The Marshall Islands is a country with a population of around 50,000 people dispersed over a thousand different islands in a remote portion of the pacific ocean.
The country is strongly reliant on cross-border trade and finance. The system’s intricacies can make it difficult for individuals to promptly obtain certain goods and financial services.
The federal government of the Marshall Islands has adopted a digital currency named SOV.
Algorand actually powers SOV, and cryptocurrency experts believe that this move from the marshall islands will help curb high transaction costs, making it easier to comply with international partners and safeguard them against inflation.
What is Algorand? What’s so unique that made an entire country accepted as its currency?
Welcome to Shavuna, the number one website for crypto education. Here we explain topics of the cryptocurrency world using analogies, stories, and examples so that you can easily understand them.
In this blog post, we will explain what Algorand is, how it works, and at the end, we’ll get into tokenomics so that you can decide if it’s worth investing in.
A quick side fact: the marshall islands is the first country to adopt a national digital currency.
What is Algorand?
Algorand is a decentralized network designed to solve the blockchain trilemma of achieving speed, security, and decentralization simultaneously.
Algorand was created in 2017 by a team led by Silvio Macali, a computer scientist specializing in cryptography and actually a professor at MIT.
He has also received numerous awards for his research, including the famous Turing award in 2012 for his research in cryptography which, by the way, is similar to a Nobel prize in the field of computer science.
The Algorand project is designed to be a blockchain similar to Ethereum but with faster transactions and a strong focus on achieving near-instant completion, which basically means processing up to 1,000 transactions per second and finalizing transactions in less than five seconds.
The Algorand blockchain uses something fancy that the creator calls a pure proof of consensus mechanism, and it gives validator rewards to all holders of the ALGO cryptocurrency.
In a normal proof-of-stake mechanism, validators must set up a special computer to verify new blocks and lock up their coins to become a validator.
On the other hand, pure proof of stake is a little different; you do not necessarily need actually to stake your ALGO coins to earn more ALGO.
All ALGO coin holders receive the equivalent of 4 to six percent APR of ALGO coins simply by holding their coins.
This means everyone’s wallet increases at a rate of around four to six percent per year.
If you didn’t know, Algorand uses smart contracts, which means it’s capable of having decentralized applications known as dapps.
Obviously, the increase in gas fees on the Ethereum network has led many dapp developers to find other networks to build on. Some of them have been turning to Algorand as an Ethereum alternative.
Algorand actually has something called the Algorand standard asset protocol (ASA) that’s a little similar to the erc20 protocol on Ethereum but is basically a standard for creating and deploying new tokens on the network.
The ASA differs from the erc20 protocol. Instead of writing the smart contract code yourself, you fill out a form to create a new asset and then build smart contracts around that asset which removes certain security flaws.
Using these standards, we can create a token similar to other networks too.
For example, Tether and USDT are two tokens that have been created and transferred to the Algorand blockchain.
Another thing to mention here is that as central banks continue to research networks to host their central bank digital currencies on, Algorand has actually become a viable option and has actually been chosen to host the Marshall Island CBDC, which we mentioned at the beginning of this post.
In fact, Algorand has announced that 16 other CBDC projects were in the works a few months ago.
Structure of the Algorand Protocol.
Getting a little more technical, I want to get into the structure of the Algorand protocol.
Algorand has a unique two-layer blockchain structure. The base layer, layer 1, supports smart contracts, tokens, and even NFT creation.
Most of these easier processes occur at layer 1 of the algorithm blockchain, which helps ensure security and compatibility.
However, complex smart contracts that may take up more space may need more computing power or might just be too difficult, and they are reserved for layer 2, which is verified off the main chain.
From time to time, snapshots of layer 2 are given back to layer 1 to check in with. This allows Algorand to scale while also being secure.
You might be wondering, many of Ethereum’s layer 2 scaling solutions are secondary blockchains, so how does Algorand achieve this?
In short, Algorand randomly selects a committee of nodes already on the network, which basically means validators that are already validating. They choose them to execute these more complicated smart contracts as needed.
This way, the Algorand blockchain has built-in scalability. This is a really unique solution to the scalability trilemma.
The next thing I want to talk about is the Algorand foundation and the Algorand inc.
Algorand Foundation and Algorand inc.
Algorand is a new blockchain with two supporting communities; the non-profit community organization called the Algorand foundation and the Algorand inc.
The foundation focuses on protocol governance and open source development while the inc helps with the enterprise adoption of the technology.
The foundation has also supported a lot of training and education in the Algorand development specifically; a few universities worldwide, namely MIT and UC Berkeley, have adopted some classes specifically on the Algorand blockchain.
Other than the many sponsored blockchain events, courses certifications, and hackathons that they’ve helped with, the foundation also has two accelerator programs Algorand Asia and Algorand Europe.
These two projects in this accelerator program have helped developers create new projects.
It’s also worth noting that the layer one blockchain is developed and improved by Algorand inc not the foundation.
The inc is open source and allows anyone to contribute new ideas to the Algorand blockchain.
One last thing I want to share before we get into the tokenomics of Algorand is that the blockchain is actually what we call carbon negative.
This means it not only doesn’t add to the global carbon problem, but it is also actively working on reducing it since the consensus mechanism is a variation of proof of stake.
The carbon emissions are super low. The Algorand inc is also donating money to climate trade. A company that’s a leader in creating solutions to offset carbon emissions. I thought this was a great pr stunt.
ALGO is Algorand’s native coin and is used to make all transactions on the network. Algorand is proof of stake. Currently, ALGO is inflationary since new coins are minted and then given to stakers.
There’s also a maximum supply of 10 billion ALGO coins, but only around 6.15 billion ALGO is circulating right now.
The distribution of the coins is a little confusing, but this chart helps clear some things up:
As you can see, Algorand inc currently has a large amount of ALGO, which some people say makes this protocol centralized.
In the short term, I do want to clarify this, though, that the network is decentralized itself, and one person owning a large majority of the coins does not take away from the benefits of decentralization.
I think most investors fear that this one person who holds a large majority of coins could sell them all at once, causing havoc around the price.
It seems to me that the decisions of Algorand inc certainly aren’t made by one person. The Algorithm project also has a unique governance system where any ALGO holder can actually vote on changes and, in fact, earn rewards by voting.
To become a governor in the ALGO ecosystem, all you have to do is commit your coins for a 90-day voting period, which is slightly different from other staking voting mechanisms.
One of the last things I’d like to say about Algorand is that it is frequently requested in the comment section, meaning that there’s a need for people to understand better how all this works.
I hope that this article has fulfilled a bit of that request.
Finally, if you’re new to and want to learn more about how to make money with DEFI, we have a free DEFI for beginners guide that walks you through a lot of the basics. If you want to check it out, it’s below this post for free, and you can also sign up for our newsletter.
Anyways thank you guys for reading this article. I hope that you enjoyed it, and I hope that you’ve learned something, and most of all, we hope to see you in our future blog posts.