Algorand and the Blockchain Trilemma - Crypto Academy / S5W4 - Homework post for nane15.
One instigating factor for the development of more blockchain is the bring innovations to the existing crop of blockchains. There is also the need to take away some inhibiting problems and challenges of already existing ones. This is seen with the production of some great proposals and the writing so great white papers.
In recent times, we have had Algorand blockchain which has made firm claims to being able to solve the issues of previously built blockchains. Algorand has some really interesting features and protocols which it uses to support this claim. I will be delving into this subject by answering the questions from Prof. @nane15 below.
What is Algorand Blockchain?
Speaking of budding blockchains, Algorand is among the lastest yet very prominent and sophisticated network that has been created in recent years. Having been launched officially in 2019, the network has gone ahead to create so much space for itself in the blockchain industry.
This project was founded by Silvio Micali the renowned and award winning Italian computer scientist and professor who had a credible pedigree in blockchain technology research and projects. It was developed through the company called Algorand Inc.
This network is coordinated by the Algorand Foundation which is responsible for managing the ecosystem, facilitating it growth, award funding, cryptographic research primitives, on-chain governance and decentralization.
It employs Byzantine Agreement protocol which is a pure proof of stake (Pure POS) mechanism to achieve consensus. This implies that just a minimal computing power is required to validate transactions in this network.
Using the pure proof of stake byzantine agreement protocol, three steps are taken before reaching such consensus. This steps are:
- Propose
- Soft vote
- Certify vote.
In this system, 1,000 token holders get the chance to be randomly selected to validate transactions in a particular block through a lottery system which changes the validators after every round of validation due to the randomization.
Algorand is the first blockchain which has been able to provide immediate transaction finality, a blockchain that can never be forked that is where two similar blocks are produced at the same time.
With the adopted pure proof of stake consensus mechanism, Algorand has been able to enjoy some degree of scalability, security and decentralization that has been very elusive for most other blockchains.
A remarkable amount of transactions, that is at least two thousand can be processed every second. There is a block production rate of one block after every four seconds. Talking of speed and scalability, these are really fantastic rates. During a test event, Algorand network was able to handle half a million transactions in one day. That is an astronomical feat for a blockchain.
Through he dynamic committee method of authenticating transactions where validating nodes are choosen randomly and which keeps changing over the three steps process, it is difficult for the network to be tailed and attacked as there is much unpredictability and animosity about the participating nodes.
In Algorand blockchain, it is possible to develop deploy dApps and launch projects using the smart contracts which can be stateful or stateless contracts. Algorand supports decentralized Finance (DeFi), NFTS, gaming and stablecoins to be created on the blockchain. It is an open source blockchain which can be accessed and verified by anyone.
Algorand has also opened up its system for data storage especially in the aspect of environmental system. For instance, PlanetWatch In the month of February 2020 made a program where air quality data would be stored on Algorand network.
Another such project is that by the IUCN, International Union for the Conservation of Nature which is proposing a system for organizing the application of restoration funds to forest landscapes which will also be based on Algorand network.
Algorand has its native token ALGO which has gone ahead to produce amazing statistics in terms of performance over the past couple of months. The total fixed supply of this coin is put at 10,000,000,000 ALGO. This supply benchmark is hoped to be attained by the year 2030.
What is PPoS?
This is an evolved consensus mechanism adopted by Algorand. As can be guessed, this is very much different from the more popularly adopted proof of work (PoW) consensus mechanism of the likes of Bitcoin and Ethereum and the proof of stake (PoS) used by many other blockchains.
This is called the pure proof of stake consensus mechanism. It is a system which allows every user to have an opportunity of participation in proposing new blocks for voting and validation.
Every user who holds the ALGO coins can become an active member in the blockchain.
- Randomization and Block Proposal Phase
These mechanism is shares into steeps ana phases. The first phase is the where participating nodes are selected randomly. Verifiable Random Function (VRF) is a tool used for this random selection and a user can check on his own if he has been selected to propose a block using his unique selection key and seed key.
The whole randomization system is termed cryptographic sortition which is a kind of weighted lottery session. Each ALGO owned is like a ticket which stand a chance of being selected and this is done continuously in a cycle with no fixed deposit or designated nodes.
The cycle repeats for every new block that is to be proposed. Once the randomization has been completed, the selected users go ahead to propose blocks for building and the next phase is instituted.
Soft Vote Phase
The process moves to the next phase which is the Soft Vote Phase. Here, the proposed blocks are voted by the committee to filter them down to one. Here, participating nodes verify the other selected users to confirm their selection. The users have voting power equivalent to their ALGO holdings. This power is then used to vote on the proposed blocks and reach an agreement on one of the proposals which has been favourably voted.
Certification Vote Phase
The final stage is then put in motion as the voted block is to be certified as being valid. Here, another committee is also selected which is to vet the whole voting process of the soft vote phase. They check for potential double spending, over-spending or any other irregularities and problems that may exist. In the absense of any problem, the committee validates the block through another voting session.
When an agreement that the block is valid is reached through the voting, a certificate is created for the block and it is recorded in th ledger. This brings and end to the round and another is started with fresh randomization and selection.
The pure proof of stake consensus mechanism allows for self selection as user can check for their selection status on their own using the Verifiable Random Function (VRF). Also, there are no fixed nodes. There is user replaceability as the round of selection and validation begins afresh after every cycle.
Explain the advantages and disadvantages of PPoS.
Certainly, almost everything has their unique strenghts ans weaknesses. The pure proof of stake happens to be a carefully structured mechanism which has gone ahead to solve some inherent problems that besieged other consensus protocols. Still, it will definitely not be without some limitations.
ADVANTAGES
- Security
With the inclusion of all willing holders of the native coin into the governance and administration proceeding, the network leverages the increased computational nodes to boost its security architecture.
Also, there randomness of selection makes the system to be unpredictable as such participating nodes cannot be predetermined and targeted for attacks.
The replaceability of users at every round of validation goes ahead to tighten the security of the network.
The complex nature of block certification is also a beautiful way of making the blockchain very authentic as different phases of the process has to be bypassed to obtain a new block.
- Decentralization
As already established, the PPoS makes it possible for all users to have a say in the network.
By just holding a unit of ALGO one is qualified to take full part in running the network. This makes it very democratic.
The cryptographic sortition mechanism and the Verifiable Random Function allows users to independently facilitate block validation process.
No central committee assigns stakes or allot blocks to users. With randomization, any user can be choosen given opportunities to everyone.
- Scalability
Over two thousand transactions per second processing rate is in par with traditional financial systems rates.
Blocks are also being registered after every four seconds.
This level of scalability is rare in most blockchains.
This means that with PPoS, Algorand can conveniently accommodate a huge number of users and transactions at the same time.
The speed of transactions is a very attractive factor as users can run multiple operations at a time.
- Low Cost
With the lesser requirement in computational power, the PPoS makes for low cost and charges low fees for transactions.
- Low Energy Requirements and Environmentally Friendly
The process of building blocks using PPoS allows for lesser energy to be committed. The computational power is very small and this results to lesser carbon emissions into the environment thus making it more friendly and supportive of clean environment.
- Absence of Forks
No two similar blocks can be entered into the ledger at the same time. Block certification follow one direction and every user has knowledge and agrees to this. Thus, forking of the blockchain is avoided with no competing independent miners.
DISADVANTAGES
There is still a limitation of chances of users based on stakes. Users with larger stakes means they have more number of tickets and slots for the random lottery selection and have higher odds of getting selected.
The ease of access to the network might invite a number of untrusted and malicious users whose aim is to disrupt the system. The system allows every user to participate in validation, this might open door for hackers to penetrate the system. Also, individuals that are not qualified in some areas can equally come in to bug the system. There is too much liberty and tolerance afforded.
The PPoS does not offer significant rewards to users who participate in block validation. The reward system is really low. This does not encourage people to offer their resources and get involved in the process.
Do you think Algorand really solved the blockchain trilemma? Explain your answer.
In my opinion, I believe that Algorand blockchain has handled the problem of trilemma successfully. Most blockchains had not been able to build high security, open decentralization and great scalability into their networks.
At most, they would boost of a highly decentralized system with high security but lesser scalability. At other times, they would have high scalability with high security but with less decentralization.
But as already highlighted in the advantages of the pure proof of stake consensus mechanism which Algorand blockchain uses, these three essentials are well incorporated and established into the network.
Algorand operates on a highly decentralized structure, its system is very secure with the multiple validating nodes and it is highly scalable. Thus, it is safe to say that Algorand has solved the problem of blockchain trilemma and this it does with special layer-1 protocols.
Do you think PPoS is better than PoW? Explain your answer.
Yes. I think that the PPoS is a better consensus mechanism than the PoW. The aspects where PPoS has better advantages are plenty.
First, in terms of scalability which is a serious limitation associated with PoW, PPos has one of the best level of scalability in the blockchain world. The speed of processing transactions and the large volume of transactions that it can handle is way better than those of POW.
There is more emphasis in the need for high computational power to operate the proof of work consensus mechanism. Miners need high tech and very sophisticated equipments to be able to validate transactions. This problem leads to other issues of very expensive and high energy sapping process.
The high demand for hardware also leads to environmental hazards and dangers from the issue of carbon printing into the atmosphere. Furthermore, miners with high computing power localized in close proximity can connive to attack the system or influence it in one way or another.
Proof of work has not been able to tackle the blockchain trilemma problem as it is still deficient in terms of scalability.
Contrasting this to the PPoS consensus mechanism, it can be seen that much lesser computational power is required for a user to qualify as a validating node in the protocol. Thus, it is more cost effective, lower demanding in energy and very supportive of the environment.
In these ways, I feel the PPoS is a great advancement from the PoW.
Do you think PPoS is better than PoS? Explain your answer.
I am in the affirmative about this that pure proof stake is much better than ordinary proof of stake consensus mechanism.
Firstly, talking of dealing with the issue of blockcain trilemma, PoS does not have a solution for it and it is limited in the area of promoting a decentralized system.
Proof of stake does not give its users much freedom to take part in the governance of the system. Only a selected few who have the means to acquire large stakes by holding large units of assets own voting and mining rights.
This builds a form of discrimination and exclusion. Mining of blocks is allotted and assigned to users based on stakes, implying that small investors and holders are left out and have no chance of enjoying the benefits that comes with mining of blocks. The system creates an elite group which seem to be sucking the juice off the smaller users.
Also, there is limited security with PoS. The allotted mining nodes may be singled out for malicious attacks as they can be traced with their stakes. Also, the limited participation means limited number of contributing nodes exposing the network to danger.
Pure proof of stake has all these limitations under control. With any unit of assets, participation in the network is guaranteed.
The randomly selected validating nodes makes decentralization more pronounced.
The numerous contributing nodes, boost the security apparatus of the network.
There is no divide created between large investors and small investors and this makes everyone feel relevant in the system.
For these reasons, pure proof of stake is much better than ordinary proof of stake.
Explore and explain an ALGO transaction using algoexplorer.io ( Screenshots required)
To explore an ALGO transaction, I will make use of the block explorer tool algoexplorer.io.
Thus I will first visit the web page. Here, total existing accounts, block speed, market capitalization, the latest blocks, latest transactions, transaction fees are given.
Reaching here I picked a transaction from the list of latest transactions. The transaction type was an application call.
These are some of the details I found.
The transaction took place on block number 17958007
The transaction ID is IKL64U2BZ4DQ445BJVGCBHDLO4FFIW2I47BIXCGKWXINFK4ZD2LQ
The time stamp is Sat, 11 Dec 2021 11:34:39 GMT
Other details of the transaction like the sender ID, the application revision and others are shown on the screenshot.
Carry out an analysis of the price of ALGO from the beginning of the year to the present. Via graphics (screenshots required.)
The price of Algorand has experienced a lot of dynamism so far in the year 2021. As a matter of fact, there has been a lot of fluctuations.
This is some of the historical price data for Algorand in the past couple of months.
On the whole, the price seem to have risen generally from the low point from which it started the year with.
From the overall graph for the last couple of months, it shows that price has moved from $0.3981 which it had on the first of January 2021 to $1.5034 which it has currently.
This means that it has increased by 277.64% between the period. This is a massive increase.
Price on the 1st of January 2021.
From the initial bearish start, the price shot up to $1.7124 after less than two months on the 12th of February, 2020.
From here it went down again for about two months before it shot up again to $1.6979 on 17th of April 2021.
It went down again briefly and short back up to $1.5819 on 6th May 2012.
From here, the price of Algorand was on steady decline for a long time. This lasted for more than two months.
The next low point after the start of the year was during this period on the 20th of July 2021 where it got to $0.6972.
After this downtrend, price began to rally upwards to the highest point during the year which was $2.3795 on 12th of September 2021.
From this point, the price has been on a decline till the present period.
At the moment, the price is $1.5034. This is a massive 87.61% decrease from the highest point of September.
The daily price statistics and chart and that of the past one week shows a serious fall in the price which seem to be going further down.
Market price chart for the past 7 days.
Price chart for the past 24 hours.
The price has reduced by 3.02% in the last 24 hours.
Below in the screenshots are further price statistics of the Algorand coin.
All Images here were taken from CoinMarketCap
For a good number of years, the challenge of the blockchain trilemma has seem insurmountable. A whole lot of blockchain networks have had this problem, yet not many of them have been able to come with a solution even though multiple solutions had been theorized like the layer-1 and layer -2 solutions.
There is serious need for a blockchain to be highly decentralized, very secure and very scalable. These three essentials promote the functionality of a blockchain and helps it to facilitate operations properly. So, the absence of any of these is not a good thing. As such, it is understandable why the trilemma is such an issue.
Moving forward, we now have a blockchain network that has profered and Implemented solution to this people. Here we have Algorand blockchain. A totally decentralized, tightly secured and efficiently scalable blockchain operated on a newly devised consensus protocol called the pure proof of stake.
With the innovations in this consensus mechanism, we have seen how the issues associated with the existing proof of work and proof of stake mechanisms have been comfortably death with.
It is therefore not surprising how well this blockchain has performed and the massive adoption it has enjoyed. In listing well programed blockchain networks, Algorand will certainly be among the very top ones.
It is wonderful to have such a lesson from Prof. @nane15. Great job sir.