Algorand is a layer 1, proof of stake blockchain developed by the MIT professor Silvio Micali in 2019. As a payments-focused network, Algorand provides rapid transaction speeds and near instant finality, opening the doors to a host of users, developers and investors seeking to take advantage of the network’s speed and scalability.
Because of this Algorand has gained a reputation as one of a handful of “Ethereum Killers”, (the moniker given to any blockchain with the potential to out-compete Ethereum) by offering low gas costs and fast transaction speeds.
This blog post provides a primer for Algorand’s technology and ecosystem. It then underscores the importance of an Algorand smart-contract audit to ensure the ongoing security of its network.
What is Pure Proof of Stake?
Algorand uses Pure Proof of Stake (PPoS) as its consensus mechanism, which is designed to be accessible to the highest number of participants by having a far lower stake required for participation when compared to other networks, requiring only 1 ALGO coin to take part in the staking. To put this in perspective, Ethereum 2.0 currently requires a minimum stake of 32 ETH to participate.
This is part of the reason why Algorand describes itself as one of the most democratic implementations of a public ledger, as participation in the consensus process is open to a wide cohort.
In this way, Algorand partly offers a resolution to what has been a criticism of Proof of Stake systems from those in favor of Proof of Work who argue that Proof of Stake privileges those with more resources and assets, resulting in increased centralization of power. Whilst in many ways this argument is moot when factoring in the resource-intensive process of mining — particularly in networks as large as bitcoin’s — by drastically lowering the bar of entry Algorand works towards creating a more accessible, and by extension a more decentralized, network.
Interestingly, Algorand’s low threshold for entry allows it to avoid implementing sanctions that are designed to prevent malicious actors and security faults. This sets it apart from other Proof of Stake systems which typically have functions such as slashing to control malicious activity.
Instead, Algorand’s PPoS consensus provides security by creating a system that is upheld by a majority of users acting honestly. Algorand argues that this is advantageous when compared to a system in which a small subset of users can prevent transactions, as it prevents smaller groups from misbehaving, and makes it irrational for the majority of the network to act maliciously, as this would diminish the currency and devalue their assets.
The decentralization provided by Algorand’s permissionless PPoS network is then furthered through its governance mechanism, which better fosters decentralization by involving network participants in the decision-making process, allowing them to earn governance rewards whilst doing so.
Any ALGO holder can take part in the governance process by participating in Algorand’s Community Governance Programme. To do this, they must first commit a set amount of ALGO for a three-month period, after which they will be rewarded so long as they have remained compliant. Part of remaining compliant means voting in the voting sessions that are listed during each period.
There are no thresholds for a minimum or maximum commitment of ALGO to Governance, and there is no minimum/maximum number of governors. Anyone willing to commit and vote can become a governor. This level of decentralization not only drives the growth of Algorand’s ecosystem, it also means that Algorand is led by its community, making for a more democratic system.
Alongside its democratic structure, Algorand prides itself on being a sustainable ecosystem. Algorand’s founder Silvio Micali explains how, rather than be a late add-on, Algorand was built with sustainability in mind from the outset, stating that “Algorand developed a public blockchain that runs on a version of proof-of-stake, which drives electricity consumption to almost zero”.
Energy consumption has been a central problem for blockchain technology for a long time, as the growth of Proof of Work networks have driven up the amount of energy required to mine new bitcoins. Not only is this bad for the environment, many critics argue that it has led to the increased centralization of the network and made the equipment required to mine prohibitively expensive for the average user.
In doing so, Proof of Stake networks are able to drive down gas fees, a vital factor in creating a scalable system. This in turn also works towards a growing and diverse ecosystem as new developers will flock to the platform to take advantage of the cost benefits and the opportunities to scale efficiently. Since then Proof of Stake has been held up as a viable green alternative to Proof of Work, and was one of the central factors in Ethereum’s Merge.
Yet Algorand’s commitment to sustainability does not end with its consensus mechanism. It has also begun offsetting the remainder of its small carbon footprint in partnership with ClimateTrade, and fosters a range of exciting sustainability projects within its ecosystem.
Underpinning all of these innovations is the security that Algorand provides to its ecosystem at the level of both the consensus protocol and the network. Yet to bolster this security, it is necessary for Algorand-based projects to seek out an Algorand smart-contract audit that equips them to defend against potential hacks.
CertiK’s Algorand smart-contract audit, offers the gold-standard in auditing technology. Using both the cutting edge in AI technology alongside analysis from experts in computer science, the Algorand smart-contract audit tailors its analysis to the specific needs of the Algorand architecture, providing nuanced, incisive, and actionable insights for project teams.
Additionally, for a more robust security posture, Algorand projects must widen their security infrastructure beyond Algorand smart-contract audits and explorers, to include state-of-the-art blockchain analytics tools such as CertiK’s Skynet and SkyTrace. Having these analytics tools in a security arsenal are essential to both anticipating and responding to attacks.
Understanding that transparency is essential to fostering trust between projects and their communities, CertiK has recently begun KYC verification as part of its Algorand smart-contract audit. Using rigorous human verification processes, CertiK KYC helps Algorand projects reassure their communities of their authenticity, which in turn helps foster adoption. As the first Algorand smart-contract audit to do this, this is just one of the ways that CertiK is leading the way in innovating new tools to secure the web3 ecosystem.
CertiK also offers a bug bounty service as part of its security toolkit, which sources experienced programmers and white-hat hackers to continually test and assess a project beyond the Algorand smart-contract audit. This effectively crowd-sources security for projects and ensures that they are fortified with insights from a wide pool of experts.