Nov 20, 2020 20:58 UTC
Nov 21, 2020 at 12:29 UTC
Pure Proof-of-Stake: Will Algorand overcome Ethereum’s Scalability Issues
An Introduction to Algorand
Algorand is a next-gen permissionless blockchain network aiming to enable frictionless finance. To do this, the project has created a pure proof-of-stake blockchain that provides unparalleled security, scalability, and decentralization.
The financial market’s future is clear – powerful decentralized applications employing smart contracts will likely become the norm by housing millions of daily transactions for users worldwide. These dApps require a robust blockchain network, capable of withstanding continuous transactions, sophisticated smart contracts, and atomic transfers, whilst remaining decentralized and secure.
Algorand’s blockchain infrastructure may be the right candidate. As part of this article, readers will learn more about Algorand’s answer to the pressing blockchain trilemma, alongside its main solutions and use cases.
Understanding the Blockchain Trilemma
The blockchain trilemma is based on a simple law: thou shall only choose two of the following technical factors – security, scalability, or decentralization. This leads to multiple barriers against mass adoption, slowing the digital currency revolution.
Researchers have found that this dilemma stems from a clear root cause – the consensus mechanism. For instance, bitcoin works via proof-of-work, which is secure and decentralized, but unable to scale. This explains why bitcoin transactions sometimes take over an hour to confirm. As the cryptocurrency market evolves, these three technical factors must work side by side.
With the implementation of a pure proof-of-stake (PPoS) consensus mechanism, Algorand effectively solves the blockchain trilemma. PPoS works by having users hold at least one ALGO token on their address. The network then randomly selects a total of 1,000 ALGO tokens, which will create the next block. Decentralization is assured as each token has an equal chance of being chosen. This is a technical procedure that is not computationally intensive. Testing has shown that it’s very rapid, thereby helping solve the scalability problem. Security is thoroughly assured as the network has sufficient trusted validators that are actively verifying transactions.
An Overview of Algorand’s Features
Now that we’ve discussed its revolutionary consensus mechanism, it’s time to dive into Algorand’s solutions. As part of its layer-1 protocol, Algorand provides a series of features and capabilities. Here’s a brief overview:
- Improved support for smart contracts
First-generation blockchains support smart contracts, but they’re often expensive, slow, and unable to scale. Achieving mass adoption for smart contracts is therefore proving difficult.
Algorand’s ASC1 smart contract support enables trustless programs that execute on-chain while ensuring speed, security, scalability, finality, and reduced costs. ASC1s contracts support up to 1,000 transactions per second and can finalize the virtual agreement within five seconds. These contracts are built using the TEAL and PyTeal programming languages.
Users can create and use smart contracts that facilitate loan payments, fee executions, limit orders, collateralized obligations, cross-chain atomic transfers, subscriptions, recurring debt, and many other advanced functions.
- Representation of any asset through Algorand Standard Assets (ASA)
The blockchain market is in dire need of an infrastructure that provides efficient access to digital markets, the ability to transfer assets non-stop, alongside efficient administration, instant settlement, and enforceable asset controls.
These goals are easily achieved by using the ASA framework to represent assets on the Algorand blockchain. Additional integrations such as the role-based asset control allow for efficient asset management meant to fulfill compliance or business-related needs. ASA also integrates a series of user protections, such as an anti-spam mechanism.
The unique functionalities of the ASA framework include lightning-fast transactions, top-grade security, universal interoperability, simple asset issuance, and low costs. As such, Algorand represents a viable choice for asset tokenization, 3rd party asset issuance, or efficient wealth management through non-fungible tokens.
- Secure and immediate atomic transfers
Atomic transfers are well-known for being a trustless solution designed to transfer assets between a varying number of parties simultaneously.
Algorand’s layer-1 atomic transfers do not require escrows or hash time-locked contracts. Support for multi-party transfers is provided for all Algorand assets, so the execution is always smooth, fast, and cost-effective.
As expected, this framework also creates a number of exciting use case scenarios. These include, but are not limited to efficient match-based funding, simple debt settlement, multilateral trades, and support for decentralized exchange integrations.
- Ability to change your private key without modifying the public address
Blockchain technology is built upon the concept of public and private keys. These combos ensure that accounts can be identified by third parties but only used by the legitimate owners. Up until this point, public and private keys were an unbreakable combo. As such, if a private key was exposed, a new public key had to be generated, hence creating operational inefficiencies.
With Algorand’s rekeying solution, a private spending key can be changed without affecting the public key. In exchange, this creates new levels of flexibility, continuity, and overall operational efficiency. The unique rekeying functionalities allow for secure reassignments of contract ownership and improved operational security standards, especially when migrating multiple accounts.
With these aspects in mind, Algorand has efficiently solved the blockchain trilemma by implementing pure proof-of-stake. Innovative projects can now rely on a future-oriented blockchain network that ensures scalability, security, and decentralization.