Blockchain technology has evolved through the years though it is far away from its tipping point. The Bitcoin blockchain – a precursor to the others we have witnessed in recent times – has been faulted for its scalability challenge, which prompted the creation of Layer 2 solutions like Lightning Network. The Bitcoin blockchain also fails in the aspect of speed because it takes longer (approximately 10 minutes) than any other blockchain to confirm or validate transactions.
The Algorand Blockchain
Transitioning from the proof-of-work consensus on Bitcoin, blockchain technology has birthed many other consensus algorithms such as proof of stake (PoS), delegated proof of stake (DPoS), proof of history (PoH) and pure proof of stake (PPoS). The decentralised and permissionless blockchain Algorand parades. Each of these consensus algorithms reserves specific benefits for their users even as they try to outperform one another.
However, Algorand’s PPoS consensus algorithm has been touted as the best, not because of the term ‘pure’ but because it addresses what is known as the blockchain trilemma. This term refers to the core properties a blockchain is meant to possess: decentralisation, security and scalability. Although these properties are relevant to the proper functioning of every blockchain, it has been argued that no one blockchain can possess all three. Vitalik Buterin, the brain behind the concept, reasoned that a blockchain can only select two of the three properties while foregoing the last.
Rebelling against Buterin’s trilemma, the Algorand blockchain boasts all three properties. Thus, the blockchain is decentralised, scalable and secure. Algorand was founded in 2017 by Silvio Micali, a computer scientist and MIT professor. The Algorand blockchain officially launched in 2019. Being an open-source and public blockchain, Algorand has attracted many developers, offering them the opportunity to build various decentralised applications powered by cryptocurrencies. Algorand has been employed for numerous use cases across different sectors, including real estate, copyright and microfinance.
Decentralised Finance (DeFi) and Non-fungible Tokens (NFTs) on Algorand
The DeFi industry has had a lot to gain from the Algorand blockchain, thanks to the irresistible perks of decentralisation, security and scalability. More than ever, Algorand is unlocking the golden potential of the emerging market for NFTs or non-fungible tokens. NFTs have come a long way, changing the scope of item or asset ownership with the help of blockchain technology. Amassing a total transaction value of $250 million in 2020 alone, the NFT industry is poised for more growth.
The NFT market witnessed more explosion in terms of growth in March 2021 when popular artist Mike Winkelmann aka Beeple sold his Everydays: the First 5000 days digital artwork as an NFT for a whopping $69.3 million to popular NFT collector Metakovan. In light of Beeple’s auction and other high-profile sales, NFTs became a major attraction to artists and content creators, furthering the growth of the creator economy.
Despite the possibilities NFTs present to artists and content creators, including the ability to showcase their works to the global community and sell them at significant monetary value, one challenge has always remained: the difficulty in turning physical items into NFTs or creating them from scratch, especially with the high gas costs on some blockchains. Additionally, the surge in the volume of NFT transactions in marketplaces has highlighted the need for a more flexible and speedy infrastructure lacking in most blockchains.
Algorand aims to be the game-changer for NFTs, simplifying their creation and exchange process. With the Algorand Standard Assets (ASA) capability, a fast-paced and low-cost Layer 1 mechanism on the blockchain, artists, musicians, creators can easily represent any type of asset on the blockchain. These include art, trading cards, music and video. Even physical items such as real estate and luxury cars can be tokenised and deployed on Algorand. With Algorand, centralisation is eliminated such that there is a direct transactional relationship between NFT collectors and creators. The latter keeps most of the monetary value, in contrast to the practice in the traditional art industry.
The Algorand blockchain has positioned itself as a hub for DeFi, upholding the tenet of decentralisation as Satoshi Nakamoto envisioned it. Consequently, the creation of both FTs and NFTs via the ASA functionality on Algorand offers lots of benefits for developers and other users. Some of them include the following:
High gas costs have been a prevalent issue facing users performing NFT-related activities like minting, buying and selling. This is one of the shortcomings of several existing and emerging blockchains. Algorand is viewed as a solution to the challenge of high gas fees owing to its PPoS algorithm. The PPoS algorithm also helps the blockchain achieve full decentralisation because validators on the network are randomly and privately selected at different intervals. Thus, creators are in total control of their tokens and play a role in validating transactions because they hold the native cryptocurrency ALGO.
NFT issuers and retail collectors are usually turned off by costly gas fees and attracted by cost-efficient blockchains. This accounts for the impressive growth of Algorand over the past year. ALGO is equally benefiting from the growth. Minting costs on Algorand are very low, which allows artists to mint as many NFTs as they like on the blockchain. Moreover, there is no difference between NFTs minted on Algorand and other blockchains; they all have the same functions and capabilities.
Algorand is a forkless blockchain that gives creators the advantage of securing their NFTs and protecting them from duplication. Developers also have access to a wide variety of tools with which they can customise their tokens according to their preferences.
The ASA functionality on the blockchain allows developers to leave their FTs and NFTs in restricted mode. Tokens that are restricted can only be sent to specific accounts on the network and locations. This tool is especially useful for real estate NFTs.
Less Carbon Footprint
This is a major selling point for Algorand. Unlike the PoW algorithm on certain blockchains, Algorand’s PPoS is energy-intensive because there is no need for mining. It also makes the Algorand blockchain eco-friendly, thereby putting it ahead of other blockchains.
The Algorand blockchain supports the instant settlement of transactions. It also boasts a higher throughput than most blockchains, allowing many transactions to be executed simultaneously.
The NFT sector is still in its infancy. From the phase of CryptoPunks, CryptoKitties, Etherocks and Bored Ape Yacht Club, the market has witnessed the emergence of new projects, expanding transaction volumes in several marketplaces. The Algorand blockchain is a springboard from which the sector can leap to its zenith.