastefulness - electricity usage
Concentration of power - only 3 major pools
Known Location - mining power can be tracked and seen
Scalability - Bitcoin is 7 tx/sec
Ambiguity - forks/which is chain true
Security - networks that are valuable will be targeted
Algorand is a new consensus mechanism that with Byzantine Agreement Cryptographic sortition, the main assumption is that two thirds of players in the network are honest and has two properties:
Agreement - honest and bad guys agree on the same value
Consistency - if they start with the same value, they will agree on THAT value
One user is magically or randomly selected through the algorithm which proposes a new block.
Multiple users selected, only the highest ranked user’s block is kept
Probability weighted on how much algo they have
One thousand people are chosen with cryptographic sortition
Digital sign and propagate the signature
Only two-third majority need to be honest for a block to be approved
Committee Selection - Cryptographic Sortition
Cyptographic lottery is run
Users prove they won with computation run on their private key
Winning proof is propagated and plays the Byzantine Agreement Protocol
Probability of winning is proportional to the amount of money you have available and total amount of money in the network
A million algos in one key or a million keys with one in each are the same
Trivial Computation - compare two integers, a signing a message
True decentralization - single class of users
Finality of payments - P[forks] < 10^-18. No Forking
Scaling - 125x tx output of Bitcoin while having 50,000 users. Scaling is really good
Security - Adversaries can corrupt any player but <n/3 overall
Cost efficient - low/negligible tx fees
Fast - 22 sec for up to 50,000 users
No incentives for choosing the next block
Incentives invite exploitation
Adversaries can control more than ⅓ of Algorand’s money supply
Separate committee for each step making it hard to know which users to target over the network
Assumption of two-thirds of users must be honest
Society would not exist otherwise
Byzantine algorithms are notoriously very slow
Expected handful of steps
Single and short message per step
Algorand and Permissionless, Pure Proof of Stake
Algorand positions itself in the Proof of Stake camp and enforces the Pure Proof of Stake. By this, the only factor affecting the choice of the next leader (block creator) is the number of Algorand tokens a participant holds. That keeps the benefits of speed but also keeps full decentralization. So, how do they achieve this?
The solution is clever and based on cryptographic constructions (not surprising given the pedigree of its founders). In Algorand lingo, it is called Sortition.
The blockchain grows one block at a time, and the process to propose and accept a new block is organized by rounds. In each round, a new block is proposed by a leader and voted upon by a committee that decides whether to accept or reject the proposal. Algorand wants to maintain the following properties:
each user in the network may be selected to the committee with probability equal to the fraction of total tokens it holds;
the protocol should enforce consensus as long as 2/3 of the tokens are held by honest users;
even if an adversary compromises a committee member after it votes, the adversaries should not be able to target committee members before they vote, nor be able to change their vote afterward
How the permissionless, pure proof of stake is making Algorand Decentralized
In Algorand, blocks are constructed into 2 phases through lotteries known as “cryptographic sortition” enabling fast finality, long gone would be the days where one would have to wait for 30+ confirmations and eventually several hours to ensure that a transaction really happened.
Proposal phase: a single token is randomly selected, and its owner proposes the next blocks. However, this proposer is only known to the whole network during the propagation phase: it is already too late to interfere. In Pure PoS, every token has the same power in being selected.
Voting round: a committee of owners of 1,000 random tokens is selected, approving the block proposed by the first user. As opposed to the fixed committee system in many Proof-of-Work or Proof-of-Stake blockchains, this random selection of the committee members makes the protocol extremely secure against adversary attacks: they simply don’t know who to target.
Having read from “How The Proof of Stake Works” and the points above, We can say that The proof of stake is making Algorand Decentralized from its randomization and speed.
Algorand uses a permissionless, pure proof-of-stake (PPoS) consensus protocol built on Byzantine agreement. This means the system can achieve consensus without a central authority and tolerate malicious users as long as a supermajority of the stake is in non-malicious hands. The users’ influence on the choice of a new block is proportional to their stake in the system (number of algos). Users are randomly and secretly selected to both propose blocks and vote on block proposals. All online users have the chance to be selected to propose and to vote. The likelihood that a user will be chosen is directly proportional to its stake.
The Algorand definition of pure PoS requires lots of properties using the term “true.”
“True decentralization” means a kind of decentralization that doesn’t have anything to do with the number of wallets a token owner holds.
“True security” means no subset of tokens can endanger the system or create a fork, which is irrelevant to previous PoS implementations.
Finally, “true scalability” refers to grand words such as inclusive participation, enterprise-level performance, and adoption. As a sentence, it makes little sense.
The Algorand definition wraps up by confirming that as it’s the only project that meets this new and very narrow definition, they can lay claim to being the first “permissionless pure” PoS blockchain.
Pure proof-of-stake means that for anyone wanting to participate in the Algorand network, they can signal that intent by flagging an account with algos as a participant. The chances of users being selected will be determined by the amount of algos they have in their account relative to all other accounts who have also signaled their intent to participate.
“Pure” means they are free to come and go as they please as their algos are not locked up or “bonded” for any period of time as in other proof-of-stake systems. Any user can turn off the light switch at any time with no penalty or fear of losing their stake.
Algorand is a firm believer in the permissionless, pure proof-of-stake approach.
As a consensus model, Proof of Stake has proven that it can withstand the test of time. Although several variations have emerged, the permissionless, pure Proof of Stake consensus, as it’s generally understood, continues to be adopted many years after it was first conceived.
While there’s no doubt that blockchain innovators will continue to iterate on the concept, Proof of Stake stands firm as a secure means of achieving decentralization.
Is Algorand the next generation Blockchain?
Algorand promises true decentralization, fast confirmations, and scalability. It's founder, Turing Award winne, Silvio Micali solved the Blockchain Trilemma providing a protocol that is secure, scalable and decentralized.