- INVESTMENT IDEAS
Algorand – Investment Thesis
- Algorand was created to enhance security, decentralisation and scalability.
- It is being used by a growing number of organisations for a variety of use cases.
- It faces tough competition and will need to grow its user base.
- Growing adoption may increase the value of its native token, ALGO.
Algorand was created by Professor Silvio Micali of the Massachusetts Institutes of Technology in 2017. Along with Shafi Goldwasser, Professor Micali is credited with laying the foundations of modern cryptography in the 1980s.
Algorand is an open-source foundational blockchain. Its trademarked pure proof-of-stake consensus mechanism uses randomly selected committees of participating ALGO holders to validate and approve blocks in the chain. The network can withstand malicious attacks, because an attacker is unable to identify who the members of the randomly selected committees will be, in time to carry out an attack. This system provides global scalability, true decentralisation and solid security.
Algorand is overseen and funded by the Algorand Foundation, which recently announced the launch of a $300m fund to stimulate the growth of DeFi on its network. The ALGO token is limited to a supply of 10 billion units and it is now one of the largest cryptocurrencies by market cap.
Algorand is proving popular among developers, investors, stablecoins and governments. Its consensus mechanism reduces the time required to finalise transactions and leads to lower transaction costs and energy requirements. It describes itself as “the most sustainable, carbon negative, high performance blockchain.” This is achieved by automatically purchasing carbon offsets according to the network’s energy consumption.
Its adoption continues to grow and its native token, ALGO, has gone up over 600% this year. As of July, there were over 11 million users generating around 750,000 transactions a day.
Algorand has been chosen by over 500 organisations around the world. It has been used in El Salvador’s blockchain infrastructure, Colombia's digital vaccination passport system and the Marshall Islands' national digital currency. It is also being used to host the Tether and USD Coin stablecoins and the Italian Society of Authors and Publishers (SIAE) has launched over 4 million NFTs on it to represent the rights of nearly 100,000 creators.
Algorand is competing with other foundational blockchain ecosystems such as ethereum and cardano. They have much higher valuations, very loyal communities and millions of users undertaking billions worth of transactions. The risk is being crowded out of the market. On the other hand, ALGO may still be at an early stage and thus represent an opportunity. It may well coexist with these other systems and perhaps eventually specialise in a given use case.
Algorand needs to drive user growth to reach a critical mass and widespread institutional adoption. Its focus on technology may be taking attention away from its marketing and PR efforts. It has already, however, achieved significant milestones and been used for an impressive range and scale of projects around the world. As with any cryptocurrency, the ALGO token is subject to considerable volatility, which may discourage its broader, consistent use.
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