What Is Algorand?
Algorand (ALGO) is both a digital currency and blockchain platform. The Algorand platform is designed to process many transactions quickly, similar to major payment processors like Mastercard or Visa. In addition, Algorand can host other cryptocurrencies and blockchain-based projects, making it a direct competitor to Ethereum. ALGO, the platform's native currency, is used to secure the Algorand blockchain and pay processing fees for Algorand-based transactions.
Algorand is an open-source blockchain, meaning anyone can view and contribute to the platform's code. Algorand uses an operating protocol it calls pure proof-of-stake (PoS), which randomly recruits network validators from a pool of users with staked ALGO.
Algorand's user agreement strictly prohibits selling or disposing of any ALGO tokens received from a Foundation Program to any person in the U.S. Additionally, Foundation Program participants cannot reside in the U.S. or otherwise meet the definition of a U.S. person under Regulation S of the Securities Act of 1933.
Key Takeaways
- Algorand (ALGO) is a blockchain platform and cryptocurrency designed to function as a global virtual machine.
- The Algorand blockchain uses a consensus mechanism it calls pure proof-of-stake.
- ALGO, the native coin of the Algorand platform, is used to secure the platform and reward the ecosystem's governors.
The History of Algorand
The Algorand platform and accompanying cryptocurrency were founded in 2017 by Silvio Micali, a Massachusetts Institute of Technology professor and noted cryptographer. The total supply of ALGO is capped at 10 billion coins, with more than 8 billion ALGO already circulating.
How Does Algorand Work?
Algorand markets itself as a highly efficient, scalable platform that can immediately finalize transactions. Algorand claims to accomplish this in a decentralized way by:
- Using relay nodes to enable efficient communication paths
- Incorporating participation nodes that vote on and confirm new blocks for the Algorand blockchain
- Prohibiting any splitting (forking) of the Algorand blockchain to guarantee that completed transactions cannot be changed
- Reducing the data burden placed on Algorand network participants by continually compressing blockchain information
The Algorand blockchain uses the proof-of-stake consensus mechanism. ALGO holders who stake coins are rewarded quarterly in ALGO. These participants are called governors and cast votes on blockchain and community issues. ALGO is also used as a utility token to pay transaction processing fees.
Algorand does not distribute transaction fees to validators. As of April 2024, the Algorand Foundation receives all transaction fees until the blockchain reaches a daily transaction level that makes the fee account "material." The governors will then decide what to do with the fees.
Algorand vs. Ethereum
The Ethereum and Algorand blockchain platforms can be viewed as competitors. Both platforms provide infrastructure to support the development of other blockchain-based projects, use smart contracts, and use proof-of-stake. However, the two have different staking and reward methods.
Staking
Ethereum requires a stake of 32 ETH to become an activated validator but allows anyone to join a validation pool by staking any amount of ETH. All ALGO holders are eligible to participate in consensus by having ALGO in their wallet. It is not a resource-intensive process, so the users chosen by the network will not even know it is occurring.
Ethereum is slower, and transactions are more expensive than Algorand. For example, Ethereum can process a new block of transactions approximately every 12-14 seconds. The Algorand network is claimed to be able to process about 7,500 transactions per second and have significantly lower transaction fees than Ethereum.
The pure proof-of-stake (PPoS) consensus mechanism randomly selects validators and a committee from all users (based on how much ALGO they own) to ensure the process is decentralized.
Rewards
Ethereum rewards those who participate in validation according to the amount of ETH contained in the blocks being verified. Staking ETH paid out about 3.3% APR in April 2024.
When Algorand first launched in 2019, it had a reward system for participating in consensus. The Algorand Foundation funded the rewards pool, which paid out rewards over four six-month periods (two years). The participation rewards program ended in April 2022.
Algorand relies on its community of users to make decisions regarding blockchain implementations or other important issues. Those who stake their ALGO and participate in all votes for the duration of the governance period are rewarded.
How Do You Stake Algorand?
To stake your ALGO and become a governor, you need to visit the signup page and follow the steps by clicking on the "Sign Up" button and:
- Connect a wallet
- Commit ALGOs
- Participate in voting for rewards
:max_bytes(150000):strip_icc()/Aglorand-7ac82f31d1bf4f13bf4d1c5ab2b42789.jpg "Algorand (ALGO): Meaning and Difference From Ethereum (1)")
How Do You Earn Rewards on Algorand?
Algorand awards users who stake their ALGO can earn rewards periodically provided they participate in blockchain governance events.
What Is the Earn Yield on Algorand?
The yield depends on the amount you have staked and whether you participate in governance activities.
Is Algorand Coin a Good Investment?
Algorand's token ALGO can be purchased on exchanges in hopes of future returns, or users can stake ALGO to become a governor and receive rewards. Whether it's a good investment depends on your outlook, risk tolerance, and preferences.
The Bottom Line
Algorand is a blockchain designed as a platform for developers to create decentralized applications. It has a cryptocurrency, ALGO, that is used to pay for transactions on the network. ALGO can also be staked as collateral for the privilege of receiving blockchain governance votes equal to the number of ALGO staked.
ALGO governors receive rewards for their participation in blockchain governance activities.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read ourwarranty and liability disclaimerfor more info. As of the date this article was written, the author owns BTC and XRP.
