Flow part 1
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Introductions
What Is Algorand?
Algorand (ALGO) is both a digital currency and blockchain platform. The Algorand platform is designed to process many transactions quickly, similar to major payment processors like Mastercard or Visa. In addition, Algorand can host other cryptocurrencies and blockchain-based projects, making it a direct competitor to Ethereum. ALGO, the platform's native currency, is used to secure the Algorand blockchain and pay processing fees for Algorand-based transactions. \n
Algorand is an open-source blockchain, meaning anyone can view and contribute to the platform's code. Algorand uses an operating protocol it calls pure proof-of-stake (PoS), which recruits network validators from the pool of users.
The Algorand platform and accompanying cryptocurrency were founded in 2017 by Silvio Micali, a professor at the Massachusetts Institute of Technology and noted cryptographer.The total supply of ALGO is capped at 10 billion coins, with about 7 billion ALGO already circulating.
Understanding Algorand
Algorand markets itself as a highly efficient, scalable platform that can immediately finalize transactions. Algorand accomplishes this in a decentralized way by:5
- Using relay nodes to enable efficient communication paths
- Incorporating participation nodes that vote on and confirm new blocks for the Algorand blockchain
- Prohibiting any splitting (forking) of the Algorand blockchain to guarantee that completed transactions cannot be changed
- Reducing the data burden placed on Algorand network participants by continually compressing blockchain information
The Algorand blockchain uses the proof-of-stake consensus mechanism. ALGO holders who stake coins are rewarded by becoming governors and are able to cast votes on blockchain and community issues. Algorand governors are rewarded in ALGO, the blockchain's native cryptocurrency. ALGO is also used as a utility token to pay transaction processing fees.
How Does Algorand Differ From Ethereum?
The Ethereum and Algorand blockchain platforms can be viewed as competitors. Both platforms provide infrastructure to support the development of other blockchain-based projects, use smart contracts, and use proof-of-stake. However, the two have different staking and reward methods.
Staking
Ethereum requires a stake of 32 ETH to become an activated validator but allows anyone to join a validation pool by staking any amount of ETH. All ALGO holders are eligible to participate in consensus by having ALGO in their wallet. It is not a resource-intensive process, so the users chosen by the network will not even know it is occurring.
Ethereum is slower, and transactions are more expensive than Algorand. For example, Ethereum can process a new block of transactions approximately every 12-14 seconds. Transactions processed via the Algorand network are finalized in 5-12 seconds. Algorand also boasts significantly lower transaction fees than Ethereum.
Rewards
Ethereum rewards those who participate in validation according to the amount of ETH contained in the blocks being verified. Staking ETH pays out an average of 4.0% APR.
When Algorand first launched in 2019, it had a reward system in place for participating in consensus. The Algorand Foundation was responsible for funding the rewards pool, which paid out rewards over four six-month periods (two years)The participation rewards program ended in April 2022
Seeing the popularity of blockchain technology and the crypto industry spike to its current level is not surprising. After all, many enthusiasts predicted their essentiality in progressing every sector globally, especially during the COVID-19 pandemic, which brought economies to their knees.
Blockchain technology infiltrates every industry, including the healthcare, finance, supply chain management, transport and cloud computing sectors. However, traditional blockchains have a few loopholes that prove costly to users. Although most developers came up with functional blockchains like Bitcoin and Ethereum, most did not consider the user base growth.
As such, scalability and transactional prices have been problematic for most investors. At this point, you may be thinking about Ethereum gas fees and blockchains like Algorand that work towards solving this problem. But what do you understand by gas fees? This article explains gas fees in cryptocurrency networks and why Algorand is a to-got-to blockchain to avoid hefty transaction prices.
In-Depth Look into Gas Fees
If you are reading this article, you must have come across blockchain consensus algorithms that assist nodes in verifying transactions. Most traditional blockchains use the proof-of-work (PoW) consensus algorithm.
For a node to successfully verify a block, it needs the high computational capability to solve complex equations on the blockchain. The process of adding a block to the chain is called mining. Notably, Bitcoin mining has been on the kinds of many, considering its energy and environmental implications.
\n However, gas fees developed from the Ethereum blockchain as the fees addresses pay to miners to approve a transaction. That is, you pay for how much computational power a miner leverages during a transaction verification.
The Ethereum blockchain is one of the best Layer 1 solution providers in the crypto world today. Furthermore, it opened gateways to DeFi, DApps and NFTs, boosting its popularity among crypto enthusiasts.
Along with this popularity came the increasing gas fees to execute a smart contract on the platform. Gas prices vary according to how much a smart contract can handle. A basic contract to move funds from one address to another would have cheaper gas fees.
However, when it comes to interoperable networks or liquidity pools on DEXes, the story changes. Miners will come up with minimum transaction fees for every process.
What Other Factors Affect Gas Fees?
Miners play a critical role in ensuring the safety of a blockchain from bad actors. Furthermore, they maintain the credibility of currencies in the face of double-spending and fakes in the market. This is owing to the attention they pay to verify a transaction and prove its validity.
Some factors affect the entire process, including how much demand the blockchain faces, the congestion on the blockchain at a given time, and the consensus algorithm. When there is more activity in crypto markets, including during bull runs and bearish seasons, fees go up.
Scalability is a pain point that requires immediate solutions for the continued progression of the blockchain and crypto sectors. It is crucial to note the efforts blockchains are making to adapt better consensus algorithms, such as proof of stake (PoS), delegated proof of stake and proof of activity.
Furthermore, more platforms are incorporating Layer 2 solutions, including rollups, sidechains, state channels, aggregators and plasma chains. The Ethereum blockchain, for example, is transitioning from PoW to PoS. Additionally, it hopes to use Layer 2 scaling answers to resolve its scalability issues. The crypto world is yet to see the successes the London fork has in store for Ethereum users.
Algorand is an Alternative
Algorand has taken the spotlight as one of the primary competitors of the Ethereum blockchain. The blockchain prides itself as the greenest blockchain in the industry today. By being a green blockchain, it aims at environmental sustainability and carbon-negative status. As such, its ecological impacts are close to zero while it maintains a scalable platform for users.
The blockchain leverages a unique consensus algorithm dubbed the pure proof-of-stake (PPoS) consensus algorithm. The consensus protocol is specific to the Algorand blockchain, which focuses on overall input from users to the blockchain. It differs from the traditional PoS algorithm in its randomness of choosing users to verify transactions; traditional PoS favours wallets holding more coins.
The platform uses the verifiable random function to select block validators randomly. To be a participant, you need to generate a participation key that gives you proposal and voting rights. After voting on a node, the information remains private.
Benefits of the PPoS
The most important advantage of the PPoS is the freedom it gives users to participate on the platform. Therefore, the process eliminates the bias evident in other consensus algorithms. This factor ensures true decentralisation on the blockchain due to anonymity and randomness.
Second, scalability is no longer a pain point for the Algorand blockchain. As it stands, the blockchain can manage 1000 transactions per second, making it one of the fastest blockchains in the industry today.
Being a green blockchain, Algorand maintains significantly low energy usage during transaction verifications. Additionally, it supports clean emissions during the process to protect the environment. The randomness of validating blocks does not depend on the number of coins or on how heavy your equipment is. You can perform this function on any device you have.
Low Fees, Dependable Blockchain
You can rest easy when leveraging the Algorand blockchain because it veers away from the basics of gas fees. Whereas the transaction fees still depend on the transaction size, the costs are close to negligible. The minimum fees are 0.001 ALGOs, equivalent to $0.00183 with the current Algorand price. This coupled with the near-instant transaction speeds allows users to derive the most convenience from the carbon-negative blockchain.
Algorand may serve as a role model for both traditional and upcoming blockchains aiming to ensure sustainability. Furthermore, it proves that low fees do not necessarily mean weak security on a blockchain. In the future, crypto will see palpable competition between Ethereum, Solana, Algorand and Cardano for scalability and efficiency[2].
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If you’ve been in the crypto space for a little while now, you may have heard the term “staking.” You might still have some questions around what it means, how it works, the risks associated with staking, and which cryptocurrencies offer stalking rewards. Not to worry, in this blog post, we’ll go over the basics of staking for you.
But first, we’ll start by saying that crypto staking is the process of putting a set amount of cryptocurrency you already own as collateral to support the verification of blockchain transactions. Participants that offer up their crypto are rewarded for doing so.
Another way to think about it is that participants are incentivized to earn rewards by maintaining the integrity of the blockchain without a centralized party. While staking is a great way to build your cryptocurrency portfolio, it does come with some risks.
Read on to learn more about how staking works, the risks involved, and how to get started.
What is Crypto Staking?
Like we mentioned above, crypto staking is the process of offering your crypto assets to help verify transactions. When you stake crypto, you are essentially putting your crypto up as collateral to help validate these transactions.
As a token of appreciation for your support, you earn rewards in the form of new crypto tokens. The amount of crypto you earn and the payout interval will depend on the crypto asset you stake, the length of time you stake it for, and the network’s overall health.
Not all cryptocurrencies can be staked though.
Only cryptocurrencies that use a Proof-of-Stake (PoS) algorithm can be staked. Proof-of-Stake is a consensus mechanism that requires participants to stake coins in order for them to be randomly selected as a validator of the network. Because participants have to give up their crypto assets, the network is thought to be less susceptible to hacks. After all, participants would not want to tamper with the blockchain, lose their crypto assets and the potential for rewards for the sake of hacking it.
PoS is one of different ways blockchains can process and verify transactions. Another method is called Proof-of-Work, which we will explain later. For now, keep in mind that PoS keeps the blockchain distributed, decentralized and secure.
Crypto staking can be a great way to earn passive income from your crypto holdings while helping to secure a blockchain network, which can be a noble contribution.
How Does Crypto Staking Work?
To stake crypto, you need to have a crypto wallet that supports staking. Not all crypto wallets or cryptocurrencies support staking, so be sure to check that your wallet allows you to stake.
Once you have a compatible wallet, you will need to deposit the cryptocurrency you wish to stake into your wallet. If you bought crypto from the Netcoins platform, then you’d need to withdraw your crypto from Netcoins and deposit them into your wallet.
Once your crypto is in your wallet and ready to be staked, the actual process of staking will vary depending on the crypto asset you are staking and the platform you are using and the directions provided to you. When your crypto is in your staking account it will start earning rewards.
You can choose to stake your crypto for a specific length of time. For example, you may wish to stake your crypto for one year to receive the maximum amount of rewards. Or, you may decide to unstake your crypto at any time (depending on the platform and blockchain) but doing so will likely forfeit any rewards that you have earned up until that point.
It’s important to note that crypto staking is not the same as mining. With mining, you use your computer’s processing power to help validate transactions on a blockchain rather than offer up existing coins. On the other hand, with staking, you are simply holding crypto in your wallet as collateral. You are not using your computer’s processing power or solving complex mathematical problems (like in mining).
Generally speaking, when you stake crypto, your crypto assets are used to help validate transactions on a blockchain network.
The Rewards You Get for Staking Crypto
The amount of crypto you earn from staking will mostly depend on the crypto asset you stake and the length of time you stake it for.
As an example, if you stake Cardano for 12 months, you may earn around 3% to 6% per year. But if you stake it for two months, you might make just 1% to 2%. If you stake a less well-known crypto asset like PIVX, you could earn over 6% per year. But you could expose yourself to more volatility and risk. That’s why it’s important to do your due diligence on ease of staking, reward pay-out, and risks involved.
It’s also important to remember that crypto prices and rewards are volatile and can go up or down at any time. A safer bet can be staking stablecoins tied to a fiat currency (like the U.S. dollar). With stablecoins, you can earn staking rewards without the worrying too much about volatility.
Often times, staking cryptocurrencies can also grant you voting rights over proposals, changes and the future direction of that crypto.
The Risks of Crypto Staking
Staking cryptocurrencies provides passive income to crypto stakers, but it also has some potential downsides.
When you stake crypto, you are essentially locking up your crypto asset for a period of time. This means that you cannot sell or trade your crypto while it’s being staked. If the price of crypto goes up while your crypto is staked, you could miss out on those gains. Inversely, if the crypto assets you have staked lose value, you could lose money.
Finally, if the blockchain network you are staking for experiences a hack or an attack, your crypto could be at risk too[3].
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