Elon Musk’s tweets on Bitcoin a few months ago rekindled the debate on the environmental consequences of the processes mining for cryptocurrency mining. A concern that is being addressed in different ways, including by increasing the share of renewables in the energy mix used to make this technology work. Yet, pollution is not the only problem to be solved to allow the blockchain to express its full potential according to Silvio Micali, Ford Professor of Engineering al Computer Science and Artificial Intelligence Laboratory (Csail) del Mit (Massachusetts Institute of Technology). “Not only does the system on which Bitcoin is based wastes a lot of energy, but it is giving life to a new centralized power and risks generating dangerous ambiguities in finance”, he explains, adding that “precisely in the attempt to overcome these critical issues, the idea of developing a blockchain that was truly decentralized, scalable, secure and sustainable. So we created Algorand ”.
After his studies in Italy and a phd in Computer Science at the University of Berkeley, Micali specialized in cryptography and computer security: he has been teaching at MIT since 1983 and in 2012 he was awarded the prestigious Turing Award (also known as the ‘Nobel Prize for Computer Science’). In video call, tells us about the origins of Algorand: “Bitcoin had recently been released, and talking to a student about this new technology, I immediately realized that although it was a good idea, it was not an elegant solution. Since criticizing is getting easier, I thought: ‘What would you do?’. And so I got to work ”.
The professor was immediately confronted with the blockchain trilemma, according to which it is not possible to create a distributed network that is at the same time perfectly secure, scalable and decentralized: at least one of these characteristics must be given up. “I was not convinced that this was the case and I wanted to try to prove it”.
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The problems of Bitcoin
By analyzing Bitcoin, Micali identified some weaknesses. It was not scalable, as the ever-increasing transactions still took too long to be validated in the blockchain (a sort of digital ledger). It also did not guarantee decentralization and was insecure.
To better understand the terms of the question, we need to think of the blockchain as a chain of blocks, where each of them contains a set of transactions carried out. “At the beginning, the fundamental problem was deciding who should choose the next block to add to the chain, given that the number of transactions grows over time”, adds Micali: “With the first idea of proof-of-work (the validation mechanism underlying Bitcoin) was done like this: we create a very difficult cryptographic riddle, the first to solve it wins the right in representation of all the others to hang the new block on the chain: once a user succeeds, the time then another, and so it becomes a distributed system ”. With the passage of time, however, solving these riddles has become increasingly complex and to have a real chance to succeed it is necessary to have many specialized super computers completely dedicated to these operations. With the consequence that we end up consuming an enormous amount of energy, not just for the functions of mining but also to refrigerate the machines.
Beyond the negative impact on the planet, the operating costs of being able to hang the new blocks on the chain are now so high that few are able to support them: the system has become increasingly centralized. “And so in the Bitcoin blockchain there are two or three pools of miners that control the chain. But in a chain where two or three entities have the majority of mining power, that is, of the power to solve these riddles, the element of decentralization fails ”.
Then there is another issue to consider: the risk that the Bitcoin blockchain generates financial ambiguities when reaching consensus on the new block. With the proof-of-work, the cryptographic riddle is set up so that whatever number of subjects in the world are trying to solve it, there will be a solution every ten minutes. However, it can happen that the chain splits up, Micali tells us. In fact, in various blockchains, it can happen that when a new block is created another one is generated almost simultaneously: both are hung at the final end of the chain, thus forming a bifurcation. The subsequent blocks, which will be added by miner that solve the cryptographic riddle from time to time, can be hung on one or the other branch. The problem, however, is that not both branches will survive: one of the two will die because, later on, the validators will end up adding the following blocks only to the longest queue.
The immediate consequence is that the transactions contained in the block hanging on the shorter branch will be canceled. “As if they had never been made”, Micali points out, noting that “the splitting of the chain represents an extra risk that no one wants to take”.
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How the Algorand blockchain was born
The professor has developed a new blockchain, Algorand, with its own token, Algo, which is worth almost as much as a dollar (at the time of writing). “I closed myself at home to define the project, which I then published online in the form of white paper – Micali recalls -. A colleague of mine upstairs, a systems engineer, then contacted me: ‘I’ve read this thing, do we want to test it experimentally?’. We rented the servers from Amazon to simulate the traffic and test the algorithm. The system worked and so we started a company to develop the technology ”. The initial team consisted of 11 people, 8 of which from MIT. They started working on the project at Micali’s home: “The dining room housed the software development team, in my studio we took care of the theoretical part, the whole team gathered in the living room. When the first loans arrived, we then moved and, in June 2019, we launched the network “.
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How Algorand works
Algorand is based on a consensus method called pure proof-of-stake: it means that each token is worth the same as the others and its owner has the same probability as the others of being chosen to add a new block. “We can agree on the new block in less than a second and generate one every 4.5 seconds. Therefore much shorter times than those required by other blockchains. Furthermore, since before creating a new block there is an agreement between the holders of the tokens, our chain never splits, ”says Micali. More in detail, Algorand works like this: two thirds of the tokens agree on the block to add to the chain: once this consensus is reached with a majority of two thirds of the participants, the new block to hang on the tail of the chain will be unique, thus avoiding the risk of splitting.
But how do you choose the validators who will have to add the new transactions to the blockchain? Micali explains to us that, from time to time, the new group of validators will be chosen among all the token holders at random by an algorithm: an approach that guarantees decentralization, since everyone has the possibility of being selected by the system. It is also safe, because no one knows the identity of future validators and therefore cannot condition or corrupt them. When a new block needs to be added to the chain, through this randomized procedure a thousand tokens are chosen from among those in circulation, and indirectly their owners, to form a committee. “Imagine that you have a certain number of tokens and that two of them have been selected: you will have two votes in this committee – underlines Micali -. It is the members of this committee who agree on the new block. The system remains decentralized, because for each new block there will be committees of different validators ”.
To make sure the selection is actually random, Algorand has developed a kind of cryptographic lottery that works like this: “It is as if the owner of the token pulls the lever of a slot machine inside your computer: most of the time you lose, but when you win you get a ticket that allows you to take part in this committee of the thousand tokens “, adds the MIT teacher, underlining that the lottery requires only a microsecond of computation with a common laptop: a speed that then allows the system to be scalable. But also sustainable, given that the energy consumption for the various operations is really minimal, much lower and efficient than that of Bitcoin and proof-of-work, notes Micali, who declares: “The very low impact of our blockchain now it was practically eliminated, thanks to an agreement reached with the ClimateTrade platform (which helps companies to balance their carbon dioxide emissions with projects in favor of the environment) ”.
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The agreement with Siae
Although Algorand was born in the United States, there is a strong Italian presence in his team, “both at an engineering and business level. We are the most Italian blockchain that exists ”, explains the MIT professor. And in the peninsula, they have already signed an agreement with Siae, the Italian Society of Authors and Publishers, for which more than 4 million Nft have been created on Algorand (Non Fungible Token) that digitally represent the rights of over 95,000 associated authors. As Micali explains, Siae chose Algorand for several reasons. First of all, because it does not double: an NFT is a piece of music, a unique piece. And it is difficult to represent and protect a single piece on a chain that risks doubling. Secondly, Algorand allows for a great transaction speed: in a very short time Siae has put all these songs on chain. Finally, generating an NFT on Algorand has a cost of one thousandth of an algo. “Even if it is in the early stages, this is a project that, with low figures and the transparency of the blockchain, tries to make rights management more efficient”.
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