Posts about Algorand
Algorand has had a particularly hard bear market. First mass inflation lowered the relative value of all other Algo in circulation, the Algo Foundation selling on holders to promote "marketing", leadership changes within Algorand, and tons of controversy within the Foundation itself. Then concerns about being labelled a security by the SEC. With everything that has happened, Algorand just hit a new bear market low at $.1595. The prior low was $.1607 which occurred during the fall out of the FTX collapse.
https://i.redd.it/ghx3e2k6o8za1.pngWhile many Crypto assets like BTC +72%, ETH +55%, ADA +45% have made gains since then the FTX Collapse, Algorand just found a new bottom.
If Algo is destined to slowly bleed out, or if it can reach a new ATH in the next bull is up for debate. For now Algorand is continuing it's drop into apparent irrelevancy.
6000+ tps, high decentralisation, high security. Has Algorand solved the trilemma? From the marketing you would think so, but does it actually live up to the hype? In this post I’ll go through the advantages and disadvantages of Algorand.
(I call “participation nodes”, “validators” throughout the post because outside of the Algorand ecosystem, “validator” is the more recognised term for a staking node)
On average, Algorand blocks times are under 4 seconds which is incredibly quick. Even if you increase the number of validators in the network it would still be able to maintain this speed making it more impressive.
Other protocols that use a similar consensus method to Algorand tend to be less decentralised as when you increase the number of validators involved with consensus, the amount of votes and networking traffic increases exponentially. Algorand uses cryptographic sortitioning to get around this limitation which allows it to have a much more decentralised consensus method.
If you are interested in knowing more about how it works, I have a video explaining it here:
Algorand can do an impressive 6000 tps and are working towards an incredible 46k tps once they implement pipelining.
This high throughput doesn’t just apply to basic transactions. Smart contract transactions also have an impressive throughput predicted to be around 2800 tps for basic swaps. Even Solana apparently only does around 300 tps for swaps on one DEX.
Many in the space believe that in order to be able to process transactions in parallel you need to use the UTXO model, however Algorand (and Solana) have managed to find a way to do parallel processing with the account model as well.
When you create an Algorand transaction you have to state which pieces of state your transaction will interact with. Now validators will know which transactions touch the same pieces of state so can process them on the same core of the processor and have other transactions that don’t touch the same state processed on other cores.
Having such high throughput allows Algorand to have incredibly low fees. The minimum fee for normal transactions is just 0.001 Algo which at current prices ($0.165314) is just $0.000165314.
Many projects that have low fees become prone to spam and dust attacks. Algorand has protections in place to make these types of attacks unreasonably costly.
For spam protection, Algorand has implemented a congestion fee so that if someone tries to congest the network with spam, the fee will increase making it more costly for them to spam. It also has a set of relay nodes who filter out any invalid transactions so that the validators aren’t burdened with them.
For dust protection, Algorand requires every address to have a minimum of 0.1 Algo meaning you can’t just split up an Algo token into its smallest decimal and send it to trillion of addresses to create state bloat. It also requires and additional 0.1 Algo for every asset (like NFT’s) the user owns. This also limits state bloat from users creating trillions of assets.
Algorand has a max supply of 10,000,000,000 Algo tokens which it will hit in 2030.
This gives it good tokenomics for potentially being a store of value once the initial distribution of tokens is over.
Whilst the advantages are amazing, nothing is perfect. Here are the disadvantages:
One of, if not the biggest reason why Algorand is able to have such high performance is because the validators don’t have to handle network traffic. Instead Algorand has a set of highly powerful relay nodes set up and validators offload networking to the relay nodes.
These relay nodes require beefy machines and large amounts of bandwidth. They are expensive to run so limits how many people can afford to run them which limits decentralisation.
Currently people running relay nodes are given large rewards in the form of newly minted Algo tokens. Whilst technically anyone can run a relay node, you only get the rewards and are added to the relay node list if you are approved by the Algorand foundation which essentially makes them permissioned.
People underplay how much influence they have in the network because they aren’t directly involved with consensus. However they are indirectly involved as they could choose to not relay blocks or transactions that they don’t like to indirectly prevent consensus happening on certain blocks or transactions.
A lot of trouble was caused on Ethereum when Tornado cash was banned by the US treasury and many validators started following OFAC compliance by not including Tornado cash transactions in their blocks. However ultimately no transactions were censored because there were enough independent validators who didn’t follow OFAC rules and included the Tornado cash transactions.
If Tornado cash was on Algorand, it’s pretty likely that most Relay nodes would simply not relay any blocks that contained Tornado cash transactions to validators. You only need 26% of validators to not receive a block for consensus to not be reached so you don’t even need a majority of Relay nodes to cause censorship on Algorand.
Using high powered hardware is inevitable in order to scale, however if you do use it, you should have a back up option that is more decentralised in case the powerful nodes collude and censor. Algorand doesn’t have this for Relay nodes.
Relay nodes are essentially the backbone of the network and cost a lot to run. The cost is high enough that people can’t afford to run them voluntarily. Despite this, after 2030, Algorand will hit its max supply and will no longer be able to provide rewards for running relay nodes. Will people continue to run them without these rewards?
There are talks of funding relay nodes through fees but Algorands fees are tiny and it would require the network running at almost full throttle continuously to generate enough fees to cover the costs of the relay nodes.
Previously, the requirements for running an Algorand validator or node were fairly lightweight and you could easily run one on a cheap Raspberry Pi.
Now you need an 8 core CPU and a 1 GB/s connection with low latency. These are approaching data centre specs and are no longer accessible for the average user.
Almost all Algo tokens went to the team and insiders. Algorand has one of the worst token distributions in the space. Only 0.05% went to the public.
Despite staking no longer being easy from the increased validator requirements, there is no reward for staking with Algorand. This has led to the situation where very few people are staking.
They did previously offer a temporary reward to stake which initially got people to do it but since they removed the reward, the number of validators has dropped.
Previously, when there was an incentive, over 80% of Algo tokens were staked, now it’s just 34%. By not offering an incentive, Algorand is sacrificing security.
Even the founder Silvio Micali has said:
“We must use incentives as a last resort. I believe I can [make Algorand work without incentives], but I have no formal proof that I can, because these formal proofs are much harder than the proofs for Algorand“
Also, seeing as the initial distribution of Algo was very poor, the 34% may just be a few entities as well. It’s hard to find data on the distribution of the stake.
Despite having strong connections with many businesses, being able to support massive throughput at fast speeds and having a well known brand within the space, no one is using Algorand.
It can be speculated that it’s because of the poor distribution leading to no strong community of early adopters. Even for the early adopters the price has not done well leading to some bitterness from the community.
I was initially going to add another disadvantage of being prone to state bloat because any chain with high throughput will be prone to state bloat. However, the adoption isn’t there so state bloat isn’t an immediate issue. Algorand also has state sharding in their longer term roadmap as a potential solution anyway.
Percentage of voting power required for liveness:
Longest chain: 51%
Classic BFT: 67%
Algorand: 75%
Avalanche: 80%
It’s not as bad as Avalanche, but Algorand has less robustness than most other cryptocurrencies. Due to introducing randomness to the Classic BFT model, they had to increase the liveness requirements in case an attacker was randomly given a high percentage of the subsample for a block.
To many it looks like the Algorand Foundation have just been throwing money away by doing things like sponsoring a Drone Racing League $100 million over 5 years. At the time of the sponsorship, the Drone League was worth $200 million. This sort of thing puts people off buying Algo as buying Algo indirectly funds the Algorand Foundation wasting this money.
Algorand is on a ticking timer until 2030 when it will hit its max supply and no new tokens will be minted. By this point it will need to have enough adoption so that it can generate enough fees to subsidize the costs of relay nodes. Hopefully it finds a way to incentivise people running normal validators as well.
Whilst the cryptography may be good, the crypto-economics of Algorand are poor. It only has 7 years to fix this.
It also can’t really claim high decentralisation anymore if it requires normal validators and nodes to have a 1GB/s internet connection. This puts it more in competition with Solana, Sui and Aptos than more decentralised cryptocurrencies like Ethereum or Cardano.
Solana is faster, has more adoption, has a bigger ecosystem and a more accessible smart contract language whilst having a similar throughput and fees. Aptos and Sui are the hyped up newcomers with similar specs and lots of VC backing. The Algorand foundation needs to find a way to attract developers over these other projects so it can build its own ecosystem and create adoption.
Personally I would wait and see when it comes to Algorand. If by 2030 it has created a more sustainable model that provides enough incentives for people running the underlying infrastructure and built up significantly more adoption, it may be worth investing in. For now though, it seems like the price won’t go anywhere due to the foundation and relay nodes constantly selling so other tokens are a better investment in the mean time.
I intend to make a post like this for all the major L1's so subscribe to my substack if you are interested https://altexplainer.substack.com/
It's September 2021: the Algorand price just hit $2.38, Algonauts are everywhere, and the CryptoCurrency sub is best described as a living shill for the Algorand blockchain.
The Excitement is enticing and contagious as Algorand locks in one partnership after another, but behind the scenes... A Series of Unfortunate Events are Begining to Unwind, and what was once a promising blockchain to laugh and make jokes about - is quietly becoming a disaster for investors.
This post is not a technical breakdown of Algorand nor is this post meant to fud the future of Algorand. This post is about the absolute disaster that continues to unravel for investors of the Algorand Blockchain.
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If someone told you about Algorand they probably also told you it was founded by Silvio Micali "a cryptography pioneer, Turing award winner and MIT professor". Algorand launched in 2019 and hails itself as a Pure Proof of Stake (PPOS). The most notable difference from traditional Proof of Stake (POS), is that the creator of the next block is selected randomly irrespective of their total stake. As the name implies this approach is touted by Algorand supporters as a more fair and decentralized version of POS.
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Like most crypto projects Algorand absolutely blew up in 2021, it started the year under $.40 and it ended the yearover 4x around ~$1.65. However unlike most crypto projects that peaked in early November Algorand peaked in September.
https://i.redd.it/0jgjkqekoloa1.pngWhat sounds like an interesting side note, holds a much darker truth for investors - Algorand inflated by 533% in 2021, as the circulating supply jumped from 1.19B to 6.37B - and 12% in 2022 from 6.37B to 7.14B. If you line up the graph for the increase in circulating supply to price, you can see the September 2021 peak lined up with a large surge in the circulating supply and a steady drop in price since.
https://i.redd.it/oqzgptvwemoa1.png------------------------------
In January of 2022 the prior CEO of the Algorand Foundation was quietly ousted from the company, and replaced with the new CEO Staci Warden. The replacement has been incredibly controversial inside the Algorand Community as the new Foundation CEO thought one of the major priorities for the Algorand Foundation was to focus on PR.
https://twitter.com/StaciW_DC/status/1499202881647489025Additionally she's been largely criticized for acting childish and immature in her public statements - with statements that are meant to create "baseless hype" which leads to Algorand believers holding even larger underwater bags. If you have ever heard of Staci before it's probably for her, "Nike" tweet.
https://i.redd.it/ds8gyyfxuqoa1.pngThis one word tweet, lead people to believe big things were imminent for Algorand Investors with a potential Nike Partnership. Instead it was later revealed that Staci had hired a former Nike Executive as the Chief Marketing Officer for Algorand.
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If you are familiar with Algorand Tokenomics you probably know, Algorand has a max supply of 10B and the beginning Centralization of Tokens with the Algorand team was one of the worst things about Algorand.
https://i.redd.it/1r9ia3fgipoa1.pngAs you can see, Algorand itself was one of the initial largest holder of Algorand. When a Crypto organization needs to raise funds - they do that by selling their tokens, and that's exactly what the Algorand Foundation did. To the Foundations credit, they make bi-annual Transparency Reports that detail how much they sold and sometimes what those funds were used for. Below is a breakdown of the sales from October 2020 - September 2022 time period. Links to Transparency Reports information was gathered from: 1, 2, 3, 4 .
Numbers in AlgoIn the Past two years the Algorand Foundation has sold 228M Algo and Paid their Board of Directors another 3.65M Algo. Important: these numbers do not include Algo given out for for ecosystem development - That includes another ~400M Algo over two years, some of which may have also been sold.
The past few years have been huge for Partnerships with Algorand, it seemed like every week the Algorand Foundation was announcing a new partnership. But most of these were just glorified real-world Sponsorships that Algorand paid for, that came with an Agreement to do do something on the Algorand blockchain, like FIFAs NFT flop.
https://i.redd.it/df9n4vqiypoa1.pngAnnounced in May 2022, Algorand became the official blockchain partner of FIFA. Immediately after the announcement the price of Algorand spiked 20%, but what investors had hoped would be game changing for the Algorand network - ended up as just another disappointment. In September 2022, FIFA launched an NFT project on the Algorand Blockchain - with over 205,000 mints, at a cost of $5 each and low resale interest: the project just ended up being a further $1M cash grab for FIFA.
The Algorand Logo was not on display as a partner during the Fifa world cup. Additionally there was not an ad or Algorand TV Spot during the world cup, something Algorand supporters had hoped to see.
Under the guidance of the new Foundation CEO Staci and a pivot to focus on PR - Algorand the "Greenest Blockchain", planned a huge marketing stunt for Earth Day 2022. They rented the time square billboards for one hour to black them out. Then they intermittently flashed them Green with the Algorand logo and text about how Algo energy consumption compares to BTC.
Source: https://shortyawards.com/7th-impact/algorand-earth-day?trk=public_post_feed-article-contentOf course the money for this publicity stunt, had to come from somewhere, and that money came from dumping Algo on Investors. From April - September 2022. The Algorand Foundation spent $22.2M on "Marketing and other forms of ecosystem promotion" which was raised by selling Algorand. In the prior six months, they only spent 9M in the same category.
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In late February MyAlgo was hacked and some of the largest holders on Algorand saw over $9M in Crypto drained. A week later smaller holders on MyAlgo also started to see their crypto drained in what at the time seemed like Bots draining wallets.
Image taken from a /u/Odlavso postMyAlgo will be releasing the Preliminary Findings on the Hack tomorrow, Mar. 20th 2023.
In January 2022 TinyMan was hacked and $3M was drained from Algorand ASAs (tokens). Source
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With all of these problems and the continuous sell pressure from the Algorand Foundation - Algo's price has continued to drop over the bear market. One Algorand was selling for nearly ~$2.40 in Sep. 2021, and is now selling for $.22. If Algorand tech can turn around the nightmare that is occurring for Algorand investors is another question.... but one thing is certain - A series of Unfortunate Events has made Investing in Algorand an absolute nightmare.
TLDR: What was once a loved project shilled endlessly by this sub has quickly and quietly turned into a nightmare for anyone still left in the project.
Edit: Since some people think analyzing the failures of Algorand over the past 18 month is "hating Algo and Fud", please read the post again. The inevitable comments about "This sub hates Algo now, I Guess that Means It's Time to Buy" misses the entire point of this post.