What’s ALGO? How Algorand works and why it matters

Speed matters in cryptocurrency, but so do decentralization and security. Together, those priorities form what developers call the blockchain trilemma – the puzzle of creating a blockchain platform that achieves all three equally and simultaneously.

Algorand’s creators tackled this head-on, building a decentralized, open-source blockchain protocol built that supports an expansive range of use cases – including smart contracts, decentralized finance (DeFi), and government-backed digital currencies – while also prioritizing performance, network integrity, and reliability.

In this guide, we'll explore how Algorand (ALGO) differs from other blockchain protocols like Bitcoin (BTC) and Ethereum (ETH). We’ll also explain what ALGO is and share tips on buying and storing it in your wallet.

ALGO 101: What network is Algorand on?

First things first regarding what network Algorand’s on. Long story short? Its own.

Founded by Turing Award-winning cryptographer and MIT professor Silvio Micali, Algorand launched in 2019 with the goal of creating a borderless economy. At the heart of Algorand is its native coin, ALGO, which fuels the network by handling transaction fees, staking, and governance.

As a Layer 1 blockchain, Algorand processes transactions directly on its base protocol, so it doesn’t rely on external solutions for scalability. Its design delivers high throughput, low costs, and strong security — all essential for reliable transactions. And because Algorand is open-source, it encourages collaboration and transparency, making it easier for developers and organizations to build new applications and expand the network.

Currently, more than 2,000 organizations use Algorand, from fintech startups to government-backed projects, many of which value the platform’s more sustainable, lower-energy approach to blockchain technology (more on that below).

How does Algorand work?

Blockchains differ by design, depending on how they validate transactions and maintain network security – in other words, their consensus mechanisms.

Proof-of-work (PoW) systems like Bitcoin rely on energy-intensive mining rigs, while many proof-of-stake (PoS) systems, such as Ethereum, require users to lock up large amounts of tokens or delegate to validators to participate. 

Algorand’s consensus mechanism takes a different approach: pure proof-of-stake (PPoS).

What’s pure proof-of-stake (PPoS)?

With PPoS, Algorand randomly selects ALGO holders to propose and validate new blocks. The process doesn’t require mining hardware like PoW networks or staking requirements like PoS models, which dramatically reduces energy use. That efficiency is central to Algorand’s mission of addressing the blockchain trilemma: balancing scalability, security, and decentralization.

Algorand also operates on a two-tiered structure. The first tier processes simple transactions and Algorand Standard Assets (ASAs), while the second layer supports complex smart contracts and decentralized applications (dApps). Together, they help ensure high performance even as the network grows.

What makes Algorand’s PPoS “pure” is that it doesn’t require users to delegate tokens to validators or stake through pools. Instead, every ALGO holder – regardless of how much they own – has an equal chance to help secure the blockchain protocol. This reduces the risk of power concentration among large token holders and fosters a fairer, more democratic network.

By removing the need for mining and staking requirements, Algorand’s PPoS design ranks among the most energy-efficient blockchains available today. That efficiency is a major advantage for developers building smart contracts, DeFi protocols, and other dApps. Lower energy use means faster transaction finality, lower fees, and more consistent performance – all essential for applications that demand reliable, real-time transactions without delays or high costs.

Other Algorand perks

Beyond its PPoS consensus mechanism, here are a few more features that set Algorand apart from other blockchain platforms:

• High scalability: Algorand processes over 1,000 transactions per second (TPS), with plans to scale to 10,000 TPS, rivaling traditional payment networks like Visa.
• Instant finality: Once the network adds a block, Algorand transactions become immutable, eliminating forks and ensuring immediate trust. For real-world applications like payments and financial settlements, that level of instant finality is a must.
• Low transaction fees: With fees as low as 0.001 ALGO, Algorand is cost-effective for microtransactions, daily payments, and large-scale applications where cumulative fees can quickly add up.
• Smart contracts and dApp development: Algorand supports Algorand Smart Contracts (ASC1), allowing developers to build an array of dApps for DeFi, NFTs, and more.

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Tokenomics of ALGO

When it came to building a different kind of blockchain, Algorand’s developers didn’t stop at its PPoS framework. They also crafted the platform’s tokenomics to promote long-term sustainability, foster community participation, and maintain a transparent, predictable economic model. Here’s how:

• Total supply: ALGO has a fixed supply of 10 billion tokens, which creates scarcity, helps prevent inflation, and provides a predictable framework that supports Algorand’s price stability.
• Distribution: ALGO’s initial distribution took place through a public sale in June 2019 at an initial coin offering (ICO) price of $0.24 per token. Approximately 25% of tokens were allocated to the community via airdrops and incentives, while the remainder went to the Algorand Foundation, development team, and strategic partners to promote network growth and adoption.
• Staking and rewards: ALGO holders can stake tokens to help secure the network and earn rewards. Holding at least 1 ALGO in a noncustodial wallet automatically qualifies users for staking rewards – so even small holders can participate.
• Governance participation: ALGO holders can also join the Algorand Governance program by committing tokens for three-month cycles, which gives them the opportunity to vote on protocol upgrades and network proposals.

What’s Algorand used for?

Algorand’s uniqueness makes it a versatile platform for all types of real-world applications. Here’s a look at where developers, businesses, and governments are using Algorand today:

Asset tokenization

Algorand’s blockchain supports turning real-world assets like real estate, art, and financial instruments into digital tokens that are easier to trade, settle, and access. Think of it like buying and selling shares of a building or a piece of artwork – but without the traditional go-betweens.

Enterprise and government solutions

Companies and governments are using Algorand’s reliable, scalable blockchain for everything from supply chain tracking and cross-border payments to national digital currencies (CBDCs). Algorand's predictable performance and open-source design allow organizations to build secure, decentralized systems that resist tampering and keep transactions transparent and verifiable. Algorand’s decentralized structure and strong cryptographic security also make it a secure platform for managing digital identities. Governments and organizations can issue, verify, and manage digital IDs – helping users prove who they are online while maintaining privacy and preventing fraud.

Financial instruments

Developers are building lending platforms, decentralized exchanges (DEXs), and other financial tools on Algorand’s smart contracts, helping to bring the efficiency and accessibility of crypto to finance. With low fees and fast transaction speeds, these projects let people borrow, lend, or trade digital assets – all without relying on traditional banks.

How to buy, transfer, and store ALGO

Getting started with Algorand (ALGO) is straightforward, whether you’re new to cryptocurrency or an experienced trader. Here’s how to buy, transfer, and store ALGO securely:

Buying ALGO

Algorand’s design may be unique compared to other major blockchains, but the process of purchasing ALGO is on par with buying other cryptocurrencies:

1. Choose a crypto exchange: Find a reputable exchange that lists ALGO, like Coinbase, Binance, or Bitstamp. Sign up with your email, then complete identity verification, typically with a government-issued ID and proof of address. 
2. Deposit funds: Once your account is verified, you can add money by linking a bank account, using a credit or debit card, or transferring funds from other cryptocurrencies you already own. 
3. Buy ALGO: Search for ALGO on the exchange and choose the trading pair that suits you best (like ALGO/USD or ALGO/BTC). Enter the amount you’d like to purchase and confirm your order to complete the transaction. Congrats! You now own your first ALGO.

Transferring and storing ALGO

After buying ALGO, you’ll want to move it from the exchange to a private wallet where you control the private keys. Doing so helps protect your assets from exchange risks and gives you the flexibility to stake ALGO and interact with dApps on the Algorand blockchain.

Algorand supports several wallet options:

• Pera Wallet (formerly Algorand Wallet): The official mobile wallet for Algorand, Pera lets you send, receive, stake, and manage your ALGO and other Algorand Standard Assets (ASAs). Available for iOS and Android, it’s user-friendly and built with the Algorand community in mind.
• Hardware wallets (Ledger or Trezor): For maximum security, hardware wallets store your private keys offline, protecting them from online threats. These devices are ideal for long-term holders or anyone prioritizing security. They also support staking directly from the device, so you can continue to earn rewards while keeping your ALGO safe.
• Trust Wallet and MyAlgo: Trust Wallet offers mobile storage with basic transaction capabilities, while MyAlgo provides a web-based interface that’s especially useful for governance voting and interacting with dApps built on the Algorand blockchain.

No matter which wallet you choose, remember to back up your keys and enable two-factor authentication. Following those kinds of best practices will help keep you safe in Algorand’s growing crypto world, whether you’re trading, staking, or exploring new apps.

Pure PoS with Algorand, pure accuracy with CoinTracker

From staking rewards and DeFi participation to daily transactions, Algorand’s fast, low-cost blockchain makes it easy to accumulate a busy transaction history. But when you need to log every trade, staking payout, and asset transfer for both your portfolio and tax purposes, doing it manually isn’t realistic.

CoinTracker connects to your wallets and exchanges to automatically record your ALGO transactions – and over 30,000 other supported cryptocurrencies. And with CoinTracker’s Portfolio Tracker, you get a real-time view of all your crypto holdings so you can monitor their performance 24/7. When it’s time to file, CoinTracker generates IRS-compliant tax forms, ready for your CPA or tax software like H&R Block or TurboTax.

Start for free today and see how easy it is to stay on top of your blockchain activity with CoinTracker.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.