{"id":6348,"date":"2023-02-23T17:30:31","date_gmt":"2023-02-23T17:30:31","guid":{"rendered":"https:\/\/ifg.local\/articles\/what-is-algorand-is-it-halal\/"},"modified":"2023-09-21T10:03:38","modified_gmt":"2023-09-21T10:03:38","slug":"what-is-algorand-is-it-halal","status":"publish","type":"post","link":"https:\/\/www.islamicfinanceguru.com\/articles\/what-is-algorand-is-it-halal","title":{"rendered":"What is Algorand? Is it Halal?"},"content":{"rendered":"

Algorand (ticker: ALGO) is a relatively new cryptocurrency and open-source blockchain<\/a><\/span> platform that focuses on scalability and speed. Officially launched in 2019, the Algorand platform and the accompanying ALGO cryptocurrency rank<\/span> 35th<\/span><\/span><\/a> in the cryptocurrency world.<\/p>\n

<\/p>\n

Algorand seeks to compete directly with Ethereum, the juggernaut in the crypto world, offering a similar use case with smart contracts and Proof-of-Stake (PoS)<\/a><\/span>.<\/p>\n

Just like Ethereum, most scholars hold Algorand to be halal. We also share this view.<\/p>\n

Read on for a deep dive into what Algorand is and how the ALGO cryptocurrency works.<\/p>\n

What is Algorand?<\/span><\/h2>\n

Algorand is both a cryptocurrency (ALGO) and an open-source blockchain platform that offers fast transaction speeds and a smart contract ecosystem in much the same way Ethereum does. In fact, Algorand is a direct competitor to Ethereum and aims to become the mainstream smart contract and payment currency in the cryptocurrency space.<\/p>\n

Silvio Micali, renown cryptographer and a professor at the Massachusetts Institute of Technology (MIT), founded Algorand in 2017. The platform was officially launched to the public in June 2019.<\/p>\n

It is easy to understand Algorand by comparing it to Ethereum. It has a similar consensus mechanism, has smart contract capability, and is directly competing with Ethereum.<\/p>\n

Algorand is open-source just like Ethereum, meaning anyone can see the code behind the platform. This allows it to garner a level of trust and foster a developer community that is harder to come by in closed source projects.<\/p>\n

Algorand\u2019s unique selling point is that it boasts fast transaction speeds, and can scale these fast transactions allowing it to position itself as a crypto version of Mastercard or Visa. Meaning that Algorand aims to be the <\/em>payment and currency network that handles global transactions at near instantaneous speeds.<\/p>\n

Another way in which Algorand competes directly with Ethereum is that it can host other cryptocurrencies in its ecosystem and blockchain platform. This would allow people to start their own cryptocurrency whilst using the underlying technical prowess and open-source platform of Algorand.<\/p>\n

The number of ALGO coins is capped to a total of 10 billion, with about 7 billion in circulation right now. This creates some level of scarcity which provides ALGO coins with value.<\/p>\n

How does Algorand work technically?<\/span><\/h2>\n

The Algorand network is a decentralised, open-source blockchain platform that was designed to be fast, secure, and scalable to handle massive volumes of transactions at near instantaneous speeds.<\/p>\n

Ethereum validates a new block of transactions within 12-14 seconds, whereas Algorand validates a new block of transactions within 5-12 seconds<\/a><\/span>.<\/p>\n

Bitcoin (and previously Ethereum) uses a Proof-of-Work (PoW) mechanism to validate these transactions. PoW is essentially using very powerful computers to solve increasingly complex mathematical puzzles to add a block to the blockchain. The one who solves the puzzle in a PoW is rewarded. This person is called the \u2018block proposer\u2019. <\/p>\n

The problem with PoW is how energy-intensive it is. Due to the computing power required it simply costs too much for most people to participate.<\/p>\n

Ethereum moved onto the Proof-of-Stake (PoS) system in 2022, where users can \u2018stake\u2019 their coins to validate new blocks and earn rewards. Staking is basically locking up coins as collateral to earn coins. You can read more about staking here<\/a><\/span> and whether it is halal.<\/p>\n

Algorand has evolved the basic PoS mechanism and uses a unique consensus algorithm called \u2018Pure Proof-of-Stake\u2019 (PPoS), which allows it to achieve high transaction speeds and low fees without sacrificing security or decentralisation.<\/p>\n

One of the key features of the Algorand network is its use of \u2018verifiable random functions\u2019 (VRFs) to select the \u2018block proposer\u2019 for each new block. <\/p>\n

In a traditional PoW blockchain like Bitcoin, the block proposer is selected based on their ability to solve a complex mathematical puzzle as outlined. In contrast, the Algorand network uses VRFs to randomly select the block proposer from among a pool of validators (called \u2018committee members\u2019), who are chosen based on the amount of ALGO they have staked (i.e., locked up as collateral).<\/p>\n

This means that in order to participate in the Algorand network as a validator, you must first purchase and hold a certain amount of ALGO. The more ALGO you hold, the higher your chances of being selected as a committee member and earning rewards for proposing and validating blocks.<\/p>\n

In addition to its PPoS consensus algorithm, the Algorand network also uses a novel \u2018atomic transaction\u2019 mechanism to ensure the integrity and consistency of its blockchain ledger. <\/p>\n

Atomic transactions allow multiple transactions to be bundled together and either all committed to the ledger or all discarded, depending on whether they are valid. This helps to prevent the \u2018double spend\u2019 problem that can occur in other blockchain platforms, where a single unit of cryptocurrency can be spent multiple times before the transactions are fully processed.<\/p>\n

The Algorand network and ALGO cryptocurrency aim to provide a fast, secure, and scalable platform and alternative to Ethereum for building decentralised applications (dApps) and quickly processing transactions to compete with not only other cryptocurrencies but with the likes of Mastercard and Visa. <\/p>\n

It offers a smart contract capable ecosystem to foster a developer-consumer community and become the de facto open-source cryptocurrency platform of choice.<\/p>\n

What are the use cases of Algorand?<\/span><\/h2>\n

 <\/h4>\n

Payments and DeFi<\/span><\/h3>\n

The ALGO cryptocurrency presents itself as a leaner, faster version of Ethereum.<\/p>\n

ALGO can be used to make payments to merchants and people around the globe in a matter of seconds and with minimal fees, making it the ideal payment network.<\/p>\n

Developers can also use the Algorand network to build decentralised financial applications, such as peer-to-peer trading markets or platforms for stablecoins.<\/p>\n

Algorand presents itself as a serious contender in the cryptocurrency as an actual currency space because of speed, scalability, and cost.<\/p>\n

Non-Fungible-Tokens (NFTs)<\/span><\/h3>\n

NFTs are tokens that can be attached to unique items, such as art and media. These unique tokens are not interchangeable like a standard ALGO token. An NFT is secured on the Algorand network and can only have one owner at a time. NFTs can be sold on global markets powered by the Algorand network.<\/p>\n

Are people using Algorand right now?<\/span><\/h2>\n

Algorand is a small player in the cryptocurrency space when compared to the larger cryptocurrencies, but a big player in absolute terms.<\/p>\n

It ranks 35th out of all cryptocurrencies<\/a><\/span> and has a market dominance of 0.17% and a market cap of under $2 billion.<\/p>\n

ALGO currently has a daily transaction volume<\/a><\/span> of under $20 million and a daily transaction count of under 5 million. This is especially the case after the market downturn in 2022 where before it used to see higher numbers and more activity.<\/p>\n

Its direct competitor Ethereum, which is more established and trusted, ranks 2nd<\/a> <\/span>after only Bitcoin. ETH has a market cap of $201 billion and a daily transaction volume<\/a><\/span> of under $3 billion.<\/p>\n

While in absolute terms Algorand is being used, it is miniscule when comparing it to some of the bigger players which compete against it directly.<\/p>\n

What are the strengths and weaknesses of Algorand?<\/span><\/h2>\n

 <\/h4>\n

Strengths<\/span><\/h3>\n