Sep 08, 2021
When looking at open blockchain networks, it’s easy to focus exclusively on technology. The reality is, however, that blockchain is as much a political breakthrough as it is a technological one. This political dimension of blockchain was explored in depth in a recent report titled “Illuminating The Dark Age Of Blockchain: Algorand” by Arrington Capital.
The report starts out by going into depth on Algorand’s design philosophy and the current state of blockchain development. The second section clarifies how Algorand’s architecture is ideally suited to tackling the challenges currently facing the industry. It then goes on to discuss the emergence of DeFi, the relationship between DeFi and traditional finance, and the potential for Algorand to bridge the gap between the two.
The emergence of blockchain technology was essentially a move to escape from the dominance of a financial system that had concentrated large amounts of power in the hands of a few people. This kind of situation has high potential for abuse of authority, which is why the ethos of decentralization is fundamental to cryptocurrency.
The ideal of decentralization successfully protects a network against a number of threats such as fraud or attacks by hostile governments, but it comes with a number of challenges. Most notable among these are the issues of scalability and governance; decentralized protocols are highly secure and resistant to tampering, but this comes with tradeoffs in performance and difficulty reaching consensus about future development.
This is visible in DeFi, where there is a consistent push toward either technical or political centralization for the sake of better performance. The report compares the present state of DeFi and the blockchain industry to the historical period of tyrannical centralization of authority, in which corrupt kings and monarchs abused their power at the expense of society.
This period gave way to a political revolution in which representative governments distributed power and replaced stagnating hierarchies. Like this historical period of Enlightenment, Algorand has the potential to bring DeFi and blockchain out of its current “dark age,” where users suffer under the failures of centralized systems for the sake of performance.
This possibility exists because Algorand has solved a famous Blockchain Trilemma, which states that a blockchain network may only have two of three things — security, scalability, and decentralization.
Algorand resolved this impasse with a novel consensus algorithm and system of tiered nodes that balance the need for high performance with a truly distributed and secure network.
By providing a robust, stable governance model and the technical capacity to handle a huge amount of network volume, Algorand is positioned as the ideal alternative to host transactions for traditional financial networks, including central banks and other financial institutions.
Algorand has been functioning with no downtime and with consistently high performance for over two years. As unscalable and overly centralized blockchain networks continue to suffer setbacks, Algorand is positioned to absorb market share from other networks.
In this sense, Algorand as a base layer network is envisioned as an analogue to democracy, the base layer governance protocol of the modern era. The stability, prosperity, and innovation of the United States attracted talented and motivated immigrants from the world over who helped to build the industrial and economic power of the nation.
In a similar vein, Algorand is the base layer which is poised to attract developers and institutions that will construct a new and improved global financial and monetary architecture.
In the report, Arrington Capital, which has invested more than $100 million in Algorand, and hundreds of millions more in the broader Algorand ecosystem, makes a compelling argument for why Algorand is ideally positioned to play such a role in the future.
Silvio Micali joined Arrington Capital for a live chat on their latest research report on Algorand, Illuminating The Dark Age Of Blockchain.