Is Algorand Halal?

Is Algorand Halal?

Algorand Quick Facts:

Founders: Silvio Micali

Date Founded: June 2019

Current Developers: Algorand inc.

Max Supply: 10 Billion Algo

Pre-mined Supply (coins that were created before the currency was publicly launched): 10 Billion (2.5 billion originally held by the organization itself) more info here. 

Practical Islamic Finance Rating: Comfortable

Intended Purpose

Algorand is a currency and smart contract platform developed by Silvio Micali, an MIT professor, and renowned computer scientist. His vision was to create a currency that offers the “convenience” and “efficiency” of a centralized financial system, with the security benefits of a decentralized one.

In his whitepaper, he describes his approach as “quite democratic” in the sense that there is no difference between a miner and a user.

Algorand’s proof of stake system works differently than most other coins. It has two stages: proposal, and voting.

Nodes are randomly assigned to the tasks of either producing block proposals or verifying proposals with their votes. 

Current Utility

So far, there are few Defi applications on the Algorand network compared to more established networks like Ethereum.

Algorand recently launched its governance program which allows users to vote on changes to the ecosystem with their coins. In return, they receive a reward based on the percentage of coins they locked up in order to vote. Votes are weighted by the amount of ALGO locked in the governance system.

Practical Islamic Finance concludes:

Algorand’s intended purpose as a decentralized financial system with smart contract capabilities is not inherently haram.

Is Algorand Linked to Interest-Bearing Debt?

The increased utility of Algorand allows for the possibility of applications that partake in interest-bearing activities but these are built on top of the network rather than an inherent part of it. 

Practical Islamic Finance concludes:

Despite the presence of interest-bearing activities that occur on Algorand’s blockchain, these are not inherent to the functionality of the blockchain itself. 

What is Algorand’s ESG Rating?

Governance refers to the incentive structures governing a cryptocurrency.

Decentralization

Generally speaking, decentralization makes it difficult for a corrupting force to affect all points of influence simultaneously.

To determine Algorand’s level of decentralization, we look at two different metrics: nodes, and distribution of funds.

Nodes

A node is a computer connected to the network that holds the blockchain data for others to be able to use and download. This typically requires that all the blocks ever produced be downloaded but Algorand has developed a system that allows typical participation nodes to only require recent data.

Historical block data is stored with archival nodes and can be retrieved by other nodes if required.

Algorand has around 1,800 nodes as of January 2022.

Distribution of Funds

Currently, the largest holder of Algorand is an unnamed wallet with 400 million ALGO which is about 4% of the total supply.

Environmental

Algorand uses a proof-of-stake system that only uses the required computations in order to operate. This has a much smaller impact on the environment per transaction compared to something like bitcoin.

As of April 2021, Algorand announced that its blockchain is carbon neutral and plans to become carbon negative by using the blockchain itself to track and offset all its emissions.

Social

Algorand enables users to access a fully functioning smart contract network with minimal fees and high throughput while remaining secure and consistent.  

Practical Islamic Finance concludes:

Algorand is a fairly decentralized network with plans to become even more so in the future. 

Overall we find Algorand’s benefits and potential for good to be substantial and outweighs the comparatively negligible costs associated with running its network.

Comfort Rating

From Algorand’s intended purpose, lack of any structural reliance on riba, and ESG impact, Practical Islamic rates this cryptocurrency as:

Comfortable to invest in from a Halal perspective.

Sources

Algorand Tokenomics

Algorand Coin Market Cap

Algorand Whitepaper

Algorand Metrics

ALGO Top Wallets

Algorand Carbon Neutral

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