Coin to watch: Algorand is trying to build a smart contract platform without tradeoffs
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Developed by MIT professor and master cryptographer Silvio Micali, Algorand is one of several blockchains hoping to unseat Ethereum as an all-purpose platform for smart contracts.
About 700 companies are building projects on Algorand, which processes around one million transactions a day. There have been about 4.5 million Algorand Standard Assets created on the blockchain. These tokens, both fungible and non-fungible, can represent just about anything: loyalty points, real estate, securities, in-game items, collectibles and more.
It’s the No. 38 crypto with an overall market cap of US$2.8 billion, on a 24-hour trading volume of US$176 million.
Algo is up 161 per cent year-to-date, which is certainly respectable and better than the gains of competing smart contract platforms Tezos, EOS, Neo and Tron but lags the stellar returns of Solana, Cardano and Ethereum.
But the blockchain been experienced a spate of activity lately including Michael Arrington’s venture capital fund investing US$100 million to build projects in the Algorand ecosystem; digital wallet company Exodus Movement announcing it would digitise its common stock as EXIT tokens on the Alogrand blockchain; and the news that a cross-border payment project would be built on the platform by a company founded by two former Paypal executives.
In total over US$600 million has been devoted to building on Algorand since the platform launched two years ago.
This weekend, the Blockchain Technology Centre of Monash University in Melbourne will be holding a hackathon with the Algorand Foundation, developing ideas to use the platform for social good.
As a proof-of-stake blockchain, Algorand doesn’t rely on “mining” in the same way Bitcoin does; people can “stake” their Algo coins instead and be rewarded with more tokens. For example, Algo tokens held on Melbourne exchange BTC Markets compound at a rate of 5.71 per cent a year.
In addition to the Singapore-based Algorand Foundation that oversees the community, monetary policy and a grant program, there’s also Algorand Inc, a 70-person Boston-based technology company focused on maintaining and building out the protocol.
To learn more, Stockhead talked to Algorand Inc’s Boston-based chief product officer Paul Riegle in a Zoom call recently.
Stockhead: So to start off with, can you tell me about Algorand and what makes it different?
Riegle: Sure. So we started as an academic project out of MIT. It was really the brainchild of a founder Silvio Micali, who just looked at the underlying protocols that were out there — his basic premise was, love the concept here. But the underlying tech just didn’t have sort of oomph to get things straight.
And one of the biggest and easiest thing to point out was scalability. You know, Bitcoin’s operating at five to 10 transactions, Ethereum is operating at 10 to 15 transactions a second.
And so he basically said, ‘I think we can do better. So he was working on the project for about two years and then it was spun out in early 2018; we launched in June of 2019 at a little bit over one thousand transactions a second.
So basically two orders of magnitude better than what was out there at the time, for a public and permissionless chain.
We’re in the middle of a project now to go from one thousand to 10,000, and then from 10,000 to about 40, 45,000.
So I think one of the things of the gate is the underlying research and fundamentals of the technology are really I think differentiated in this space.
As you know, there are different trade-offs, you can make to get speed.
There are some blockchains that are very very fast but have traded it off decentralization and are centralized.
One of our tenets is we are really not trying to trade-off here. We want to be completely decentralized by design, and be able to scale to millions, hundreds of millions of users.
We want to be able to be one of the fastest, if not the fastest chain; we want tohave a security model that stands up against anybody. And so we’re really prepared to not trade things off, and the only way to be able to do that is to be really kind of rigorous in your theoretical research. And then, have the chops to be able to implement it.
So I think from a high level that’s probably something that differentiates us.
When you get a little bit more tactical you get into things like, the cost of the blockchain is very cheap. And that’s true both for simple transactions but also for smart contract transactions.
So if you get into a world where smart contracts are ubiquitous and we’ve seen on other chains, those fees go up really high. You’re paying $50 to deposit $10.
And on Algorand, that is simply not the case. The fees are 1,000th of an ALGO or less than a cent. We’ve got powerful smart contracts that are cheap and fast.
At the end of the day — let’s say 10 years from now — people aren’t going to be talking as much about the blockchain protocols…. in the same way that you and I don’t talk about HTTP protocol while we talk to each other right now. It’s just on the back end and it’s doing its thing, moving data around.
Our expectation is the same thing is gonna happen with blockchain — it’s just on the back end, it’s a protocol, and it’s moving value around instead of information.
And one of the things that I think truly sets us apart is that our protocol just works. It works, it works well, it’s easy to interact with, and it’s the kind of thing that, major institutional-level applications can plug into and be confident that it’s going to work on the back end, and they won’t have to worry about it.
Similarly, the defi space was looking to sort of expand their user base into the more traditional sector.
You know, building on top of a protocol that that just works and is fast and is easy to interact with. That’s the kind of thing they need to be able to expand to that larger market.
And so that’s I think something that has set us apart is, when I talk to companies that have either started on other chains and move to Algorand, or even the companies like the various exchanges that have to interface all the various protocols.
One thing we hear consistently is, ‘Hey, your protocol just works’.
To us, we say of course, but apparently that’s a thing with a lot of (blockchains), there’s more difficulty to interact.
Stockhead: Are you focused on any particular niche? I think of Algorand more in terms of finance. Is that true, or are you trying to be all-purpose?
Riegle: So certainly we see ourselves as a place where the traditional finance world and the decentralized finance world can meet. A place that sort of facilitates that.
You know, there used to be a saying — it doesn’t truly apply anymore — that traditional finance has all the money and none of the innovation; decentralized finance has all the innovation but none of the money.
Of course that has changed, but the underlying premise hasn’t changed. They’re going to come together, the big guys are going to find some of the decentralized finance technology they like and integrate it into their stack.
The big decentralized finance players, they’re going to be able to hop markets and pull some users over. So these things are going to come together, and what they need to come together as a protocol that just works. That has immediate finality, that works for the scale that they need, that has a reasonable cost model. And we can we see ourselves as a place that can provide that spot for these two worlds to collide.
Now that’s not to say we don’t have other use cases on-chain. We have a lot of NFT [non-fungile token] action going on both in terms of creation but also in terms of marketplaces.
We have Web 3 infrastructure that people are trying to build.
We’ve got a lot of very interesting projects, and that’s because you know ultimately if you build a protocol, it’s pretty general purpose, but we think that the intersection of traditional finance and decentralized finance is really where you’re going to see a lot of action.
Stockhead: One thing I’ve heard from people in the space is that maybe Ethereum is not the best, but it just has such a pool of developers and people building on it already, that it’s hard for anyone to overcome that. How would you how respond to that?
Riegle: Yeah, I’d say a couple of things.
I would say certainly Ethereum is sort of the big fish in the very small pond next to the ocean.
And I think that the number of users that are developing on blockchain, the number of developers in blockchain and the number of users of blockchain are just minuscule compared to what they’ll be in the future.
So that’s one way to answer that question.
And then the other way that I would answer that question is that all technologies sort of go through this cycle, where you’ve got the early innovators, you’ve got the early disruptors and you get sort of a pool of users around that, and then you get disruptors that come and really kind of push the game forward.
Eventually there’s a reckoning, and the user experience tends to drive the changes, not so much the developer experience, although in some cases it’s also the developer experience.
And I think when you talk about building an application where, you’re gonna have a financial obligation where you’re not actually sure if your transaction has actually happened for 15 minutes, or 10 minutes or five minutes or three minutes — that’s maybe a user experience that can be disrupted. And fast — like those kinds of things can swing very very fast.
So just to recap. There’s a lot of folks out there that haven’t been exposed to blockchain yet, and the folks that are, continue to understand that these business models are refined, user experience gets more and more important. It’s less about this like backroom, underground technology and more about ‘this is a mainstream technology, I need the best. I need the best experience I can get for my users now’
Stockhead: People have compared Algorand to Cardano — do you see that comparison, and what would be differences?.
Riegel: Yeah… I don’t like to talk about other projects very much, other than, people are working hard and doing their thing.
I will say, we’re very similar to Cardano in terms of our reliance on research and our focus on really sound research from the top down. I feel like perhaps, we have put out more technology than Cardano has. But I don’t like to go down that route.
So I think a lot of the people in the space have heard of zk-SNARKS because of their use in privacy coins? [For those interested in the cryptographic technology known as Zero-Knowledge Succinct Non-Interactive Argument of Knowledge, you can read more about about them here]
I understand Silvio is a co- inventor of them?
Riegel: He was, yeah, the core inventor of a number of cryptographic primitives that have always been incredibly interesting, but only recently have started to really find applications,mostly because of the ability to actually run these things.
It’s been too expensive and taken too long, but those sort of economics and underlying resource constraints are starting to change.
So yeah, he is a co-inventor of zero-knowledge proofs and also a number of other things like the verifiable random function or the VRF, which is something that underpins our technology and in fact, I think Cardano has as looked at themselves.
Stockhead: Do the zero-knowledge proofs play a role in Algorand?
Riegel: So they’re not part of the foundational technology, but certainly, they could be used as sort of a layer 2 privacy-preserving capability.
We’re doing some work now that will involve zero-knowledge proofs around blockchain interoperability and state synchronization across blockchains.
So they’re sort of ancillary right now. They’re things that we think about, and we used, but not the non-core protocol.
And certainly, there’s some interesting applications as we move forward and look at various scaling solutions, layer two scaling solutions that rely heavily on zk-SNARKS. But we’re trying to solve that scaling solution at layer one, rather than jumping to layer two.
Stockhead: So where are things going from here, as far as product priorities?
Riegel: Yeah, so we’ve got three big priorities that we’re focused on.
The first one is performance, which we talked about a little bit earlier. We’re at about a little over a thousand transactions [per second], now we’re gonna move that up to 10 and then up to, in the 40s is the target.
And that’s a pretty big change there. We got to get into the guts a little bit, and there’s a number of ways we’re looking at doing that over the next six months or so.
And you’ll see that rollout in kind of phases. It’s not going to be a thousand today; 40,000 tomorrow. We’ll go up to five, up to 15, sort-of milestone our way up that way.
The second big priority around our smart contract platform. We’ve recently announced the Algorand Virtual Machine, which is very similar to the EVM [Ethereum Virtual Machine] on the Ethereum side.
And so we’re doing a ton of work around just making it more powerful; reducing the constraints; making it cheaper, more composable — everything we can possibly do to make Algorand a destination chain for smart contracts.
And we’ve made a ton of progress there.
And then our third priority is blockchain interoperability. Our belief is, it’s going to be a multi-chain world and that layer one protocols should make that easier. It shouldn’t just be up to layer two inter-op providers.
There are things layer one can do to make their lives easier and make their jobs easier and continue to minimize the trust needed, if not eliminate the trust needed to create token bridges or arbitrary message passing or whatever you need to do between these blockchains.
So those are our big priorities, we’ve got big deliverables scheduled in each one of those areas — hopefully all in 2021.
So I know that environmental impact is something that people are talking about when it comes to cryptocurrencies. Can you tell me about Algorand’s energy consumption?
Riegel: Right I’m going to start by saying, I think that the mainstream arguments around energy usage on Bitcoin are maybe not as nuanced as they should be.
And not that it doesn’t use a bunch of energy but that the arguments that are being used are not symmetrical arguments.
Like, for instance, how much energy is used cutting grass? Nobody knows, nobody cares. Because if people think the grass needs to be cut and it’s really hard to figure out exactly how much energy is being used.
Whereas, with Bitcoin is very obvious here how much energy is being used and the value being created from that is very high.
So I would say I think that argument is not very nuanced.
I will also say that we use just a tiny, tiny fraction of the amount of energy that’s used by a proof of work system.
Our nodes are run on off the shelf hardware, and the compute is minimal. We’re not solving hash puzzles in a proof-of-work style system.
So the energy use is very, very small. In fact, not only is our energy use very very small but we are carbon-negative as a blockchain.
We have created a system with smart contracts and on-chain carbon credits where, given an oracle that says here’s how many nodes are in the system, the smart contract will go buy carbon credits to bring the offset all the way down to negative for the blockchain.
And that’s also true of our company, but also for the blockchain which is which pretty cool.
We think we’re the first carbon-negative blockchain system and smart contract system.
Stockhead: Is there anything else people should know about Algorand?
Riegel: The one part of the tech that I missed that, particularly when we talk about differentiators is our focus on layer one primitives.
So when you look at something like Ethereum, all the tokenized assets on Ethereum are through smart contracts — ERC-21, ERC-721, etc.
And what we found when we did some analysis is that, there’s a lot of people copying and pasting contracts.
The reason is because they either don’t want to have a whole development team just to tokenize something and use that within the application. Or it’s just faster.
And so you end up with some interesting dependencies, where I’ve copied it from them and they’ve copied it from someone else.
Or you’ve got the development team just to do the basics.
So we built this framework for layer one primitives, such that you don’t need developers to do some of this stuff.
And you’re doing it with a higher degree of security in a cheaper way and in a faster way.
So for example, to create an asset on Algorand using the Algorand standard asset framework is a single transaction with about four parameters: What’s the name of it; what’s the number of units; what’s the decimals; and then send the transaction.
The asset is created, and it’s created at the layer one layer, which means it costs the same as Algos in terms of transactions; it’s at the same speed, the same security model — all of the things that’s nice about being the native token applies to the assets that are created by anybody.
And similarly, we’ve got layer one primitives for things like atomic transfers, multi-party atomic transfers.
Really the goal is, simplifying, but also increasing the level of service, if you will, to those users.
So it’s simpler to use from a developer standpoint. It’s simpler to use from a business standpoint. But it’s also faster, cheaper and more secure, as well.
And I think that’s something that has really resonated with the folks building on Algorand versus some of the other chains we’ve looked at.
This interview has been lightly edited for clarity.