Algorand and the blockchain trilemma - Crypto Academy / S5W4 - Homework post for nane15
1. What is Algorand blockchain?
Algorand blockchain was launched in year 2019, this blockchain is approximately a young protocol. A blockchain which has may benefit to its user as a blockchain work.
Algo blockchain can be considered as first Pure proof of stake (PPoS) blockchain which generally provides it's user a lot of important things to its users which includes good security, decentralization, and scalability all in a sustainable way.
It is a network which is built to solve the Blockchain trilemma for gaining good speed, proper security, and a decentralization . This blockchain was Launched in June 2019 . Algorand blockchain is an open source pure blockchain network through which any user can takepart and use it
This blockchain is mainly designed to be a payment doing network system with faster transactions.
Through this, approximately over 1,000 transactions per second can take place and It take only less than or upto five seconds. Algorand blockchain aims and tells it's user that it is purely secure, scalable, and decentralized.
The Algorand platform supports many smart contracts functionality, and it has also a consensus algorithm mechanism which is based on proof-of-stake. Algorand’s native cryptocurrency is called Algorand which is also known as Algo.
Algorand blockchain also allows many developers to use the Algorand Asset protocol to create many new tokens or to transfer some other tokens to its Algo ecosystem.
2. What is Ppops?
Let's talk about the first of the key algorand features. The pure proof of stake stake consensus approach. The most important and fundamental task in block chain is the secure reliable and fast creation of the block in the chain. The tool to create and validate the next block in a blockchain is called consensus mechanism.
Early blockchains used a consensus mechanism called proof of work. While this was useful at the time to prove out the concept of blockchain it has been shown to be a very slow expensive and energy inefficient way to write the next block in a chain.
Algorand uses an innovative consensus mechanism called permissionless pure proof of stake to write the next block in the algorand chain. Proof of stake works by randomly selecting committees from the participating algo holders and these different committees then validate and approve the next block in the chain. These committees are chosen using a unique cryptographic randomization tool called the vrf or vertifiable random function. Which was invented by algerand founder silvio mccally.
Every time a block is written a new set of random committee LA is established and the block the block creation process starts again. These powerful randomization and block creation mechanisms are the foundation for how algorand has solved the blockchain trilemma. Creating a blockchain that has global scale robust security and true decentralization.
3. Explain the advantages and disadvantages of ppos.
Advantages:
- Transfer speed: Based on this consensus mechanism the blocks are finalized in seconds. So , agld become the blockchain which promises fast Transactions. The high speed is also due to the fact that if a node proposes an erroneous block or malicious actions are identified, the only owners of the problematic stake are not penalized.
- Advanced level of decentralization and anonymity of participants: one aspect of proof of stake that kept raising questions was the fact that, while solving the availability problems. Actually, this process select it's validator on purely random wise and it not consider only number of tokens. Therefore,all users of the blockchain can be selected at some point to participate in the validation, which ensures security and a higher level of decentralisation. At the same time, only the proposed ones can check whether have also been selected, which discourages the attacks or the activity of malicious people and entities.
Disadvantages:
The blockchain can tolerate an arbitrary number of malicious users, as long as honest users (those who follows the protocol's instructions) hold more than two thirds of the system's total stake. On algo, no. Of tokens of node is not decreased which discourages it's work. It gives more speed as usual.
4. Do you think algorand really solved the blockchain trilemma? Explain your answer.
Yes the Blockchain Trilemma Could Be Healed by Algorand. The trilemma states that when it comes to blockchain there are three main characteristics. That is security, scalbility and decentralisation but you can only have two at a given time you can't have three all at once.
For example when it comes to bitcoin they have chosen security and decentralisation and for this they have had to sacrifice scalablitiy or speed that's why it takes so long for a bitcoin transaction to go through and the reason this is so is because when you have a decentralized secure network every time you make transaction it needs to propagate to the network it needs to be sent to every node and this actually takes time think about it this way if you're on group project or you're work and you are a hundred people or 500 people and you need to come to a conclusion it's goona be very difficult for a hundred people to make a decision but if you only have on person or even five people make a decision it's much quicker and this is how a traditional database works.
There's a centralized party so it's not decentralized it's totally centralized and because of this decision can be made on the spot.
Looking back at blockchain projects we see that bitcoin it takes about 78 minutes on average for a transaction to go through and then have a ethereum a little quicker six minutes. We have my narrow thirty minutes - 50 minutes.
So although we see these speeds a little quicker it's still not good enough when we use the term scalability we're talking about thousands.
5. Do you think PPoS is better than PoW? Explain your answer.
Yes PPoS is better than PoW. PureyProof of stake doesn't let everyone mine for new blocks and therefore uses considerably less energy. It's also more decentralized. Actually, In Pow, We have some pools where users do mining and receive rewards.
They centralize the mining process and that's dangerous. Mining pools of this tokens are benefeciary for it in many ways.
It has more Advantages like there is very very minimal fees for setting up a node. You don't need expensive mining equipment and thus pure proof of stake encourages more people to set up a node, making the network more decentralized and also more secure.
6. Do you think Ppos is better than Pos? Explain your answer.
Yes PPoS is better than PoS. The native token of the algorand blockchain. Like all blockchains, transactions on algorand are grouped into blocks.
However, instead of miners with lots of computing power competing to propose new blocks, which is the Case for bitcoin and others. Algorand nodes are selected randomly using a verifiable random function.
An open source cryptographic technique that was co created by silvio micali. This election process works a bit like a lottery. The odds are being selected to propose a block on algorand are dependent on how many ALGO tokens a node is holding.
Holding tokens for this purpose is called staking. When you stake ALGO tokens, you give them a chance to be selected.
The more you stake, the better your chances become. In pure proof of stake a single ALGO token is randomly selected every few seconds if that token is being staked, and the owner of that token gets to propose the next block.
If it's not being staked, the protocol randomly selectes a different token. And the second phase, approximately 1000 tokens are randomly selected. The owners of these tokens then become a committee that verifes the block.
This process repeats continuously on average every four and a half seconds with new ALGO stakeholders randomly selected each time.
7. Explore and explain an ALGO transaction using algoexplorer.io ( Screenshots required)
Algo is been around for a little more than a year, but in this time algorand has managed to create quite the hype around it and it's native token, algo, and has climbed to within the top 50 on coinmakret cap, with a total value of a little over $160 million dollars.
Price wise, it started strong at token launch with a valuation of $3 per coin. After the launch of it's mainnet, there was a good Upward movement in it's price. We can also say that this is very fast working token which is also listed in many well known exchanges through which many of us can trade this token.
Algorand also provide faster Transaction speed to it's user which is also plus point of this token and It has also low Transaction fees which is also good. The layer 1 of this tokens is mainly used for it's Transactions and some swapping of the tokens.
8. Perform an analysis of the price of ALGO from the beginning of the year to the present. Via graphics (screenshots required.)
I Have seen recently on the cryptocurrency market you see this price line this 1.67 cents price line or 1.675 this line is working as a strong support for algorithm right now on the one hour price chart we can see as the price went down with this strong bearish move this line or this price resistance was formed so after the break down we have seen this string spike stopped exactly on this line.price again went down from this price zone or from this price area.
Heading over to my chart here again i do have it set for four hours I have all of the data that I have set for a December and take a look at these candlesticks going into an uptrend corridor so what we are taking a look at and what we do want to make sure that we do break is this line right below so roughly around a dollar and 81 cents this line here once we come to retest it is going to have a high confluence as we had broken it down in this section here on December. So when we come back and rested it we may get an instant pull back at this number.
Conclusion
Pure proof of stake is a consensus mechanism specific to the algorand blockchain and an alternative that differs from the proof of stake to a certain extent.
I would like to thanks professor @nane15 for wonderful lecture on Algorand blockchain.