Can Algorand Keep Up with Ethereum? w/ Stacy Warden

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1:30Stacey Warden, CEO of the Algorand Foundation. Welcome to Real Vision Crypto Daily Briefing. Thank you so much, Ash. I'm so psyched to be here. Well, it's a pleasure to have you here to talk about all things Algorand. But first, let's take a quick look at the price action on the day. Lots of green on the screen, always a happy thing. Bitcoin up on a 24-hour basis, 1.67%, trading now on my screen at 27 ,330, trailing seven-day basis, up about 1%. Ethereum also up on the day and up on a trailing seven-day basis, trading on my screen, 1 ,857 right now, trailing 24 hours, up 2.22%, trailing seven days, up 2%.

2:11Algorand also up on the day, up about 1%. What you're seeing there, I think, in the outset is an initial chart. That's a 12-month chart. You can see it's declined about 60 % in value over the trailing 12 months. But up on the day now, about 1.25%. Stacey, it's great to have you on the show. So much to talk about. I know there's been a lot of buzz on social media about this in the Algorand community. Lots of folks in the community watching the show. But for people who may not be familiar with Algorand, let's start at the very beginning. Let's talk about the basics. What's the use case? What's the framework?

2:42How do you think about the importance of Algorand? What I want to know is, are we up on the day because of this show? I mean, maybe you have this sort of magical power over markets. I don't know. Definitely not. So, you know, Algorand was famously founded by Sylvia McCauley, who is a Turing Award winner in cryptography out of MIT. and he invented a couple of things that are quite important for cryptography more generally and also the cryptocurrency ecosystem more generally. Zero knowledge proofs, verifiable random functions. These are a couple of the big ones. And so he, I think, watched this ecosystem develop and he thought I could probably build a pretty good blockchain myself.

3:27So we went live in 2019. And Algorand at its core, I would say, is built for real world applications and it's built to be able to scale. And so there are a couple of components of that that I can take you through. First and most importantly, the consensus is reached through something called a Byzantine agreement. And that means that in the case of Algorand, after 3.7 seconds, consensus is reached on the block and the block is a final settlement. So there's no such thing as like in a Bitcoin or an Ethereum world where there's a little bit of a competition between block forks and then, you know, the one that wins, the one that has the most work in the case of Bitcoin, the other transactions fall off, go back into the Ether and then are appended later.

4:09That, you know, the argument is that that cannot work. And for real world applications, you cannot have that moment of uncertainty, even for a short period of time. And so on Algorand, when you're done, you're done. This is a very important component of the value proposition. So transaction finality after a single block. Yeah. Transaction finality after a single block. Exactly. And that block, when I started, it was at about five and a half seconds and now it's at 3.7 seconds of full finality. Yeah. In that 3.7 seconds, three little rounds of consensus happen. I can explain how that works, but you're done and done after 3.7 seconds.

4:51One of the interesting things about the consensus mechanism for me is the way that it works based on randomness, which I think is really fascinating, sort of randomly selecting stakeholders to come to consensus. Talk a little bit about that, because I think it's a really interesting component of the technology. Yeah. So the amount of algos that you hold improves your chances of being selected as part of the consensus mechanism, but it doesn't guarantee it, right? So what you do is you, as a node, you run like a little, It's called a verifiable random function. It's like a little, you can think of it as a little slot machine.

5:27And if you win, you're picked, like three pineapples come up and you're, you're, the algos on your, you know, you're weighted by the number of algos you have, you're picked. And then a committee, and then the, a committee determines which of those that are picked has the lowest hash function. Okay. And, and there's some physics involved in how long it needs to take a certain amount of time because all of the relay nodes have to get all of the transactions and you sort of, everybody has to have a chance. Then you go out to a committee again. So if you believe in statistics, what you're believing in here is the ability to sample across all of the nodes that participate.

6:07You sample to get that committee. Another committee verifies the work of the first committee. And then yet a third committee is picked to look inside the block and make sure that it has integrity so that there's no double spend and all that kind of stuff. And then that all happens in quick succession. After 3.7 seconds, you're done through this sort of committee, three committee process. And then you move on to the next block. And it is so lightweight that you are actually not paid currently to participate in this consensus. This makes us unique from other kinds of blockchains. When we started, you could do all of this on like a Raspberry Pi.

6:43Now we're pretty performant. So we can do 6 ,000 transactions per second and the latency has gone down. So now you need a bit more of a higher end laptop to do it, but it's nothing like the kind of enterprise grade hardware that's required for other layer ones. So this is predicated on verifiable randomness, the idea that you can, in a way, observe that these are, in fact, truly random selections. Talk a little bit about that process. It's such an important part of the security protocol is dependent upon it. Yes, it's critical to the security protocol because it is unknowable even to you if you are going to be selected.

7:22And then once you are selected, it is deterministic what happens after that. So it's this combination of these two things. So the problem with proof of stake protocols typically is that the vector of attack is so well known. It's like attack that guy with the big stake, you know, and you can't you don't have that in Algorand because it is unknown and unknowable who to who to go after because you don't know if you're picked until after you're picked. And this is our claim kind of to have solved the trilemma that Vitalik Buterin famously said that you can't have scalability. You can't have decentralization, scalability and security at the same time.

8:01And we believe that this consensus mechanism gives you the decentralization because you're sampling from a large size, the security because of this verifiable random function, and the scalability because the committee selected are small enough to be able to do this quickly. So this is the way we sort of thread the needle between the three. When I say me, I say, I mean, the brainiacs over it on the technology side. Mers. Talking about the brainiacs on the technology side, one of the interesting things you mentioned is the idea that Silvio Macaulay, of course, very well known for creating zero knowledge proofs.

8:37But what's fascinating about that, I think when people say that he was one of the co-creators of zero knowledge proofs, it almost sounds as though he created them with using modern computer science techniques to facilitate this technology. That, in fact, is not the case. This is something that It was done decades ago in his early work as a mathematician, kind of on a pen or pencil and paper basis. And it's fascinating to me that this theoretical work that didn't seem to have, I'm sure at the time, much practical application is now at the core of this protocol. Right. And, you know, the way that the field has developed, even in the last five years, is almost unmatched by other fields.

9:16Maybe AI can give it a run for its money, but the idea that these proofs have become more succinct and easier, needing less computing hardware, and also the way that these succinct proofs also now have a zero-knowledge attachment to it, and this, I think, is going to be fundamental for the way forward for the industry as a whole, not, of course, just for Algorand. So let's talk a little bit about your organization, the Algorand Foundation, and its relationship to the governance and the execution of day-to-day operations of the coin. Yeah. So the TLDR on it is that Algorand Inc., run by Silvio, it does all of the tech.

9:56They are based in Boston. They run the protocol. They care about latency. They care about transactions per second. They care about the Algorand virtual machine. The foundation, which I have the privilege to run, cares about the community, the ecosystem, the governance, the tokenomics of the, you know, we are about the care and feeding and growing of Planet Algorand, I guess is how you could describe us. We try to make this, you know, we try to make Planet Allogrand have good infrastructure and roads and institutions. And we try to light it up so everybody else in the interstellar community can find us.

10:35And we try to make it a happy place to live. It's very environmentally. The air quality is great because we have no carbon footprint as well. Water is clean. Hey, everyone. We're going to take a quick pause and hear a word from our partners. We'll be right back.

10:54By the way, talking about lighting it up, I'd like to invite our viewers and listeners to join this conversation in the chat wherever they are, be it on the Real Vision platform or on YouTube. I know we've got some questions that are coming in already. So please, if you're listening to this conversation and you have questions, please jump in and ask. Listen, I wanted to ask you this. Obviously, one of the questions that is in the mind of the community of people out there is what's happening right now with the lawsuit with Bittrex. I should point out that I don't believe that Algorand is a direct party to this lawsuit.

11:22This is an SEC lawsuit against the cryptocurrency exchange Bittrex. And the question, as it involves Algorand, which is, I believe, the largest market cap coin named in that lawsuit, is that Algorand is alleged to be a security by SEC. I know this is tricky because it's an ongoing legal question. What can you tell us about what's happening there? You know, not very much, actually. We really we have no idea. It came as a surprise to us. You know, the Algorand Foundation, first of all, is not based in the United States. It's we don't issue algo in the United States ever. We don't believe that we are a U.S.

11:56security under U.S. law. We hope for regulatory clarity. I mean, I don't know what more to say about it, actually, but we were surprised as well, I will say. Yeah, it does feel like many people in this space who want to be good actors feel like they're caught in limbo by the current absence of regulatory clarity. I know Chair Gensler has said, essentially, come on in and register. There are folks who have raised significant challenges with that in the community about the appropriateness of the existing legal framework and laws to address digital assets. Of course, the securities laws in this country, the basis and framework were developed in the 1930s.

12:34So here we are some 80 years later trying to figure out how to deal with that situation. I also mentioned price at the top of the show. Algorand off about 60 % on a trailing 12-month basis. Because following, generally speaking, the pattern that we've seen, Bitcoin, for example, peaked in 2021, November of 2021, had a low in November of 2022, around the time of the FTX bankruptcy. Algorand following a somewhat similar pattern peaked a bit earlier, but has been continually down about 60%, as I said. Give us a little bit of context on how you guys think about price. You know, we at the Foundation, we don't think about price at all.

13:13It's a pretty easy question to answer. You know, as I said, we are trying to make sure that the people that want to build on Algorand and we are having a, you know, a Cambrian explosion of builders on this ecosystem right now, I will say. We try to make sure that they have a good path to success. We are committed to decentralization. So we try to turn over increasingly amounts of decisions that the foundation makes over to the community, over to our governors. We try to, you know, I'm about kind of excuse elimination. So we try to, for any reason that you wouldn't build on Algorand, we try to eliminate that reason.

13:51You know, one of the most important ones is developer tools. So we have put a lot of effort into developing a much better developer toolkit this year, making sure that, you know, things that we are available to protocols, that we do a lot on education, that we, you know, give the bear hug to our protocols, even in non-monetary ways. So those are the kinds of things that we focus on. We don't focus on the price at all, actually. So let me ask you this, Stacey. What do you worry about? What are your concerns when you look at the ecosystem more broadly and the specific implementation of Algorand?

14:27When I look at the Algorand ecosystem? Well, both. The broader cryptocurrency ecosystem. I know you expressed some concerns about an absence of regulatory clarity. But what are your chief concerns when you wake up in the morning? What do you worry about? Well, you know, I worry about am I doing the best job I possibly can for my community, you know, more specifically, but more broadly, which I think is more of the spirit of your question. I think those of us that are building and are trying to use this technology, be it on Algorand or be it on Polygon or any of the other layer ones that are trying to do a serious job in this space, we worry about the fraudsters and the tricksters and those that cast a pall on everything that we builders are trying to do.

15:13You know, it would be an exaggeration to say that I wake up every morning worried about that. But when something blows up again, I think, ah, you know, here we go again. You know, let's just. And so that's the kind of thing that I guess sometimes makes me a little nervous. But when I but when I wake up in the morning, it's pretty it's pretty heads down about what do we need to do as the foundation? What do we need to do to help the help our community and help the protocols building on Algorand, you know, succeed? You mentioned the other layer ones, layer twos. How do you see that ecosystem? What do you see the role for Algorand being in it?

15:48And how do you see it being differentiated in terms of specific use cases? Yeah, you know, again, I think Algorand is going to be there if you need to scale. So we, the Algorand virtual machine and the Teal-based machine language that it is built on, it is, you know, your success will not be your demise. It will never be the case that your NFT project blows up to such an extent that the fees on Algorand are more than the value of the NFT. It's not that kind of an ecosystem. It is built to scale. And so our transaction fees are very low. Our carbon footprint is very low. And our latency is very short.

16:28So when you think about those things, you think about who needs that? Well, a couple of different use cases come to mind. One is micropayments. So if you're going to be in the business of micropayments, I'm talking about financial inclusion and remittances and that kind of thing, you can't have high transaction fees. I think about institution and particularly financial type implications where you cannot for one second have one scintilla of doubt about whether there are two forks on the chain. It doesn't matter if it's going to go away in 10 minutes or five minutes. That's just too long. And so those kinds of applications lend themselves to building on Algorand.

17:04The creator economy is another one. Musicians and NFT artists and that kind of thing kind of lends itself to Algorand because, again, the fees are low and the carbon footprint is quite low. And we have had people come to us simply because they understand that we're green by the design of our consensus mechanism. So we try to follow where we think we have good niches. Yeah. You mentioned financial inclusivity. What does that term mean to you? It's something that's often used to talk about the unbanked here, whether in the developed world or in emerging markets. How do you think about financial inclusivity and how do you think about the potential global footprint of Algorand?

17:43Yeah, I think of financial inclusivity as having a couple of different components. One is identity. And I will say that identity is bedrock. And the three components of identity are the ability to, in a Web3 context, and again, it's easy on Algorand to do this, but it applies to Web3 more broadly. The idea that you can marshal credentials to establish your identity, particularly if you live in a country where you don't have social security numbers and easy kind of forms of government ID, that you can craft and create an identity for yourself based on credentialism is just a life-changing implementation.

18:24And then closely related to that is the idea that you can use data about yourself as collateral for you to borrow again so that you can exhibit good behavior, understand that that good behavior is not tampered with by you because it's on a blockchain, and that you can use that to access the financial system in ways that you couldn't before. You're not collateralizing, say, like a tractor in your field. You're collateralizing things about yourself. And this is potentially a game changer. And then the third piece on identity is the idea that you can marshal only the pieces of your identity that are relevant.

18:58You don't have to say everything that you want to say about yourself. You need to say about yourself. The second piece of that is this ability to make micropayments that I talked about before. And the third piece of that is programmable money. The idea that you can disintermediate some of the middlemen and you can send payments based on if-then statements. Well, your audience knows what programmable money is. But I think those are the three core components of financial inclusion, not to mention the fact that, you know, it's always on 24-7. Yeah. We've got lots of questions coming in from our audience.

19:34Probably not a surprise given the uptake this has gotten on Twitter. First question comes to us from Peter on the Real Vision website. What lessons have been learned by the Algorand team regarding the recent MyAlgo attack? Yeah. So, you know, my algo was a an important web or the most important web based wallet on Algorand. And it was hacked in a few months ago. And it was hacked kind of, you know, a way that started with big wallets and then trickled down to smaller wallets over the, you know, over the course of a couple of months. And it was pretty, I would say, devastating to to the ecosystem.

20:12You know, it affected a lot of people. It affected a lot of people at the foundation, a lot of protocols, a lot of individuals. We funded a, you know, we at the foundation, you know, the MyAlgo wallet is not related to the foundation. We did give it a grant to get going in the beginning, but we then funded forensics to try to find out what's going on. We have turned everything over to the FBI. They are showing indications that they're working on it. They have some kind of a theory of the case of what happened, but it was terrible. I mean, I don't know how anybody could do something like that. A little bit of a technical glitch there, but we were able to get Stacey back.

20:57Joining us from your cell phone, thank you so much for coming back. We appreciate it. I was asking you this question about the relationship between the foundation and some of the ancillary technology around it. The challenge here is you have a core protocol that has not been hacked, but a wallet that has. How do you think about that relationship between the wallets, which are obviously just a critical part of interacting with the protocol, the protocol itself, and the governance around the protocol? Well, the thing I'm thinking right now is like, did that guy just hack into this call because I said something about it?

21:31You know, I mean, it's just a very sort of scary level of timing, I think. Probably pure serendipity. I think in the beginning, everybody, I cannot tell you how many protocols have the word algo in them when they are built. And I think that was a thought, you know, a marketing strategy in the beginning. everybody put an algo, the letters lend themselves to use in longer words. So like there's just algo everything. And I think that's probably a bit confusing, you know, maybe to folks, but the protocol is the protocol. It's never been down for a second. The foundation doesn't run any protocols per se.

22:10We fund and we support and we encourage and we help incubate protocols building on Algorand and, you know, that's the relationship. Of course, they all go through audits. My algo in particular was audited, you know, any one of a number of times. So, you know, it's decentralized, right? We don't, you know, we don't have direct influence over that kind of stuff. That question came to us from Peter on the Real Vision website. Next question from Martinez on the Real Vision website. Are there any lessons learned from interactions with U.S. regulatory agencies. Boy, what an interesting question. Well, you know, I maybe I will, I'd like to stick up for some regulatory, you know, folks in the United States.

22:56There are some really good, very forward thinking regulators in the United States. I mean, if you look at in the CFTC, there's Caroline Pham, Commissioner Pham. There's also Hester Peirce at the SEC. There's at the, in New York, there's Adrienne Harris at the New York Department of Financial Services. Ash, I don't know, they're they're all women. I'm not, I'm not sure if, you know, there's a correlation there or not, but I'm just, you know, I'm just throwing it out there as, you know, maybe, maybe something to think about. So, you know, I think that we are, you know, kind of finding our way through in the United States.

23:28I think there's a lot of been a great, a lot of great leadership coming out of with Amica in Europe. The UAE is also very forward thinking. Singapore and the UK has done some interesting things. But I think, you know, in addition to that, some of the talk around securities has also taken some of the attention away from other things that are pretty important going on in a kind of, you know, not quite, I guess, fully regulatory, but also kind of in finance and tax treatment. And, you know, are these going to be, you know, considered long-lived intangible assets, right, that need to be impaired versus whether they can be marked to market if their property, if it's intangible property, can you, you know, mark value at higher valuations as well as lower valuations?

24:16How is the BIS going to treat the risk weighting around these things? Are you going to be able to have stable coins in your balance sheet as cash and cash equivalent, right? You know, these kinds of things are all, there's a myriad of issues that this broad ecosystem is trying to find its way through, not just this more limited question about securities, I would say. Hey, everyone, we're going to take another quick break and hear a word from our partners. We'll be right back to the Real Vision crypto daily briefing.