Algorand (ALGO) – How Does it Work and Should you Invest?￼
19 October 2022
If you’ve heard of crypto, there is a high possibility that you’ve also heard of the impact crypto mining has on the climate due to carbon emissions. Some environmentally friendly crypto companies are trying to change this narrative. Algorand projects itself as the world’s most efficient and environmentally friendly blockchain. The company’s vision is to create a borderless economy where anyone can participate. This blog will take you through the Algorand network, its history, how it works and some hard market numbers.
But first, here are a few crypto terminologies you need to know to understand the topic. Read on!
Crypto Terminologies to Understand Algorand
Consensus Mechanism: In the context of crypto and blockchain, a consensus mechanism is used to validate transactions and build trust in the system.
Decentralised framework: A decentralised framework is a network of computers that work together to share data and processing power. In the context of crypto and blockchain, a decentralised framework is used to validate transactions and add blocks to the blockchain.
Proof-of-stake (PoS): A consensus mechanism by which a crypto asset is used to validate transactions and add blocks to the blockchain. PoS is different from proof-of-work (PoW), the consensus mechanism used by Bitcoin.
Layer-1: The base layer of a blockchain. The base layer is responsible for validating transactions and adding blocks to the blockchain.
Layer-2: An extension of the base layer that adds additional features or functionality to the blockchain.
Side-Chains: A side-chain is a blockchain that is attached to another blockchain. Side-chains are used to add additional features or functionality to a blockchain.
DApps: Decentralised applications that run on a blockchain. Dapps are often open source and allow anyone to use or contribute to the application.
Staking: Staking is the process of depositing a crypto asset to earn interest or rewards.
Now that you are familiar with the crypto terminologies, let’s get to know about Algorand. Scroll down!
What is Algorand?
Algorand is a scalable, secure, decentralised digital currency and smart contract platform that uses a proof-of-stake consensus algorithm to validate transactions and produce new blocks. Algorand’s approach to consensus differs from other cryptocurrencies that typically use proof-of-work algorithms. The system is designed to be secure, scalable, and efficient.
Algorand is a layer-1 blockchain platform. It was primarily developed to process a large number of transactions securely. It’s like the Mastercard of the crypto world.
Like other layer-1 blockchains, it can host applications and layer-2 platforms. Developers can create and model complex applications on top of Algorand.
ALGO is the native digital currency of the Algorand blockchain. ALGO tokens are used to pay transaction fees and participate in the Algorand consensus protocol.
ALGO by the numbers (as of July 16, 2022):
Price in INR: Rs 25.93
Market Cap Rank: #30
Market Cap: $2,349,889,730
24 Hour Trading Vol: $100,629,306
Circulating Supply: 6,947,734,883
Total Supply: 7,348,973,784
Who Created Algorand?
Algorand was founded in 2017 by Turing award winner Silvio Micali, a Computer Science professor at the Massachusetts Institute of Technology. Silvio worked in the domains of cryptography, zero knowledge and blockchains.
Silvio oversees all research at Algorand. Algorand was made to solve the ‘blockchain trilemma’ – which states that a blockchain system cannot attain all three properties – decentralisation (no central figure), scalability (speed and ability to process large transactions), and security.
It is not uncommon in the crypto world to wait a few minutes before a transaction is confirmed. Algorand, on the other hand, is able to confirm transactions almost instantly, which is a big selling point.
Unlike most blockchains that utilise a PoW or a PoS mechanism, Algorand uses a unique pure-proof-of-stake (PPoS) consensus mechanism. It chooses ‘validators’ randomly – users who verify transactions. This randomness makes the entire system more decentralised and, thus, more secure.
Unlike first-generation consensus mechanisms, Algorand’s PPoS system does not reward or punish validators. Algorand’s technology finalises blocks in seconds and confirms transactions faster than most other layer-1s.
What are the Features of Algorand Blockchain?
The main benefits of Algorand include its security, scalability, and efficiency. The system is designed to be resistant to attacks and able to handle a large number of transactions without slowing down. Algorand’s novel approach to consensus means it can reach consensus quickly and without the need for energy-intensive mining operations.
Algorand’s high security means the platform is more attractive to companies that handle high-end data. Unlike blockchains like Ethereum and Avalanche which purport to work for both companies and end users, Algorand markets itself to firms that require utmost security with their data. Its clients include securities firms, insurance companies, and even financial institutions.
The Algorand team have self-termed themselves as the ‘greenest’ and most energy-efficient blockchain. In fact, since April 2021, Algorand has been carbon-negative, meaning, in the net, it removes more carbon than it emits. As a layer-1 blockchain, it can also host DApps on the chain.
How to Buy ALGO?
Algorand tokens (ALGO) can be bought and sold on various cryptocurrency exchanges. After creating an account with an exchange and depositing INR to the account, you can purchase ALGO.
Once purchased, your ALGO tokens can be stored in the exchange or be taken out and stored in a cryptocurrency wallet.
Algorand (ALGO) Price Analysis
Algorand’s current price is $0.33, and its market capitalisation is nearly $2.5 billion. Algorand’s all-time high was $3.56, reached in June 2019. Since then, the price of Algorand has declined steadily. However, in the past month, the price of Algorand has begun to recover, and it is currently up 13%.
The support level for ALGO is $0.25; currently, going below this level seems unlikely, but if it does, it’s likely for the price to head below $0.20, as per crypto experts. The support levels are at $0.40 and $0.50; if the support crosses this price, there’s expected to be a bull run with an influx from other traders rotating into ALGO. Post that, it’s even possible that ALGO price heads towards the dollar mark, according to analysts.
Is Algorand (ALGO) a Good Investment?
The cryptocurrency has a highly skilled team, a well-designed protocol, multiple clients, and a proven track record. The project is promising, but whether it’s a good investment or not for you can only be decided based on factors such as your investment goals and risk tolerance.
Analysing other factors, the climate-friendly tag that Algorand has means it’s more enticing for governments and public companies to partner with the Algorand team for different projects. The high levels of security baked into the protocol also ensure there is little scope for fraud.
Overall, Algorand seems like a very promising project.
The Difference Between Algorand and Ethereum
The main difference between Algorand and Ethereum is that Algorand uses a proof-of-stake consensus algorithm while Ethereum uses a proof-of-work algorithm. Proof-of-stake is more energy efficient and scalable than proof-of-work. In addition, Algorand has faster transaction times and lower fees than Ethereum.
Algorand is a promising cryptocurrency with a strong team, a well-designed protocol, and a proven track record. In addition, due to its state-of-the-art security, Algorand is one of the few cryptocurrencies that major institutional investors and even national governments could possibly back. If you are someone who is interested in crypto investments, it’s worth deep diving into this project to figure out whether you should invest in Algorand, based on your own goals and risk profile.
FAQs on Algorand
Q1. How is Algorand good for the environment?
Ans: Algorand’s unique consensus mechanism means the blockchain itself is carbon neutral. In addition, several Algorand partnerships with environmentally friendly institutions are actually carbon negative. The organisation’s partnerships with places like ClimateTrade, PlanetWatch and conservation projects end up having a positive impact on the environment.
Q2. How can Algorand facilitate Central Bank Digital Currencies (CBDC)?
Ans: Governments across the world are considering launching CBDCs – a digital cryptocurrency issued and controlled by the Central Bank. The Indian government hopes to launch its Digital Rupee by 2023.
Algorand could help in the management of such currencies where digital currencies would be issued on Algorand while central banks would retain full control over them, while also allowing other institutions like commercial banks, fintech companies etc. to make transactions and distribute the currency.
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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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