Algorand is betting its new proof-of-stake (PoS) consensus protocol will catapult the company ahead of bitcoin (BTC) and other systems using proof-of-work (PoW) protocols to solve what’s known as the scalability trilemma.

That concept holds that a blockchain can have only two of the following characteristics: scalability, decentralization and security. Platforms such as bitcoin and Ethereum that focus on decentralization and security lack scalability because they can have long processing times.

“Not only do we believe proof-of-stake protocols can replace proof-of-work, we believe they must,” says jake Greenstein, principal of business strategy at Algorand.

In a proof-of-work protocol, nodes use lots of computing power and energy to solve complex cryptographic puzzles in order to place new blocks of data on the blockchain. As a reward, the winner receives newly mined coins and a small transaction fee.

No More Complicated Puzzles

The brainchild of Silvio Micali, an MIT professor, Algorand limits the number of network participants necessary to do the work of adding new blocks to the chain. Each user plays a secure lottery to determine whether he or she will be selected to propose a new block of data to the blockchain. Once a winner is identified and proposes a block, users conduct other secure lotteries to be chosen for a small group that will verify and agree upon the block proposed.

The probability a user will be chosen for one of these roles is proportional to the amount of money he or she owns in the system, making it a PoS platform. To enhance speed, the number of proposers and verifiers does not vary as the system scales.

“In PoW, every computer is racing to solve cryptographic puzzles to add one more link to the chain,” Jake Greenstein, principal of business strategy at Algorand, tells ThirtyK. That system, therefore, performs a lot of redundant work and uses a lot of computational power.

Currently, highprofile PoW platforms such as Ethereum can only support a handful of transactions per second. (One measurement pegged Ethereum’s throughput at eight transactions per second.)

Algorand’s consensus protocol, though, will generate a drastically higher throughput even on basic infrastructure, and in a truly decentralized way.” which is “necessary in a world in which companies like Visa process thousands of transactions per second, Jing Chen, Algorand’s chief scientist, tells ThirtyK.

Algorand’s PoS consensus protocol also eliminates the need to resolve forks, which can occur in other systems when competing blocks from multiple users are verified.

To ensure that control is not concentrated in any individual or group, new lotteries occur for each step in Algorand’s consensus protocol. In contrast, “many existing PoS protocols have hidden forms of centralization, Greenstein says. “They either force users to delegate their participation to a small group of delegates, or require delegates to lock up their stakes, thus skewing participation to those with more money.”

Even PoW, which aims to be decentralized, concentrates the power to control new block creation in a few large mining organizations, he adds.

Can PoS Replace PoW?

“Not only do we believe proof-of-stake protocols can replace proof-of-work, we believe they must,” Greenstein says. Therefore, Algorand will build its own cryptocurrency, and will provide an open, decentralized infrastructure on which developers may build their own apps or cryptocurrencies.

PoS in general isn’t perfect, however, according to some experts.

While I wouldn’t rule out PoS as a solution to the energy and speed problems inherent to the PoW strategy, I’m skeptical that PoS will be the technology of choice,” says computer science professor Hein Meling at Lawrence Berkeley National Laboratory, on sabbatical from the University of Stavanger, Norway. Specifically, PoS’s greater complexity may compromise security.

Algorand says it is trying to eliminate such issues. Development of pure PoS protocols hasn’t been viable before, but Algorand’s recent advances make it possible now, Greenstein says.

Gail Dutton
Gail Dutton is a veteran journalist who has interviewed several Nobel laureates as well as leading innovators in the fields of biotechnology, IT, and business. She has written for a variety of trade and consumer magazines, including Forbes, Entrepreneur, The Scientist, Genetic Engineering & Biotechnology News, Life Science Leader, Data Center Knowledge, and Data Center Manager, from her office in Washington state.