Algorand: Defining The Standard For Blockchain Economy With Naveed Ihsanullah
Defining the standard for blockchain economy, Algorand’s pure proof-of-stake protocol is the first of its kind to support the scale, open participation, and transaction finality for billions of users. Simply put, it’s a way to promote trust across the entire world without having to meet first. In today’s episode, Algorand’s VP of Engineering and Research, Naveed Ihsanullah talks about how their company is solving the blockchain trilemma and how proof of stake is a major component of that.
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Algorand: Defining The Standard For Blockchain Economy With Naveed Ihsanullah
I’m here with Naveed Ihsanullah from Algorand. He’s the VP of Engineering and Research. Welcome, Naveed. Thank you so much for joining us.
It’s a great pleasure to be here, Monika. Thank you.
How would you describe Algorand? What is your elevator pitch of what Algorand is? I know that you are pretty far along now. You’re not a super new company, so elevator pitching isn’t what you have to do all the time. When you try to explain to your stepdaughter or your grandma what you do and they say, “What are you up to?” How do you explain it?
Those are different audiences than my elevator pitches are typically aimed at. Most people that I speak to initially already have some idea of what a blockchain is and the problem domain that I solve. The elevator pitch there and the one we’ve been going with is our ground is the first blockchain and cryptocurrency that fundamentally solves the blockchain trilemma. We are simultaneously scalable, decentral and secure in a way that’s never happened before. That’s not as effective when I talked to my stepdaughters or my wife because they don’t know what a blockchain is and there’s a lot more learning there. For them Algorand is a way for us to promote trust across the entire world without having to meet first.
That’s a great way of putting it without having to meet first. Without having to know anyone’s name, you can still trust them. When you talk about how you’re solving the blockchain trilemma, talk to me about how proof of stake is a major component of that. A lot of people don’t understand the difference between proof of work and proof of stake, but then what proof of stake does for those three main problems in blockchain. That’s interesting.
At least giving a high-level picture of what proof of work is first because the comparison is where most of the storytelling happens. Proof of work is a wonderful concept. That was invented many years ago. It’s Satoshi’s whitepaper introducing Bitcoin. In that, he wanted a way to secure what’s going on and electing who has the opportunity to say what the next block will be. He came up with this cryptographic riddle that the whole world tries to solve. The whole world races to solve it and whoever wins that race, winner takes all, is able to propose next block. There are some problems with this that’s obvious almost immediately, if everyone’s trying to solve the problem and only one person wins, all that extra work is gone and wasted. Those works, except for that one person who wins, are wasted away. The proof of stake is fundamentally different.There are 7.7 billion people in the world. Getting all them in one place to make a decision is a challenge all by itself. Click To Tweet
Proof of stake is instead of all of us wasting our energies trying to solve one problem and winner takes all, if you have stake in the system, if you have some value tied up in the system in some fashion, then you have the ability to represent yourself when it comes to selecting those blocks. There are some nuances around proof of stake. The challenge of proof of stake is some versions of it are easy to implement. The most common one that we hear about is delegated proof of stake. That is how the United States Congress works. You select some representatives on your behalf and because there are 500-plus of them but not 350 odd million, they’re able to hopefully come to the decisions in a more timely fashion and make progress. That’s delegated proof of stake. The challenge though is delegated proof of stake is not decentral at all.
By definition, you have picked representatives and those representatives, if you send some way to corrupt them or their behavior is incentive by mechanisms that are different than the population, you run into problems where the system is no longer working on the behalf of everyone, just on the behalf of some. There’s this version that’s called bonded proof of stake. Instead of simply electing someone that represents us, anyone can elect themselves. Whether they do that as they take some value and they sequester it. They’re like, “I am now in the system. I’ve committed this value to the system and if I do anything bad, just take my bond away.” Now I can vote as part of the block proposals or whatever else needs to happen in the system. It seems secure because we all have skin in the game now.
The challenge unfortunately is as long as the prize is worth more than what you bonded, it’s still motivated to do it. Our founder, Silvio Micali came up with a different way based on this realization. All these other approaches have the security of the entire system dependent on some small subset of the system, whether it’s the miners and proof of work, the representatives in delegated proof of stake or those who give up some value in bonded proof of stake. There is still a small group inside the entire population. In pure proof of stake, Algorand’s approach, we ensure the security of the system by having everyone in the system participate in the election of blocks and in any voting that needs to happen.
How do you get everyone involved? The 2016 election would have been a very different thing, I imagine, if we could have had everyone participating. How do you get everyone to participate?
The real key here is how do you get everyone involved and still make it fast enough where decisions are happening? There are 7.7 billion people in the world roughly. Getting all them in one place to make a decision sounds like a challenge all by itself and it is. The way Algorand works is we use many one-off committees of constant size. These committees are effectively and constantly sampling our entire population. Everyone has a chance to be a part of this committee. There are several committees used for every block proposal. Not to start to get a little technical, but the net of it is we are sampling the entire population in such a way that our sample is effectively the same if you believe in statistics as the voting of the entire population. As a result we get all the performance of a small group of people doing the voting with all the security of having everyone be involved.
If they were in that system, they could pretty much guess that they would be called on say once every 6,000 or 60,000 times. It’s almost like a jury duty approach. You have to show up, you have to do it, and then you go home and you know that the whole system works. You had to show up on that one day.
That’s exactly correct, except unlike jury duty, we have made the amount of work required so easy. You don’t have to take time off from work. One of the challenges of a proof of work or some of these other systems is you need expensive hardware to participate and not everyone can. Algorand, our technology could run on something as small as any phone, even like a Raspberry Pi, which is a $20 computer.
I’ve used those before. I used to make interactive art installations. That’s incredible. Were you always a diehard proof of stake person over proof of work or did you not know about those options?
Before I came to Algorand, I didn’t know about those options. I have been interested as a techie in blockchain. I like hardware and I like setting up computers. The idea of having all these miners running, solving problems and communicating with a large network seemed like a cool thing to do. I’ve been doing it, but I never thought of it as something that the world would use to solve any actual problem because it’s too involved. It’s too techie, the barrier to entry is very high and not to mention incredibly loud. My basement was filled with these blasting fans trying to keep these GPS cool. None of that made any sense to me for real system. Until I heard about the details of proof of stake from Silvio, I didn’t believe that there was some path here that would make sense.
You dropped the name Silvio. Tell me about this mythical creature, Silvio.
I’m not sure if I can do Silvio justice, but I’ll make an attempt.
Tell me all that is Silvio.One of the great joys in life is working with people that you respect and have a connection with. Click To Tweet
He is an amazing person. I’ve been around amazingly, energetic and intelligent people in many domains and in many industries before, but even having those wonderful opportunities, Silvio is rare. One of the stories I like to tell about Silvio, so people get a sense of him and the quick background is with those who don’t know. Silvio Micali is a professor MIT who founded many of the foundational tech that is used in cryptography. He’s arguably one of the founders of modern cryptography. The little lock on your buzzer that indicates you’re in a safe website, he invented that. Most of the modern vision to blockchain projects that are using technologies like VRF, these are technologies that Silvio invented as well. Algorand’s the only company in the world benefiting from technology Silvio’s inventing as opposed to decade-old stuff.
Silvio has the Turing Award. A Turing Award is roughly the equivalent of the Nobel Prize in computer science. The story that I’d like to tell with that background is I had an incredible honor of traveling to Singapore with Silvio. He was asked to speak at a conference. There’s an annual meeting there where the top PhD and postdoc students in the world have the opportunity to meet the Nobel Prize, Fields Medalist and Turing Award winners around the world in one place for a week-long session. They can connect and have an opportunity to engage smart, bright young people by those with experience and who’ve already done it. In this rarefied group, Professor Silvio Micali was asked to give the keynote. Even in that group, he’s a star and it’s an honor to work with him every single day.
That sounds amazing. He’s told you some piece of advice that got you to jump on board to Algorand. He’s not only super smart and super genius, but he’s also pretty wise.
He has a lot of abilities and domains beyond simply the technical that make him particularly wonderful to work for. I do recall the line that I think he got me with the hook. After we had about a two-hour conversation in our first meeting where he’s telling me about Algorand and why I should come on board, he said to me, “Naveed, one of the great joys in life is working with people that you respect and have a connection with. I feel that we have that. You should come work for me.” I did that a-ha thing because I didn’t want to give it away, but I’m thinking, “I really want to come work here.”
You just sealed the deal. Now you do work at Algorand. You’ve been there for how long now?
I was the first official employee. I started with Algorand around January, February of 2018, depending on how you count such things. Prior to me the group that consisted of Algorand was Silvio and his research team and another professor at MIT, Nickolai Zeldovich and his distributed engineering research team. Collectively, they formed the nuclei. They were people that Silvio has known for years out of academia. When he’s decided he’s going to create a company, the first official hire outside that group was myself.
We now know this MIT nucleus that built Algorand and that Algorand came out of. In terms of who was building on Algorand, can you give me a couple of use cases? For the average layperson, what would mean building Algorand’s to them?
In Algorand, we seek to be a means of payment, not just a store of value like Bitcoin wishes to be. We want to be able to handle transactions meaningfully at scale because that we can enable some use cases that are harder to do than other blockchains. One of the cool ones that we have already talked about is Asset Block which is taking commercial real estate. We have $60 million of commercial real estate that they have tokenized and made it possible to trade on the Algorand blockchain.
I can’t wait to meet the Asset Block people. I am the founder of Rise Markets. In addition to being The New Trust Economy, we’re also tokenizing real estate, not commercial, but other real estate internationally as well as domestically. I was looking at that specifically. We’ve talked with other proof of stake chains and looking at how that can make more sense, especially in something like an asset-backed transaction that’s so much more real-life engaged. When you’re thinking about bringing more people into that playing space, how do you do so in a way that you don’t lose so much energy to something like proof of work? I’ve been looking a lot of proof of stake options because I love what proof of stake offers to the average consumer and to the average participant. The proof of work is a higher bar and it’s a lot more difficult to be a part of.
It’s worth going into a little bit more detail if you’re interested there. Some of the characteristics about Algorand that are pretty cool are not only are we able to maintain 1,000 transactions per second at a global scale across the entire planet, but we’re also able to commit a block every 4.3-ish seconds. What that means is that anything you did on blockchain is nearly instantly done. In the Bitcoin world, if you do a transaction, it may take hours to settle. The bigger the transaction, the longer we have to wait and with price volatility, that’s an issue. If you want to trade things at Algorand, you can swap them instantly. You and I decide you want to sell me the house that you have tokenized and I have some stable coin over here that I want to swap your way. 4.3 seconds later, we’re done without any risk to either party.
Do you have any other use cases beyond transactions that are asset-backed or is that mostly where you’re sticking? Is it trying to combine means of payment at scale with also something that backs that payment mechanism?
There are some use cases that I probably can’t get it to too much detail because they’re still on the other side of NDA. Let me talk about them in a general way because they appealed to my sense of the way the world should be.Blockchain decentralizes the market without having to necessarily go through the utility for every single action. Click To Tweet
Is it your futurism and the use cases of the future?
Yeah. There’s a company that wants to take the new popularity around having solar panels on your houses. It’s tokenizing that in a kilowatt-hour and now all of a sudden with that information tokenized on the blockchain, you can create an economy around it. The most amazing thing is you only sell back to the utility. Now you can create this interesting arbitrage opportunity between prices across a day. You can also sell to that person down the way who might, because of where they are on the grid or what generation or power needs they have at that moment, can’t be met by what the utility is able to output. I love the idea of let’s take something amazing like next-generation power production that is clean and green and connected up with new technology like blockchain, which decentralizes the market, the buyers and sellers without having to necessarily go through the utility for every single action.
I’ve heard about some of these. Not that I knew specifically that Algorand was in this space, but I’ve heard about these little micro-economies that are hopefully going to become larger than micro-economies around selling directly your energy and other types of goods.
There’s a cool a bit of technology that we built on Algorand for the purpose of selling our own tokens on on-chain Dutch Auction. In this particular trading scenario, it’s possible to auction off your kilowatt-hours using the on-chain Dutch Auction. On this, we’re purposing what we already had there to get a really efficient rate on that kilowatt-hour.
Is this what you mean by decentralized finance? I know you’ve used that term before.
This is an example of a DeFi, but it’s one that I particularly love because I’m quite excited around green technologies. That’s the direction the world should strongly consider and maybe the only path we have available to us soon.
In terms of economic exchange and decentralized finance, who would not be very passionate about green energy in general? What do you feel are some other verticals that are right for new ways of economic exchange that you think Algorand is going to be tackling soon?
The whole space of DeFi where we think the characteristics of a pure proof of stake system like Algorand blockchain, is probably perfectly suited for the high transaction velocity, but also the instant settlement with no risk to price volatility. The two collections that we’re working with are on the high end, there are traditional finance companies who are looking at blockchain as what does this curiosity and how do I leverage it before it makes me a rock of the past? I’m excited because some of the work they do, they’re in this position where they are one large institution to another. They don’t have trust there. There’s no good third party intermediary that isn’t the government that can work. The government usually wants a lot to be in that mediation position and also they have their own agenda. Once across border payment, other fees may be applied because the company now has oversight. This is an example of decentralized finance at the highest level.
One way that we’re taking that on is we’re outbound as a first blockchain. That’s a part of the ISDA, the International Swaps and Derivatives Association. All the big financial institutions are a part of this association. They’ve had a standard way of creating swaps, derivatives, loans and all these financial instruments. Algorand is making those first-class citizens under a blockchain. As simple as I want to create a collateralized loan with these terms and it’s on a blockchain. It works between all the parties involved. The cool thing there is once we built it for the huge multibillion-dollar companies, those in the third world that are completely underserved and they have no banks at all can do the exact same thing with each other. There’s no additional cost or complexity for me to instantiate a collateralized loan for a house or a small business as there would be for something much larger.
That’s incredible to me when I see that soon there’s going to be a reduction in fees to such a degree that everybody is truly going to be able to participate in the global economy and the local economy. It’s an exciting time. It sounds like you’ve not always been involved in FinTech and payments systems so much. It sounds like you’ve been more of an open-source type of person. Did you go to school explicitly for computer science? What was your actual background and how did you end up getting into such a broad base in computer science?
For my actual background, I have undergraduate degrees in computer science and biochemistry. The biochemistry is because my father is a doctor and I didn’t know what to do with my life. The computer science was, I found my passion in undergrad. From there I focused on computer science from that point on. I worked on a Master’s as well in computer science. I’ve been a systems developer, architect or engineering leader for a couple of decades. I don’t have a background in finance. My background is in building things and add scale. I’ve consulted with some of the biggest companies in America and even around the world, most recently at Mozilla. I’ve also had the opportunity to work on one of the most popular open-source projects and create some technology that the whole world is using. It’s been a fun ride so far.
That sounds like a fun ride. You have got a new fun ride coming up with the V2 launch.Green technology is a direction the world should strongly consider. Click To Tweet
One of the things that I thought was always interesting about the blockchain world is in the more traditional software world, releases happen on a regular cadence. Sometimes every couple of months, sometimes as often as every couple of weeks like with Firefox. These blockchain projects, they all seem to be one and done. They stand up something and it’s pretty exciting. You never see much innovation from them ever again. That may be changing soon, hopefully, on the cultural shift. Algorand has been around for a little over 100 days and we’re about to land our version two already on November 15th. There are three new key pieces of technology that we will be dropping. We’re excited about that.
Is that what you’re gearing up for?
Let’s say mid-November because with my former VP of Engineering hat, never commit to any date publicly.
I love hearing all about Algorand. Do you want to touch on anything else that specifically that users would want to check out? When they go to your site, what will they expect what can they do?
A quick teaser, what’s going to be in that release is worth doing. At the end of May, we stood up our technology and what we wanted to accomplish there is proof to the world that we have real team that we can build something and it will work. We did all of that. Now for the last 100 days at this or 120 days maybe we’ve had this untested pure proof of stake consensus protocol, working at scale and doing everything we said we would be able to do. What we didn’t have is some of these constructs that people want. They want programmatic smart contract like functionality. They wanted to be able to make a token for themselves so they can ICO and moon.
Apparently, that’s what people are very excited by. We’re bringing the best functionality as templates directly into Algorand in November. It’ll be possible to create any asset you wish whether it’s a tangible asset, a nontangible asset or a security asset with descriptions so you can freeze it, unfreeze it, make sure it follows government compliance. We noticed these keys are very important outside the simple crypto world. We want to make sure that we have a bot appeal. We are supporting batch transactions. We call them atomic transfers where you can have multiple transactions land together or not at all.
You and I could engage in a house where token swap and I get the house and you get the tokens or neither of us gets anything and nothing is lost. Right now, there’s always a risk involved if you do that in blockchain. Finally, we are bringing there one smart contracts via AlgoScript, which we’re excited. It’s going to provide a lot of rich functionality while still maintaining that high performance and high-security guarantee that we want to make sure it’s always present in our blockchain.
I can’t wait to talk to you on sideline outside of this. I don’t want to bore our readers with all of my detailed questions. I have many follow up questions. After your launch, I would love to hear how it went. Maybe we can do another follow up in a few months to see how fast you are doing your version relaunches. It’s an exciting time, especially after watching crypto. The exciting yet very baby, like very early and then go through its winter where people were running from it thinking that if there was nothing there and I thought, “No, there’s so much here.” The only serious people are left and it’s lovely to see what’s happening with the serious people. Now that people have seen the right through the crypto winter. I appreciate it. Thank you so much. This has been fantastic having you on the show. Thank you for talking about Algorand and your background with Mozilla and everything else. It’s been great. Do you have anything else you want to add before we sign off?
It’s been a great pleasure talking with you. It’s awesome to see so much interest in this space and thank you for the opportunity to let people know about Algorand.
Thank you, Naveed. It’s been a pleasure talking with you.
About Naveed Ihsanullah
Highly experienced senior technology leader with a record of developing and supporting successful high-technology projects and solutions incorporating a wide range of applications and platforms. A proven technology and business strategist and team leader recognized for improving organizational effectiveness and efficiency through leadership that aligns the business processes and technology infrastructure to realize cost savings, accelerate performance and, sustain strategic flexibility while creating a competitive advantage for the organization. Uniquely qualified to translate business drivers and needs to a highly technical audience and highly technical concepts to bottom line terminology that demystifies technology and proves its value as a partner to the business. A Social Media pioneer able to leverage new media effectively to promote brand recognition and customer retention.
Specialties: Technology Leadership • Business Development • Software Architecture and Management • Data Center Architecture and Management • Social Media Development and Marketing