A ledger is an official or authorized file for documenting and calculating economic transactions that occur in a financial account. A public ledger, however, is more like an open book or document available to the public individuals and stakeholders partaking in transaction activities in the such market or economic platform. Crypto is highly associated with the idea that it is built on the public ledger principle in a manner that ensures anonymity and curbs corruption; however, as currently implemented, they scale poorly and cannot achieve their potential. It is then highly important to note that there is a solution to these shortcomings in the form of ALGORAND.
Algorand is a truly democratic, decentralized, and effective way of putting a public ledger into effect. It needs a small amount of calculation and produces a transaction history that does not “fork” with an incredibly high likelihood.
The concept of a Public Ledger traditionally originated from one of the world’s longest continuously running magazines that provide agricultural commodity news, analyses, and prices for agricultural commodities such as grains, feed, and oilseeds; soft commodities including coffee, cocoa, and sugar; and minor commodities such as spices, dried fruit, and nuts. Basically, a public ledger is conceptualized as keeping records and making these records accessible to the public.
It is no misconception to say that the blockchain, cryptocurrencies, and its instruments of operations are conceptualized around the characteristics of a public ledger as it is evident that crypto relies on similar public record keeping and verification. In essence, a public ledger is an open record that contains information accessible and accountable to the public. In the blockchain space, the public ledger is used as a data collection system that ensures the anonymity of the participants in a safe way that their respective cryptocurrency balances and a record book of all legitimate transactions between the participants of the network are properly coordinated. The manner in which crypto transactions take place through the public ledger is very synonymous with common bank transactions.
For instance, if A wants to send $1000 to B, A only needs the bank account details of B to make sure of the transfer. However, the bank will need to verify that A had enough in his account so that B can receive the money; when the transaction is completed, it will be recorded in the bank’s record and this record can be made available to both A, B and government authorities if need be. The advantage of making transactions using crypto unlike the traditional method of transferring funds through financial outlets is that the personal details of both A and B will be unknown. Simply put, no one will be able to trace the transactions back to both parties; Optimum anonymity is ensured.
Decentralized cryptocurrencies, such as Bitcoin, and “smart contract” systems, such as Ethereum have shared ledgers that reliably record a sequence of transactions as varied as payments and contracts, in a tamper-proof way. The technology of choice to guarantee such tamperproofness is the blockchain. A blockchain is a form of a public ledger, which is a set (or chain) of blocks on which accounting records are documented by authorized network participants after suitable authentication and verification. The recording and storage of all confirmed transactions on such public ledgers start right from the creation and beginning of the workings of a cryptocurrency. As a block is filled to capacity with transaction records new ones are mined and added by the participants called miners to the blockchain.
Selected network participants, often referred to as full nodes; keep a copy of the entire ledger on their devices which are connected to the cryptocurrency network. Everyone knows the true state of the network in terms of who holds how many crypto tokens since thousands of people maintain a copy of the ledger; however, consensus algorithm, encryption, and reward mechanism ensure that the participants’ identities are secure, and only genuine transactions are carried on the network.
Blockchains are behind applications such as cryptocurrencies, financial applications, and the Internet of Things. Several techniques to manage blockchain-based ledgers have been proposed: proof of work, proof of stake, practical Byzantine fault-tolerance, or some combination.
Despite all these numerous merits and characteristics associated with blockchain as a public ledger, ledgers can be inefficient to manage. There are concerns that maintaining a public ledger that records every transaction in perpetuity would also allow hackers, governments, and security agencies to track public records as well as network participants. It puts the anonymity and privacy of the blockchain participants at risk, the most important aspect of cryptocurrency use. Similarly, Bitcoin’s proof-of-work approach (based on the original concept requires a vast amount of computation, is wasteful, and scales poorly. In addition, it de facto concentrates power in very few hands.
One major technical shortcoming of Bitcoin’s proof-of-work is that the approach to block generation requires an extraordinary amount of computation. Currently, with just a few hundred thousand public keys in the system, the top 500 most powerful supercomputers can only muster a mere 12.8% percent of the total computational power required from the Bitcoin players. This amount of computation would greatly increase, should significantly more users join the system.
Another technical Problem is the concentration of power; indeed, for computing a new block with an ordinary computer, the expected cost of the necessary electricity to power the computation exceeds the expected reward.
Furthermore, it is pertinent to that the ambiguity In Bitcoin, the blockchain is not necessarily unique. Indeed, one cannot rely right away on the payments contained in the last block of the chain. It is more prudent to wait and see whether the block becomes sufficiently deep in the blockchain and thus sufficiently stable.
Here comes the solution to these problems, ALGORAND (yeah, algorand!). This is a new method put forward to implement a public ledger that offers the convenience and efficiency of a centralized system run by a trusted and inviolable authority, without the inefficiencies and weaknesses of current decentralized implementations. This approach is called Algorand, because algorithmic randomness is being used to select, based on the ledger constructed so far, a set of verifiers who are in charge of constructing the next block of valid transactions. Naturally, it is ensured that such selections are provably immune from manipulations and unpredictable until the last minute, but also that they ultimately are universally clear.
Algorand’s approach is quite democratic, in the sense that neither in principle nor de facto it creates different classes of users (as “miners” and “ordinary users” in the algorand network). In Algorand “all power resides with the set of all users”. One notable property of Algorand is that its transaction history may fork only with a very small probability (e.g., one in a trillion, that is, or even 10−18). Algorand can also address some legal and political concerns.
The Algorand approach applies to blockchains and more generally, to any method of generating a tamperproof sequence of blocks. We actually put forward a new method —alternative to, and more efficient than, prior implementations — that may be of independent interest.
Written by Funke Fatai, Algorand Ambassador, Nigeria