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Orange

Guide to Orange

What is Orange?

Orange is a mineable meme coin on Algorand. It was created by @grzracz and is an open source, community-driven project. As originally stated by the author:

Orange (ticker: ORA) is a “mineable” Algorand Standard Asset fully managed by an open-source smart contract. It operates similarly to Bitcoin (ticker: BTC), where multiple parties can compete to earn a coin in a decentralized trustless manner.

The mining mechanism of ORA is based on transaction fees: whenever any account submits a “mine” (juice) application transaction, the fee paid to the Algorand protocol is saved in the contract. The miner with the total highest amount of fees paid in total that has submitted a “mine” transaction within a given period is rewarded & coins are sent automatically after the next period of juicing, while their (and only their) total amount of fees paid is reset to zero.

Fee effort is cumulative: only the winner has his effort reduced - even slow juicers eventually will reach the top, no matter which round.

This means that ORA functions both as a store of value & as a way to reward users increasing the Algorand network throughput.

Tokenomics

Like Bitcoin, each ORA since the start was produced through mining. ORA is produced once every five rounds (blocks). The amount produced is determined by the halving schedule.

  • The first halving produced 1,000,000 ORA at ~1.05 ORA per 5-round period..
  • The second halving produces 500,000 ORA at ~.52 ORA per 5-round period.
  • The third halving produces 250,000 ORA at ~.26 ORA per 5-round period.
  • And so on…

The total supply of ORA is capped at 4,000,000 ORA and will take roughly 15 years for all ORA to be produced.

On Mining

Mining ORA has many similarities to mining Bitcoin, but it also has unique differences that make it highly efficient and suitable to addressing economic issues related to Proof-of-Stake blockchains.

In BTC, miners compete to produce a hash for a given block of transactions. The hash requires a large amount of computational power to produce and is regulated by the difficulty of the network. This difficulty level is adjusted every 2016 blocks (approximately every two weeks) to ensure that the average time between blocks remains around 10 minutes. Miners must invest a lot into resources (hardware and energy) to compete. Miners that do not win the block lose out on the costs invested for that block. When a miner wins a block, they are rewarded with the block reward and the transaction fees from the transactions in that block. This Proof-of-Work system is energy intensive, with much of the energy put into the system being wasted on failed attempts to produce a block. However, the work and competition is a vital part of the security of the network and the integrity of the blockchain.

In ORA, miners compete by using mining transactions. Within a 5-round period, the miner with the highest amount of transaction fees paid to the network is rewarded with the mining reward. The transaction fees are cumulative, meaning that the more a miner pays in fees, the higher their chances of winning. However, if a miner does not win, they do not lose out on the transaction fees they paid. The amount of fees paid rollover into the next period and the miner can continue to mine until they have the highest cumulative fees paid in the 5-round period.

This system is much more energy efficient than Proof-of-Work systems, as it does not require large amounts of computational power to compete. Additionally, it allows for a more equitable distribution of rewards, as miners do not need to invest heavily in resources to compete.

On Decentralization

Algorand has long held it has solved the blockchain trilemma. The network is fast, secure, and decentralized. However, there are still concerns about the centralization of the network due to protocol economics. Stake must be distributed to a diverse number of nodes so that no node has too much voting power. With the move to staking rewards, an incentive structure for staking on nodes moves towards addressing this issue. But the source of rewards is still a concern, deriving from both transaction fees and, initially, Algorand Foundation funding.

Given that the Algorand Foundation has a limited supply of Algos to fund staking rewards, there is a need to create a self-sustaining economy that can support the network in the long term. Given that Algorand has long had very cheap transaction fees (currently .001 Algos per transaction), the only ways to increase revenue in the protocol alone is to have a much higher number of transactions or to raise the cost per transaction.

If transactions fees are raised, it might be acceptable for use cases where users are paying for fees themselves. However, for use cases where businesses are paying transaction fees, this could make doing business on Algorand cost prohibitive.

That leaves raising the number of transactions, which requires attracting more users and businesses to the network. That can take time and the runway for making and keeping staking rewards attractive is limited. This is where looking outside of the core protocol offers interesting solutions.

ORA mining produces revenue for the Algorand network. With staking rewards, 50% of the the mining fees generated in a round are awarded to the node that produces the block that round. Given that ORA mining transactions can range between .001 Algos (the mininum) to .02 Algos (20x the standard tx), the mining of ORA can produce a significant amount of revenue for the network per transaction and per round. As the price of ORA increases, mining costs gravitate to the market cost of ORA, and thus the revenue generated for the network increases as well.

Given that ORA mining in one year has already generated more than half the fees EVER GENERATED THROUGH TRANSACTION FEES to the Algorand fee sink, it is encouraging to see what the future holds for ORA. Given it’s 15-year halving schedule, ORA mining will continue to produce revenue for the network for the foreseeable future and help extend the runway for staking rewards for years to come.

ORA as a Store-of-Value

ORA mining produces revenue through mining and in return miners receive ORA. This work provides an essential service to the Algorand protocol to help raise staking rewards which in turn supports incentivizing a larger number of nodes and stake in the network. This works very similarly to how BTC is rewarded for work in the Bitcoin network.

Like BTC, ORA functions as a store-of-value. It has a much more limited supply (4 million) compared to BTC (21 million). This makes ORA more scarce than BTC. However, ORA price can rise freely without affecting the protocol economics of Algorand. If ORA price rises, it does increase the value brought into the network through mining, but does not affect the cost of transactions, and thus businesses are not impacted in terms of costs of doing business on the network.