What is the Algorand blockchain and how does it work?

What is the Algorand blockchain and how does it work?

What is Algorand?

Algorand is a blockchain network created in 2017 by Silvio Micali, an MIT professor who won the Turing Prize for his work in cryptography. Algorand is a permissionless decentralized blockchain protocol that anyone can use to develop applications and transfer value. The Algorand protocol is powered by a new consensus algorithm that enables fast, secure, and scalable transactions.

Algorand solves common problems faced by most older blockchains, especially around scalability and consensus. The blockchain uses Pure proof-of-stake (PPoS), a consensus protocol that randomly selects validators based on the weight of their ALGO coinage.

What is Algorand trying to solve?

The Algorand protocol is designed to solve three of the biggest problems facing most blockchains: security, scalability, and decentralization. Dubbed the “blockchain trilemma,” the Algorand network complaints to solve the following three major problems.


The Algorand protocol is secure against malicious attacks, making it ideal for transactions, holding high-value assets, and building secure enterprise applications. It maintains security at the network and consensus protocol levels and protects individual user accounts.


The Algorand protocol can handle a large number of transactions per second, making it a more scalable solution than Bitcoin or Ethereum. Algorand’s consensus protocol removes the need for computing power used in Bitcoin to solve cryptographic problems.

Instead, the protocol’s computational cost per user is only used to generate and verify signatures, as well as operations that require simple counting. According to Algorand, it can “scale to millions of users and maintain a high transaction rate without incurring significant costs for participating users.”


Algorand is fully decentralized with no central authority or single place of control. Transactions are verified by participating nodes in the network and each node has a say in decision making. This makes Algorand a very decentralized system.

Everyone on the network also has a chance to be part of the user committee that approves each block because the selection is both random and confidential. There is no fixed committee and its nodes are led by people from all over the world.

How does Algorand work?

What sets Algorand apart from other blockchains is its use of PPoS, a consensus algorithm that uses a Byzantine MoU. If a node was compromised, staked the native ALGO token owned by network participants would be automatically protected with unique keys.

Bitcoin’s consensus mechanism, Proof of Work (PoW), requires large amounts of energy and computing power to create and validate new blocks. PPoS, on the other hand, allows the creation and validation of new blocks in a faster and more efficient way. This is done by randomly selecting ALGO holders to validate and approve each block in the chain. A new group, or committee, is selected for each new block.

Thanks to the PPoS protocol, only users with a large number of ALGOs can theoretically engage in malicious activities that could compromise the security of other users. However, since the system is based on co-dependency between participants, malicious activities would also cause their ALGO to deteriorate. Therefore, such malicious activity would not be rewarding for any majority owner.

Algorand can process 1000 transactions per second and all transactions will be final and instantaneous. Algorand also has a fixed supply of 10 billion tokens to add an inflation-proof mechanism to the network. The majority of these tokens are currently locked and have not yet been distributed.

Algorand protocol structure

The Algorand protocol is built on three fundamental concepts:

  • Transactions: Transactions are the basic unit of account in the Algorand network. They are used to transfer value and are verified by all participating nodes in the network.
  • Blocks: Blocks are groups of transactions gathered into a single unit and verified by the consensus algorithm.
  • Consensus: The consensus algorithm is responsible for verifying the blocks and ensuring that they meet the requirements of the Algorand protocol. It also rewards users who participate in its operation.

Algorand staking mechanism: pure proof of stake

In Algorand’s PPoS approach, the influence a user has over choosing a new block is proportional to the number of tokens they have in the system, also known as their stake. Each user has a chance of being chosen, the weight of their proposals and their votes being directly linked to their bet.

Users are randomly and secretly selected for the purpose of proposing blocks and voting on those block proposals. Through this approach, the security of the network is linked to the honesty of the majority of users of its economy. As long as most of the money is in good hands, the system will remain secure.

This approach contrasts with other consensus mechanisms such as PoW, DPoS or BPoS in which small groups within the economy are responsible for the security of the entire system. In principle, a small fraction of users can prevent other users from transacting with these approaches.

Algorand’s approach makes it virtually impossible for holders with smaller stakes in the system to harm the entire network. Meanwhile, the majority holders would also not dare to act maliciously, as such actions would lead to the devaluation of their own assets and a reduction in the purchasing power of the currency.

Production of Algorand blocks under PPoS

The new blocks are built in two phases under Algorand’s PPoS mechanism. During the first phase, a single token is drawn. The owner of this token is the user in charge of proposing the next block.

During the second phase, 1000 tokens are randomly selected from all tokens in the system. The owners of these tokens make up the phase 2 committee, and they are responsible for approving the block proposed by the user in phase 1.

Related: What is Cryptocurrency? A beginner’s guide to digital currency

It is possible for a committee member to be selected more than once. This also means that a member will have more than one vote on the committee when approving the next block.

The second phase of Algorand’s block production process was put in place to combat any percentage of bad actors. By choosing 1000 tokens at random, the malicious intentions of these bad actors will be eclipsed by the majority and act according to the rules for the well-being of the network.

Algorand’s native cryptocurrency: ALGO

The native currency of the Algorand network is called ALGO. ALGO tokens are used to pay transaction fees and reward users for participating in the network’s consensus process.

Trading with ALGO is done in less than four seconds, no matter how many trades you make per day. Transaction fees are also minimal. Unlike Ethereum, which is known for its high gas fees, Algo transactions cost very little.

How can I buy ALGO cryptocurrency?

There are several methods to buy ALGO. You can buy it directly from another person in person or on the internet, just like you would any other cryptocurrency.

Alternatively, you can search for a crypto ATM near you that offers ALGO. However, crypto ATM fees can be prohibitive and there is no guarantee that you will be able to find a willing counterparty to complete the transaction.

The easiest way to buy ALGO is on a cryptocurrency exchange. Some popular exchanges that offer ALGO include Binance, Kraken, and Coinbase. You can buy ALGO with a credit or debit card on these exchanges.

To do this, you must first obtain a crypto wallet to hold the ALGO. Some wallets that support ALGO are Pera Wallet, My Algo, Coinbase, and Ledger.

Once you have set up your wallet, you can now populate your wallet by finding an exchange that supports ALGO.

Create an account on the exchange if you don’t already have one and have it verified. Select “Algorand” from the list of assets to begin your trade. Enter the fiat amount to buy ALGO coins and preview your purchase before finally submitting it.