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How Algorand is Approaching Decentralization

Bootstrapping decentralization often seems like an infeasible proposition. The distribution of mining power in Bitcoin and Ethereum took years to unfold, and the increasingly fragmented allocation of their respective supplies have followed suit.

However, several initiatives to make the initial distribution of network nodes, mining, and coins have been compelling so far. For example, Grin – the Mimblewimble privacy coin – launched with a length of issuance and price equality that was about as fair as possible, and the two-year mitigation of ASICs should serve as a strong boon for mining decentralization out of the gate.

Algorand, the pure proof-of-stake (PoS), permissionless blockchain network, also takes a promising approach to decentralization.

Conceived by MIT professor and cryptography pioneer, Silvio Micali, Algorand’s confluence of consensus, self-selection, and node scheme – among other aspects – are worth surveying for the sake of shedding a spotlight on an area where so many other networks have failed.

At a high level, PoS is a consensus system designed as an alternative to Bitcoin’s proof-of-work (PoW) that has faster finality, is more energy efficient, and generally scales better. Consensus works via “validators” who “stake” the native network’s tokens in a locked account as an incentive to validate blocks correctly. Should they fail to do so or act maliciously, their stake is slashed.

The concept is based on the notion of incentives, something which Micali brought into question at a cryptography conference in 2017, sparking a debate about its role in permissionless networks – illuminating Algorand in the process.

Algorand identifies where the problem arises in the long list of blockchain networks that have made sacrifices in scalability, security, and decentralization (i.e., the trilemma) as the susceptibility of their broader network’s economy to the whims of a small subset of validators/token holders.

Algorand’s solution? A unique set of logic built around PPoS.

According to Algorand:

“Algorand’s logic is simple: it ties the security of the whole economy to the honesty of the majority of the economy, and makes it impossible for a small subset of the economy to control the fate of the whole economy.”

PPoS does not rely on incentives via fines (e.e., slashing) of stakes, but rather assumes that a majority of nodes in the network are honest at any given instance. It reconciles this problem by making bad behavior by a small subset of users impossible and financially imprudent for the majority.

The result is a series of downstream consequences in the design of Algorand that supplement decentralization.

For example, using a combination of a verifiable random function (VRF) and self-selection among a series of committees for each block round, it is impossible for malicious actors to glean an advantage from the system as long as a supermajority of nodes is honest. Adversaries cannot discover which network participants are selected for block approval since the process is private, and users are selected via a form of “weighted lottery.”

The selection process does not account for total stake held by users corresponding to influence (i.e., bonded PoS), instead, it blindly chooses tokens from the entire network subset. According to Algorand:

“This is so because committee members are selected by a secretly run, cryptographically fair, individual lottery. Thus, only they know who they are, up to the moment in which they propagate through the network both their winning tickets and their opinions about the block.”

The process for secretly and randomly selecting the committee for block approval iterates for each new block round and everyone has an opportunity to participate in consensus. But how does this confer to node decentralization?

The Algorand network is comprised of two nodes:

Anyone can run relay nodes, which help authenticate and propagate valid messages to other nodes in the network.

Participation nodes represent stake and addresses for proposing and voting on blocks in the consensus. They are connected mostly via relay nodes and consist of multiple organizations from disparate backgrounds and interests across the globe to ensure decentralization. They include universities, non-profits, and more.

The combination of participation and relay nodes fosters a network ecosystem where the majority of nodes/validators are sure to be honest – mitigating any attacks and forks – and the network is entirely permissionless. In addition, the rapid communication and propagation afforded by the finality of the consensus design make reconciling decentralization and scalability much more straightforward.

However, in public blockchain networks, the problem of increasing blockchain “bloat” of user nodes is a leading concern of long-term decentralized sustainability.

Algorand approaches this problem using its Vault technology. Nodes are required to store the historical transaction data of a network, which over time, increases the storage burden and costs for users – depleting decentralization. Vault compresses the storage of recent transaction in Algorand by deleting the old account state, which according to them, can reduce bandwidth costs for full clients joining the network by up to 99.7 percent compared to Bitcoin.

Using a combination of reduced barriers to entry (i.e., lower storage resources with Vault) and the removal of the requirement to lock stakes on the network, Algorand presents an intriguing case study in decentralization. The blockchain trilemma has plagued other networks who have needed trade-offs between one of the three aspects due to problems in reconciling incentives.

Micali and Algorand came up with PPoS as a solution to the problem, where the sophistication around incentive design was diminished.

In doing so, they have highlighted a compelling alternative to other public blockchains, and are set to move forward with the rollout of the platform with the first Algo auction on the horizon, and the public testnet currently live.

How Algorand is Approaching Decentralization

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