As technology continues to develop, how to make a coin on Algorand has become a significant topic. Algorand was founded in 2017 before launching its mainnet and ALGO token in June 2019.Algorand is a fairly new blockchain focused on improving scalability without sacrificing decentralization. This problem is common to many of the first and second-generation blockchains, such as Bitcoin and ETHereum. To achieve this, Algorand developed perhaps its most notable feature: the Pure Proof of Stake (PPoS) consensus mechanism. Along with its passive staking, both of these features have made Algorand a large market cap project popular with users seeking rewards.
What is ALGO?
ALGO is the native coin of Algorand and has a maximum total supply of 10 billion coins to be distributed by 2030. New ALGO is sent to specific ALGO-holding wallets with each newly forged block. You need to hold at least 1 ALGO in a non-custodial wallet to receive these ALGO rewards. This reward can generate an APY of around 5-8% for ALGO holders and is distributed roughly every 10 minutes. This mechanism makes the ALGO coin one of the simplest cryptocurrencies to generate a passive income with, as you can "passively stake" the token.
How does Algorand work?
The key to Algorand's scalability comes from its Pure Proof of Stake consensus mechanism. This protocol allows it to process many transactions quickly without sacrificing decentralization. Proof of Stake(PoS) blockchains are scalable but often at the cost of a small number of validators who have large stakes dominating blockapprovals. Proof of Work (PoW) has the same issue as large mining poolsalmost always win the race to create new blocks.
Naturally, a small holder will have lower chances of being selected than a big holder. But unlike PoS blockchains, Algorand doesn’t require a minimum stake, which is a significant barrier to entry for the average user. With every staker who runs a node being a possible validator, the network's security is more decentralized than with a chosen set of validators.
Proposal step
Once users have staked and generated their participation key, they become participation nodes. Communication between these nodes happens through Algorand relay nodes. The block proposal phase then selects multiple block proposers using a Verifiable Random Function (VRF), considering the proportion of each validator's stake. Once block proposers are chosen, their identity is kept secret until the new block is proposed. This improves network security as bad actors cannot maliciously target the chosen validator.
Soft vote stage
Once a block is submitted, participation nodes are selected randomly to join the soft vote committee. This stage filters proposals, so only one candidate can add to the blockchain. Voting power on the soft committee is proportional to the amount each node has staked, and votes are used to select a proposed block with the lowest VRF hash. This means that it will be impossible to preemptively attack the proposer of a block, as the lowest VRF hash is a value that is impossible to predict.
Certify vote stage
Next, a new committee is created to check for double-spending and the integrity of transactions in the block from the soft vote stage. If the committee deems the work valid, the block is added. If not, the block is rejected, the blockchain enters recovery mode, and a new block is selected.
What are ALGO’s use cases?
With the purpose of knowing how to make a coin on Algorand, we must know the use cases of ALGO. ALGO has three primary use cases:
1. ALGO can be used to pay transaction feeson the Algorand Network. Compared to networks like ETHereum (ETH) and Bitcoin (BTC), Algorand has minimal fees. As of January 2022, it costs only $0.0014 per transaction.
2. ALGO can be staked to have a chance of being selected as a block proposer or validator.
3. ALGO can be held in a non-custodial walletto earn rewards with every block that is successfully added to the chain.
The third use case provides a large incentive for the average user investing in ALGO. There's no need to deal with a Decentralized Application (DApp)to stake your coins or a lock-up period to begin earning. It’s all automatically handled by smart contracts. Algorand also publishes a list of projectsadopting the blockchain's technology, many of which require ALGO to be used.
Conclusion
In this article we mainly discussed how to make a coin on Algorand. Like other alternative blockchains to Bitcoin and ETHereum, Algorand has focused heavily on scalability and decentralization. Its Pure Proof of Stake consensus mechanism provides a unique solution with VRFs, and many find this blockchain technology attractive for its success in decentralizing power.
