The Algorand blockchain claims to solve the trilemma of security, scalability, and decentralization. It includes several unique features that help to accomplish these while also providing high transaction rates (targeting over 1,000 transactions per second) and block rates (less than five seconds per block).
These unique features help Algorand achieve its vision, but they also have security implications. Some changes improve the Algorand protocol’s security, while others create security concerns.
Algorand’s Security Advantages
Security is one of the three components of the “blockchain trilemma,” and Algorand has made an effort to include additional security features in its protocol. Some of the main security-focused functions include:
- Secret Block Creators: Algorand uses a Proof of Stake (PoS) variant for consensus, meaning that the block creator is selected for each round based upon their stake. Algorand’s algorithm only notifies the block creator of their status, making it more difficult to target them with Denial of Service (DoS) or other attacks.
- Randomized Validators: Algorand forms a committee of randomly selected staked nodes to vote on the validity of each proposed block. This random selection makes collusion or attacks against the voters more difficult to perform.
- Separate Participation Keys: Participants on the block validation committee need to be able to digitally sign their votes. Algorand forces nodes to generate a unique participation key before doing so. This allows a node to participate in consensus while keeping their spending keys offline where they are more difficult to steal.
Security Concerns of Algorand
Most blockchain systems use rewards and penalties to incentivize good behavior. For example, most blockchains have rewards associated with block creation. If a block is valid and accepted by the rest of the blockchain network, then the creator is paid some cryptocurrency. This reward helps to incentivize good behavior because trying to cheat the system places the block creator at risk of losing their reward.
One of the biggest security concerns of the Algorand protocol is its elimination of several of the common incentives and rewards, including:
- Consensus Stakes: Algorand uses a variant of Proof of Stake, meaning that nodes stake some cryptocurrency to participate in consensus. Commonly, this stake is used as leverage to enforce good behavior. However, Algorand only requires a 1 ALGO stake, meaning that misbehaving nodes have little to lose.
- Slashing: Proof of Stake blockchains commonly use slashing (seizing of staked assets) to penalize misbehavior by nodes, such as the creation of invalid blocks. Algorand does not penalize a node that creates an invalid block.
- Block Rewards: In Algorand, the rewards for block creation are distributed across all users with a stake in consensus (proportional to the size of their stake). This means that a block creator receives no extra rewards or incentives to create valid blocks.
The lack of incentives and penalties does not necessarily make Algorand vulnerable to attack. However, these factors mean that a node that discovers a potential vulnerability has little or no incentive not to try to exploit it.
Algorand represents a unique take on blockchain with the goal of building a more decentralized and community-focused system. Algorand has made some moves to improve the security of their protocol, but, by eliminating most incentives and rewards, they are also potentially more vulnerable to attack.