Algorand (Algo): The Future of Crypto | El Salvador Runs on Algorand Network

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El Salvador became the first country to adopt Bitcoin as legal money, prompting both excitement and skepticism in the media. But the really interesting fact is that El Salvador is creating their Blockchain infrastructure on top of the Algorand Network, which isn’t widely known.

And  I think El Salvador and eventually the US may use the Algorand Network to build their own digital infrastructure?

What is Algorand?

Algorand is a blockchain protocol created by MIT professor Silvio Micali and his team in 2017, and it seeks to remove the technical barriers that have undermined blockchain mainstream adoption.

Silvio Micali
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Specifically, Algorand focuses on the problems of Decentralization, Scaling, and Security. It’s important to note that Professor Micali is also the co-inventor of a number of breakthroughs in cryptography, such as:

  • Probabilistic Encryption
  • Zero-Knowledge Proofs
  • Verifiable Random Functions

In addition to other breakthroughs that are now integral parts of what we all hope will allow blockchain to continue to scale and evolve over time.

Professor Micali has also won the prestigious Turing Award in computer science, the Gödel Prize for theoretical computer science, and the RSA prize in cryptography. So if it’s not really apparent, we’re talking really, really big brains here.

So let’s look at the core protocol. The two primary consensus mechanisms for blockchains are Proof of Work and Proof of stake. As with all things, there are permutations of the general concept. 

In this case, Algorand uses a remixed version of proof of stake as a consensus mechanism, which they call pure Proof of stake, or Pure proof of stake (PPOs).

Pure proof of stake can tolerate an arbitrary number of malicious users as long as honest users on the protocol hold more than 2/3 of the total stake in the Algorand network.

Additionally, every user of the Algorand network can participate in proposing and voting on new blocks.

Pure Proof of Stake

So let’s look at pure proof of stake. What makes this protocol pure proof of stake is the fact that users are chosen to participate in the protocol based on the stake, the number of Algos, which are the tokens that they have.

The verifiable random function, the VRF, acts as a random number selector in the traditional lottery, and it serves to secretly pick which users participate in voting based on the number of Algo tokens that they hold without actually communicating with any users.

So the more Algo tokens in an online account, the better chance the account has of being elected to participate. So when a block is proposed in the blockchain, a committee of voters is selected to vote on the block proposal, and if a supermajority of votes is from the honest participants, then the block can be verified.

This consensus process requires three steps.

1. Propose

2. Soft Vote

3. Certify Vote


Network Structure

So next let’s take a look at the network structure. The Algorand network has two types of nodes to simultaneously optimize de-centralization and high transaction throughput. First, you have RelayNodes for highly efficient communication paths, and you have participation nodes to propose and vote on blocks.

Any user is free to register as a Relay or a Participation node. For example, several entities representing a wide array of technical, political, or other organizational backgrounds from many different countries or continents have already registered as both relay and participation nodes.

So relay nodes are run by a number of entities as discussed, and participation nodes, in contrast, are connected to much fewer nodes and they represent an address’ stake in the network and they hold the participation keys for proposing and voting on blocks within the consensus algorithm.

And as with the relay nodes, anyone can host a participation node. Unlike other blockchains, all transactions are final in Algorand because they cannot be forked. Forking means that the code cannot be copied and rebranded under a new name.

So once a block appears, users can rely on the transactions that it contains immediately, as they can be confident that the block will forever be a part of the chain, and in that way, it will be immutable.

So next, because blockchains are modernized recording systems that keep these immutable records, Algorand has created a technology it calls Vault. Vault is a blockchain compression technology that minimizes storage and facilities fees for people who want to join the Algorand network.

This is important because blockchains store and record transactions, meaning that over time, they will need to be able to store more and more worlds of transactions as the blockchain scales. And Vault seeks to tackle this storage problem by allowing data to be compressed.

Think about all the data centers around the world that are set up just to house and store data. As the world moves more and more onto the blockchain, this type of Vault technology will become more and more valuable because it supports scalability.


Algorand Layer One Technology

Algorand is a layer one protocol that offers a number of unique scaling features that allow it to separate itself from other blockchains. Let’s look at how it seeks to set itself apart. So first we have the AVM (Algorand virtual machine) and Smart Contracts

Algorand is a layer one protocol that offers a number of unique functions. There’s a ton of competition going on right now to take the lead from Ethereum as the top protocol for building applications on top of.

Note that I specifically left out Bitcoin, because it is more of a finished product that can serve as the world’s monetary base versus Ethereum and other projects that are more akin to 21st-century tech companies.

The AVM, the Algorand virtual machine, runs the deployment and execution of smart contracts on every node in the Algorandblockchain and contains a stacked engine that executes smart contracts and smart signatures, enabling developers to write their smart contracts in either the Pythonlanguage or the Reach language, which is based on JavaScript.

You’ll recall that Ethereum also has its own virtual machine called the Ethereum Virtual Machine, the EVM, and it serves the same function but on the Ethereum blockchain. So smart contracts contain commands that are executed on the Algorand blockchain.

These smart contracts can take the form of Decentralized Applications (dApps)  that allow for DeFi, NFTs, and any number of application-specific tasks to be created on the blockchain. 

Algorand Standard Assets

Algorand standard assets provide a standardized mechanism to represent any type of asset on the Algorand blockchain, such as Fungible, Non-fungible, Restricted fungible, and Restricted non-fungible assets.

Asset Algorand blockchain
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So in plain English, you could run a Central bank digital currency, a CBDC, such as the official US dollar or official Great Britain pound on Algorand, and Algorand has the built-in capability to allow controls to be coded into the assets to restrict their use or allow them to expire.

The only limit here is really one’s imagination, which is why a nation-state or a regulator would love the possibility to directly implement monetary policy. 

ASAs unlock a number of key features such as Role-based asset control (RBAC) and this is optional and flexible asset controls for issuers, such as the issuers of stock, the managers for business, compliance, or regulatory requirements.

 And next, there are User Protections. User protections, such as spam protection that prevent unknown assets that may have tax, legal or reputational risks from being sent to users without explicit approval, meaning that a user must opt-in to accept a new asset.

Additionally, Algorand supports Atomic transfers. Atomic transfers offer a secure way to simultaneously transfer a number of assets among a number of parties, which we see in decentralized exchanges and automated market makers.

The most well-known example of this that’s operating today is Uniswap, which also has an atomic swap capability.


So next, another key feature of Algorand is the concept of Re-keying. Blockchains have public addresses and private spending keys used to protect accounts. On other blockchains, the public address and the private spending key combo cannot be broken. It means they always come in distinct pairs and are bound together.

For example, your Ethereum address and your Ethereum private keys that you use to access those tokens are fixed and bound together, and they cannot be separated or dis-aggregated. In contrast, Algorand’s re-keying solution allows users to change their private spending key without the need to change their public address.

This feature could be useful to allow for operational cooling of digital assets in a specific location or a specific address on the blockchain, by allowing control of those assets via the private keys to be changed as needed, for example, for security reasons or in the event of an asset sale.

So you could sell a ton of assets that exist on the Algorand blockchain, keep them in the same address, but just change the ownership via the private keys.


Token Economics

So next let’s take a look at token economics. The Algorand blockchain network has its own native cryptocurrency, which is called the Algo. At the genesis of the Algorand blockchain, 10 billion Algo were minted, and this 10 billion also represents the fixed and immutable maximum supply of Algo tokens. Currently, around 16% of the total Algo supply has been injected into circulation.


El Salvador and the US

So next, let’s take a look at El Salvador and the US and why I think those governments will take a very close look at Algorand. Given that we’ve gone over the capabilities of Algorand, it’s pretty obvious why El Salvador or any nation-state would use the Algorand blockchain as the base for a nation-state digital asset infrastructure.

So let me spell it out. First, Algorand’s Role-Based Asset Control, RBAC. These features allow the direct porting of the existing regulatory structures onto a fully digital infrastructure rail. 

This means traditional KYC, know your customer, AML, which is anti-money laundering and compliance, capital controls via central bank monetary policy, traditional securities markets compliances, and these functions generally that exist today in our traditional financial system are actually readily able to be ported over into the Algorand blockchain as a walled garden.

Central Bank Digital policy
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And you can see why regulators might like something like this. This gives regulators the ability to be very comfortable with how the technology would work, potentially even be able to reverse transactions and generally operate in the way you would expect the current financial system to operate.

 It also seems to me highly likely that Algorand serves as the backbone of the US digital asset infrastructure in some way for the same reason. Not to mention that the project is birthed out of MIT, which is based in Boston, and it’s about 20 minutes from the Boston Feds office.

Fed Boston Announcemnt
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It seems only logical that they’re talking. I consider this to be very bullish in the long term for the use and sustainability of the Algorand project and actually a strategic advantage. So let me know, what do you think about this project in the comment section? Thank You.

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