What is Algorand (ALGO)?

At Bitstamp, we keep our eyes open for exciting and promising new projects and are committed to listing the best the crypto industry has to offer. We’ve recently added another batch of assets to our exchange, one of which is the self-proclaimed “FutureFi” token ALGO, the asset at the heart of the Algorand platform.

Here we take a look at what makes Algorand special, what makes it tick and how it manages to ensure it’s network is nice and secure.


  • A blockchain platform for fast and secure global transactions and simple creation of financial instruments.
  • It is based on the pure and permissionless Proof of Stake consensus algorithm.
  • Transactions are approved and verified by randomly-selected committees of Algorand users.
  • A custom-made randomization function known as Verifiable Random Function ensures that the process of committee selection is transparent, but private.

The idea of Algorand

Algorand is the brainchild of the MIT professor and Touring award laureate Silvio Micali. Recognising the immense potential of blockchain technology, he and his team set out to design a blockchain that would reap all the benefits of a decentralized and distributed system, while at the same time eliminating some of those pesky problems that have been pestering some of the earlier blockchain-based cryptocurrencies.

What they came up with was Algorand, a blockchain that gives everyone access to high-speed transactions across the globe, while maintaining rigorous standards of security. The platform manages much more than mere transactions of cryptocurrency – it brings the worlds of DeFi and traditional finance closer together by allowing for simple creation of next generation financial instruments, protocols and exchange of value.

Algorand is a unique blockchain

Algorand sees the key promise of blockchain in streamlining today’s economy by getting rid of everything that holds it back and building on new technology and innovation to drive the economy forward. This means removing middlemen and intermediaries, lowering fees, eliminating delays and overall improving the processes that make operating with financial instruments a pain.

But the way many of the largest blockchains out there were configured, they left something to be desired. So Algorand’s team went their own way and designed their own unique blockchain to deliver on this promise by being global in scale, having robust security and achieving true decentralization.

What makes Algorand unique?

Pure Proof of Stake, the technological backbone

Micali and his team quickly realized that Proof of Work (PoW), the consensus mechanism used by some of the oldest and largest cryptocurrencies, simply wouldn’t do for their project. PoW requires computational work to demonstrate that new blocks are legitimate, which consequently translates into electricity, and money. While this may have been completely fine back in the day when cryptocurrencies were small, they’ve grown immensely and this energy requirement skyrocketed.

That’s why Algorand uses a different method to create new blocks: Proof of Stake (PoS), meaning that everyone who holds a stake in the blockchain gets a say in block validation. The idea is that if your funds are on the line, you’ll act in the best interest of the whole system and validate legitimate blocks. This way, you can create new blocks with ease, at minimal cost, but no less securely than with PoW.

Algorand’s version of PoS is pure, unadulterated, proof of stake and doesn’t use any centralized delegates of fixed committees to validate blocks. Instead, when its block validation time, what happens on Algorand is essentially this:

  1. The protocol randomly selects committees from the participating ALGO holders.
  2. Selected committees then validate and approve the next block in the chain.
  3. Whenever a block is written into the blockchain, a new set of random committees is made and the block creation process starts again.
Pure permissionless Proof of Stake

Ensuring security through randomness

The trick is that the selection process needs to be completely random, and no one can know who is going to be part of the next committee. If this was knowable, bad actors could influence future committee members to act in their favor.

To solve this problem, Algorand utilizes a custom-made cryptographic randomization tool called Verifiable Random Function, or VRF, which is used to select committee members randomly, privately and fairly. With VRF there is no central authority or system that selects committee members. Instead, each participant can use VRF to check for themselves whether they’re a part of the next committee.

The genius of VRF is that even if a user is selected, this remains known only to them, so they can validate and approve blocks without any external influence. They only become known after the round is complete and the committee disbands. The next round then starts fully independently of the previous committee and the blockchain continues. The fact that each user can participate in the committee just as well as any other is known as user replaceability.

Committee selection via VFR and the notion of user replaceability are essential in making the Algorand blockchain secure, as they eliminate the requirement for a central authority that may be used as a target for attack. Since there is never any communication between such a central authority and the users of a blockchain, there is no information for a bad actor to intercept.

Designed with security in mind

ALGO has already become one of the top 50 largest cryptocurrencies by market cap and the platform may play an important role in the future of the rapidly-developing DeFi industry. We are adding our part by allowing you to trade ALGO at Bitstamp with zero fees until the end of July 2021. Simply log in to our platform or create a new account and enjoy buying and selling ALGO with zero fees!