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What is Algorand?

Vidhu Bajaj avatar
Vidhu Bajaj
- 3 min read
What is Algorand?

Algorand is a carbon-neutral blockchain platform developed by an eminent computer scientist and MIT professor, Silvio Micali. Algorand claims to be a green blockchain and uses an energy-efficient Pure Proof-of-Stake (PPoS) protocol to overcome the blockchain trilemma of security, scalability and decentralisation.

What is Algorand, and how does it work?

Algorand is a decentralised public blockchain platform with smart contract functionality. Like Ethereum, developers can use Algorand to create their own decentralised finance application (dAPPS). However, Algorand is faster than Ethereum, and there’s no concept of gas fees. Only a transaction fee is charged to users, which can be paid using the blockchain’s native cryptocurrency, ALGO. 

Owing to its faster processing speed and low energy consumption (which leads to lower transaction fees), Algorand is often called the ‘Ethereum Killer’. This efficiency level is achieved by using a Pure Proof-of-Stake (PPoS) consensus mechanism to validate blockchain transactions. 

As cryptocurrencies are not controlled by banks or regulators, they need a way to verify transactions. Consensus is the process by which a group of peers, or network nodes, determines which transactions are valid and which are not. 

Most cryptocurrencies, including Bitcoin, use a Proof-of-Work (PoW) consensus mechanism in which miners compete to solve complex arbitrary mathematical puzzles. This is an energy-intensive and relatively slow process, leading to high transaction times and costs. An alternative mechanism is the Proof-of-Stake (PoS) consensus mechanism that doesn’t require nodes (or miners) to compete against each other but simply hold and stake tokens. 

While PoS is considered an improvement over PoW, there has been criticism that PoS blockchains could be monopolised by individuals with large amounts of coins to stake. This could threaten decentralisation, which is the core of any blockchain.

Algorand solves this problem through the PPoS mechanism that randomly selects users to validate transactions, irrespective of their stake. 

Interestingly, the rewards paid to validators for producing blocks are distributed among all ALGO coin holders to promote network adoption. Unlike PoS-based cryptocurrencies, users don’t even need to stake their ALGO coins but just hold them in a wallet to participate in the process.

Why is Algorand called a green blockchain?

Algorand lays a strong emphasis on sustainability. The PPoS consensus mechanism requires minimal energy while ensuring high transaction speed and security. 

Besides reducing the energy consumption needed for blockchain transactions, Algorand has implemented a new smart contract to tackle the issue of carbon emissions. This new protocol automatically allocates a portion of every transaction fee towards offsetting the network’s carbon emissions. Algorand has also partnered with ClimateTrade to improve the efficiency of its sustainability measures.

Why and how to buy Algorand (ALGO)?

If you’re interested in investing in sustainable blockchain technology, Algorand is one of the options you might want to consider. However, volatility and uncertainty in price are common among cryptocurrencies, and there’s no guarantee how your investment will fare. 

To purchase Algorand, you need to find a cryptocurrency exchange that lists it. Then simply create an account on a crypto exchange of your choice, verify your identity, and invest an amount you’re financially comfortable with into your crypto account. 

Before you sign up with an exchange, make sure to compare crypto exchanges by analysing different features and the fees charged to users to find an exchange that matches your investment style. It’s also worth checking if an exchange is registered with AUSTRAC to ensure it complies with local laws and regulations.

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This information does not reflect any ranking, rating, recommendation or endorsement by RateCity of cryptocurrency or any specific provider. RateCity is providing factual information supplied by providers. Not all providers or products are shown. RateCity will earn a fee from the providers displayed in the table (if a link to the provider's website is shown), and the fee levels determine placement in the table. Cryptocurrencies are speculative, complex and can involve significant risks. RateCity is not providing a recommendation for your individual circumstances.

Product database updated 14 Jul, 2024

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.