Crypto Academy / Season 5 / Week 4 / [Beginner Course] - Algorand and the blockchain trilemma
Image designed on Pixellab
Having gone through the lecture on Algorand and problem faced by the blockchain Trilemma, this post will be showing my understanding of the questions asked on the lecture topic
1 What is Algorand Blockchain?
INTRODUCTION
Algorand Blockchain is a Blockchain with the claim of having a secure, Decentralized as well as a scalable system.
These features are things that are come across when accessing a Blockchain but the thing to note is that we do not have all three.
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This brings us to the concept of what we call a Trilemma. A Trilemma is a decision making process just like a dilemma but here we have three possible solutions only that we can only work with two having to forgo the other. Having all three is not possible as the concept of the other two negates the third.
This in relation to the Blockchain is what is known as a Blockchain Trilemma. As earlier clarified in the Trilemma definition, for a Blockchain we see a situation faced by developers.
A Blockchain is dependent on there major factors
•Decentralization
•Scalability
•Security
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Decentralization implies that the blockchain is not controlled by a system or authority or tied to any central power. Unlike regular financial institutions which serves as a third party to facilitate transactions.
Decentralization implies removal of that authority allowing users to directly transact in a system called a peer to peer.
Removing such an important factor as Decentralization goes against the very essence in which Satoshi Nakamoto created the first cryptocurrency Bitcoin. Which was a transaction system which didn't conform to existing systems.
Scalability another important factor is the ability with which the blockchain can process a number of transaction over a time period and how it is able to also adapt with increasing transaction processing.
A system which is best able to achieve this is said to have a better scalability or is more scalable.
Now removing it's scalability implies that transactions would no longer be fast.
Security is level with which the blockchain is secure thus ensuring the willingness of users to put in their funds.
Removing security is tantamount to removing trust from the system as this is one of the leading reasons for popularity of cryptocurrencies.
All of these are important factors in a Blockchain development hence the problem faced by developers in forgoing one.
This problem is as claimed by Algorand is believed to be solved by the blockchain, this having a system that is Decentralized, fast as well as secure.
Algorand Blockchain developed by Silvio Macali is one which uses the PPoS consensus mechanism otherwise called the Pure Proof of Stake.
Algorand users are eligible to form the next block so far they have the minimum of 1 ALGO.
As users are randomly selected and validators are replaced for formation of new blocks this makes it a decentralized as well as secure system from attacks and malicious intent as all valid users cannot be known until the block has been formed and validated.
By running a consensus mechanism which runs in sequence it makes it a much scalable network, the Algorand Blockchain is able to process over two thousand transactions in one second making it one of the fastest decentralized systems without compromising on security. Hence it solves the problem faced in the Blockchain Trilemma.
2 What is PPoS?
PPoS otherwise called the Pure Proof of Stake is a type of consensus mechanism. This is the protocol favoured by the Algorand Blockchain based on a Byzantine consensus.
Each user is eligible as long as they have a token in the system but the influence is dependent on how much of token is staked in the system.
It follows a system which depends on much of the funds being with honest individual, hence like a society. Users are selected at random by the system to form new blocks and random users are again selected for it validation.
Dependent on honesty of the larger percentage as dishonest ones would not have the percentage to harm the system, while honest ones will have too large a stake to risk harming the system thus creating a sense of security, as well as decentralization.
3 What are advantages and Disadvantages of PPoS?
ADVANTAGES OF PPoS
Some of the advantages of the PPoS include the following
| Advantage | Meaning |
|---|---|
| Trilemma Solution | The PPoS as shown by the Algorand Blockchain could be a way out for developers trying to solve the problem of Decentralization, scalability and security thus enabling a true system. |
| FUTURE | The PPoS could replace major consensus mechanism PoW and PoS. PoW with its scalability issues and PoS with a less verified security. The PPoS could be a much needed substitute. |
| LESS EXPENSIVE | Solutions using the PPoS as proposed by Algorand shows it is a less expensive system in formation of a block. |
| SPEED | The Algorand Blockchain PPoS system has been verified as one of the fastest decentralized systems we have. |
DISADVANTAGES OF PPoS
Some of the disadvantages of the PPoS include the following
| Disadvantage | Meaning |
|---|---|
| PRACTICAL APPLICATION | Although a much needed alternative to solve the shortcomings experienced in consensus mechanism such as POS and PoW. There has not been a lot of practical application on the PPoS making it a less verified system. |
| PROCESSING | PPoS makes Algorand Blockchain one of the fastest decentralized systems but it's transaction processed per second compared to centralized system such as Visa is a lot smaller. |
4 Do you think Algorand really solved the Blockchain Trilemma?
The reality of the blockchain Trilemma is that it is difficult to achieve but it doesn't mean it cannot be done.
The reality of the blockchain Trilemma is that it is difficult to achieve but it doesn't mean it cannot be done.
The solution proposed by Algorand although a lot theoretical, we can see that it is a working solution to the Trilemma of the blockchain.
Algorand Blockchain solution is dependent on the PPoS consensus mechanism also called the Pure Proof of Stake.
Here the system is dependent on being run like a society in that there are always higher percentage of individuals who are honest compared to the dishonest.
Here users are required to already be in possession of their tokens. For the formation of the first block, a token is randomly picked by the cryptography verified algorithm to form the first block.
This is so that every user who has the minimum of one token is eligible to form the block, giving every user an opportunity to be picked since it is random.
The next step is the formation of a kind of committee, this is done again by the cryptography verified algorithm in the form of a lottery placed by all owners of tokens.
The users in possession of winning tokens are thus selected to form the committee. The lottery is run in secret making users unaware of which of them constitutes the committee hence removing possibility of alterations.
This committee formation is the basis for which the block initially formed is either validated or rejected. Committee members are required to show their opinion on whether the block is valid.
Upon verification, the process is repeated all over again for the formation of the next block, hence another user can be randomly picked and another new committee is also formed for the new block.
This system is dependent on a high majority of the token in the hands of honest users.
Algorand Blockchain solves all these problems encountered in the Blockchain Trilemma.
Decentralization is assured since there is no authority with the basis of who is picked to form a block or the committee to validate it, everything is done randomly giving each user a chance.
The security of the system is also assured as no form of coercion or manipulation can take place since no one is aware of identity of users that form the committee. As a user you are only aware you are a member if you having the winning token.
The only time committee members are known is when they give their opinion on the block to be validated and at this time it becomes late for anyone to manipulate them since a new block requires a new committee.
Scalability is assured as no time is wasted, it is run independent of one another since it is happening at the same time and does not require waiting for individual results. Today Algorand is able to process over two thousand transactions in a second making it one of the fastest systems which is decentralized.
By doing this I believe the blockchain Trilemma is successfully solved by Algorand although as earlier stated system must be run like a society.
5 Is the PPoS better than PoW?
I believe the PPoS is a better option than the PoW.
PoW as is known is not a cost effective system for the long run because of its high dependability on electricity and also large computational resources.
Sophisticated computers are needed to run the PoW system and this amounts to large electricity demand. The time taken by miners to solve puzzles and validate a block makes it a less scalable system.
PPoS solves all this as it doesn't require very expensive setup compared to PoW. Also transaction speed in validating a block and well as transaction processing time is much faster than the PoW this solving it's scalability problem.
6 Is the PPoS better than the PoS?
PPoS I believe is better than the PoS.
For the PoS validating a block is majorly dependent on how much stake a validator has in the system.
The more your stake the greater your chances of validating a block hence earning rewards.
This doesn't make the PoS entirely decentralized as rewards is majorly within the upper circle of bigger stakers in the system, For PPoS users forming or validating a block are all randomly done giving every user a chance as long as they have the minimum of a token in the system.
The highly random nature makes it a lot harder for users to be manipulated or coerced, since every block has different committee validating them.
This removes the feeling of power concentration seen in the PoS, this making PPoS a more secure alternative.
7 Explore and explain an ALGO transaction using algoexplorer.io
To explore an ALGO transaction I visited the site algoexplorer.io using my device or you can access using this link
On the homepage as displayed above a number of information are displayed such as
latest block, latest transaction, total supply, ALGO price, block speed, circulating supply amongst others.
Also interface icons such as Assets, Apps, Statistics, Blockchain, Tools and Dev Api for other access are displayed.
Scrolling down we can see the latest transaction processed on the site, since this is my destination I clicked one of them to access the information details of the transaction.
Above are Details of the Transaction overview as well as Transaction details with information such as
ID, Block, Sender, Receiver as well as Amount sent.
More information can as well be accessed upon scrolling further.
All of this shows the details involved when this ALGO TRANSACTION was carried out
All images used are sourced from the algoexplorer website
8 Carry out an analysis of ALGO price from the year beginning to the present.
To perform an analysis of the price of the ALGO token I will be using the site coinmarketcap which gives detailed and real time Information about cryptocurrencies.
The chosen timeframe according to the question will be from January 1st to today December 10th which i am making the analysis.
Above is the general overview of the chart for ALGO price from the year begining up until now.
From the image displayed above which is at 1-1-2021 at time 01:00 we see that price for the year began at $0.3981 for the ALGO.
Over time a steady bullish in the price was experienced which peaked at $1.7124 on the 12th of February 2021, then it again began to drop up until it reached price of $0.9713 on 26tb of the same February month.
Prices continued to fluctuate in a series of small increase and decrease in price.
The price hit it's highest for the year so far on 12th of September with the price at $2.3795. Upon hitting this all time high for the year prices saw a small but steady drop up until this moment.
As at today which is the 10th of December 2021 according to analysis on the ALGO price chart we see that price is at $1.5595
This is easily verified by checking displayed price for ALGO and we see that price is at $1.56
All images used are sourced from the coinmarketcap website
CONCLUSION
This is a really interesting topic as solving blockchain Trilemma is really an important part of improving blockchains.
PPoS as proposed in it's usage by Algorand could be a solution to major Blockchain such as the Bitcoin which relies on PoW. I think it can be safely assumed PPoS solves shortcomings of PoW and PoS.
This has really enlightened me on the problem of the blockchain Trilemma and the amount of research that has been put into solving it such as that of Algorand.
This was a well enjoyed lecture professor @nane15, I look forward to your review of my work.