Algorand: Fundamentals, technicals, tokenomics and future outlook

3 min readJan 12, 2022

What is Algorand?

The blockchain trilemma is one of the most widely discussed beliefs in the space that proposes that there are three elements developers encounter when creating blockchains: Scalability, Security and Decentralisation. Out of these, only 2 elements can be accommodated to the fullest capacity while the last is sacrificed.

Algorand is a blockchain that has solved this trilemma by introducing a state-of-the-art consensus mechanism called the Pure Proof of Stake (PPoS) to bring all three elements into the blockchain. It was founded on the vision of democratizing finance and delivering the blockchain promise.

Algorand boasts increased performance compared to the other blockchains by having a throughput of 1,000 transactions per second and a finality of fewer than 5 seconds. Additionally, Algorand is also completely open and permissionless, whereby anyone around can participate in consensus and run nodes.

How Does It Work?

The Algorand blockchain works on a two-tiered structure containing layer 1 (on-chain) smart contracts and layer 2 (off-chain) contracts.

Layer-1, the base layer supports smart contracts that execute simple transactions on the blockchain like atomic transfers. Some other support on layer-1 includes simple blockchain transaction types like securitized loans, crowdfunding, and much more. The second layer, known as off-chain layer on the blockchain tends to focus on complex smart contracts that may be too big, computationally demanding or too complex for the base chain. This ensures that the blockchain does not have bottlenecks on-chain due to complex smart contracts.

Algorand also uses the unique Pure Proof of Stake method to reach consensus, which varies from the Proof of Stake Consensus. The consensus protocol works by selecting block proposers and voting committees at each block, randomly from the pool of all the token holders. This way, all token holders of the Algorand token with greater than 1 ALGO in wallets participate in the consensus process and receive rewards, unlike traditional proof of stake consensus.

Tokenomics

ALGO, the native token of the Algorand blockchain has the following utilities and use cases:

Used to receive rewards from the Pure Proof of Stake consensus
Transaction Fees & Payments in the network made using ALGO

Future Outlook

Hundreds of organisations around the world have started to use the Algorand due to its transparency, security, decentralisation and scalability. FinTech’s, start-ups, financial services, institutions and DeFi are all building on top of Algorand. Much recently, Algorand was selected to power the Central Backed Digital Currency (CBDC) of the Marshall Islands and has been used in other public sector organisations as well.

The native token of the Algorand blockchain, ALGO has been up 256% over the past year and ranks 22nd among all cryptocurrencies.

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