Alephium (ALPH): A Comprehensive overview of the first Proof of Work smart contract blockchain

What is Alephium (ALPH)?

Alephium is a layer 1 blockchain offering an innovative technological infrastructure, enabling it to achieve high levels of performance and security while maintaining low energy consumption.

The Alephium blockchain combines foundational principles from Bitcoin (BTC) with technological innovations from Ethereum (ETH). The network operates a consensus mechanism called Proof of Less Work (PoLW)—a derivative version of Proof of Work (PoW)—and adopts a UTXO (Unspent Transaction Output) model. Additionally, it integrates a sharding algorithm known as BlockFlow, allowing the network to be divided to provide faster transaction processing.

Alephium was created to offer a robust alternative to current smart contract blockchains such as Ethereum, Solana, Aptos, and Sui. These networks are often built on similar technological foundations: a Proof of Stake (PoS) consensus, an Account-Based model, or compatibility with the Ethereum Virtual Machine (EVM).

Although these technologies have proven effective, they require developers to make significant trade-offs, especially regarding security, ease of use, flexibility, and decentralization. Alephium’s ambition is to transcend these limits by developing a high-performance and secure smart contract infrastructure with unique technological foundations.

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Architecture and Technology

Sharding and the BlockFlow Algorithm

In the context of blockchain, sharding is a particularly interesting method as it allows transactions to be divided into smaller, easier-to-process packets. The idea is to distribute and parallelize the processing of transactions to increase the network’s execution speed. However, this introduces some complexity compared to linear, sequential transaction processing.

To address this, Alephium relies on an innovative sharding technology combining the use of a Directed Acyclic Graph (DAG) and a specialized algorithm called BlockFlow. In simple terms, this means that Alephium is divided into multiple segments, called shards, functioning as autonomous mini-blockchains capable of processing their own transactions while maintaining global coherence with other shards.

BlockFlow’s role is to direct transactions to the appropriate shards for processing. This process occurs in two steps. First, Alephium users’ addresses are distributed across several groups (currently four, with a limit set at 32 to avoid increasing full-node resource requirements). Next, a transaction is routed to a shard based on the source and destination address groups.

For example, a transaction from Group 1 to Group 2 would go into shard (1,2). Since there are currently four address groups, this means there are 16 shards on Alephium, with the potential to reach 1024 (calculated as N*N, where N is the number of address groups).

The BlockFlow algorithm also ensures good synchronization between shards by integrating a DAG structure, a complex mathematical model that enables optimized communication paths between different nodes in a network. Within BlockFlow, the DAG prevents loops, ensuring that shards only communicate as necessary and that transactions are validated in the correct order.

Currently, Alephium supports over 400 TPS with 16 shards, and the network’s capacity could expand to 10,000 TPS by adding more shards. This processing capability positions Alephium as an ideal solution for mass application demands.

TLDR; Alephium relies on an innovative sharding mechanism (BlockFlow) enabling parallel transaction processing and achieving high performance.

Proof of Less Work (PoLW) Mechanism

Alephium is based on a consensus mechanism called Proof of Less Work (PoLW), derived from Proof of Work (PoW). In simple terms, PoLW operates identically to Bitcoin’s PoW until the hashrate (i.e., the total computational power dedicated to transaction verification) reaches a critical level (detailed below).

Thus, Alephium’s security participants are miners who connect their machines to the network to solve a mathematical problem that grants them the right to confirm the block and receive the associated reward. Alephium benefits from the most resilient, secure, and decentralized consensus mechanism available.

The unique aspect of Proof of Less Work is that once the global mining power or cumulative level reaches a critical value of 1 EH/s (with the network currently around 20-30 PH/s), the mechanism changes. Participants no longer only expend computational power but also ALPH tokens to continue their activities. This way, while the hashrate continues to increase, the network's overall energy consumption does not grow linearly.

Alephium thus prevents an endless rise in hashrate and excessive energy consumption among miners, offset by a monetary expenditure in ALPH. Network security is no longer solely tied to the hashrate level, as with Bitcoin, but also involves an external cost of burning ALPH.

For example, assuming BTC and ALPH have the same value, a Bitcoin miner would receive 3.125 BTC for mining a block, spending 3 BTC on electricity and equipment costs. In contrast, an Alephium miner receives 3.125 ALPH in mining rewards, spending 0.5 ALPH on electricity and equipment and burning 2.5 ALPH.

This ALPH burn process by miners introduces an additional cost to block confirmation, effectively increasing the network’s attack cost similar to a hashrate increase. Moreover, it preserves the decentralized nature of block validation by avoiding significant initial investments that could be barriers for new miners. This system also reduces energy consumption (up to 1/8 that of Bitcoin for equivalent security) and imposes deflationary pressure on ALPH.

TLDR; Alephium uses a consensus mechanism called Proof of Less Work (PoLW), an improved version of Bitcoin’s Proof of Work, allowing high security with lower energy consumption.

Stateful UTXO Model

Alephium introduces an innovative transaction model called Stateful UTXO (sUTXO), combining principles from UTXO-based and Account-Based blockchain models. The UTXO (Unspent Transaction Output) system, introduced by Bitcoin, operates as a register of unspent transactions. It does not consider a user’s account or balance but rather the number of unspent transactions associated with each wallet.

In comparison, the UTXO-based model can be likened to cash, where a UTXO represents a physical currency note. Each individual can track their balance by adding up the notes in their possession (their UTXOs), and when spending one, they receive change (UTXOs belonging to the merchant). In other words, UTXO-based blockchains are simply records of UTXO movements, without regard to user accounts or balances.

This model is particularly suitable for Bitcoin, which aims to be a distributed digital ledger and payment system. However, it lacks "statefulness" (state management), making it unsuitable for blockchains with more sophisticated operations, such as those involving smart contracts. This is why Ethereum is considered not a distributed ledger but a distributed state machine, based on an Account-based model.

Another comparison is that the Account-based model resembles bank accounts. Monetary transfers are credits or debits applied to users’ accounts by the blockchain. Account-based blockchains only track balance changes on user accounts.

Alephium’s Stateful UTXO mechanism combines the advantages of both systems above. Assets and tokens are managed using a UTXO-based model, while smart contracts are managed via an Account-based model.

In sUTXO, tokens are managed as native elements of the blockchain and recorded in UTXOs. This marks a significant difference from Bitcoin, which cannot handle tokens, and Ethereum, which requires standards such as ERC-20 to do so. This reduces security risks related to programming errors and simplifies interactions with smart contracts, as no specific standards are needed.

The sUTXO model is considered “stateful” because it adds a state management layer to the classic UTXO model, essential for more complex operations. This architecture is reinforced by a Merkle Tree system, a specialized data structure that stores assets’ states and histories, smart contracts' code, and their respective states in a verifiable manner.

Each Alephium shard group has three Merkle Trees: one for UTXOs, one for smart contract states, and one for smart contract logic. This organization ensures efficient and secure data management without overloading the blockchain with unnecessary information.

TLDR; Alephium relies on an innovative transaction model called Stateful UTXO (sUTXO), combining Bitcoin’s security (UTXO-based) with the flexibility of other blockchains like Ethereum or Solana (Account-based).

Alphred, Alephium’s Virtual Machine

Alephium is a blockchain designed to integrate smart contracts. This involves having an execution environment (referred to as a virtual machine) dedicated to calculating the blockchain’s state with each new block, which all network nodes must receive and update. Since Alephium does not fall into the "Account-based" category but is rather "UTXO-based," it was essential to design a virtual machine specifically capable of handling the Stateful UTXO model.

Called Alphred, Alephium’s virtual machine is a core component of the network. It incorporates features tailored to Alephium’s unique characteristics. Like the EVM with Solidity, Alphred has a dedicated language called Ralph. This language is designed to allow developers to code smart contracts intuitively and securely.

Alphred enhances the experience of users and developers in various ways. For example, it includes an Asset Permission Standard (APS) that standardizes interactions between users and smart contracts. This way, Alephium no longer requires specific permission approvals for smart contract interactions like on other blockchains, reducing human errors or development flaws and improving the user experience, who do not need to validate multiple signatures.

Moreover, Alphred is designed to minimize issues related to Miner Extractable Value (MEV) by making it difficult to bundle multiple operations into a single transaction or perform flash loans, thanks to the UTXO model’s structure, which imposes a delay between each transaction step. In other words, typical MEV operations become nearly impossible as they are more prone to competition, riskier, and thus more costly.

TLDR; Alephium has its own virtual machine (Alphred) designed to improve the experience of users and developers, particularly by simplifying all interactions with smart contracts.

Ralph Programming Language

Ralph is Alephium’s native programming language, specifically designed to simplify the creation of secure and efficient smart contracts. Inspired by the Rust language, Ralph offers a clear syntax aimed at reducing coding errors and allowing developers to easily build DeFi applications where security and efficiency are paramount.

One of Ralph's main advantages is its ability to prevent common vulnerabilities, including reentrancy attacks and unlimited approval errors (as mentioned in the previous section), which could compromise user security. With Ralph, developers can focus on the logic of their applications without worrying about typical security flaws.

Finally, Ralph is designed to integrate seamlessly with the Alphred virtual machine and the APS system, enabling developers to fully leverage Alephium’s technical infrastructure. By facilitating the creation of decentralized applications while reducing risks, Ralph is crucial for driving Alephium adoption in projects requiring enhanced security, particularly in decentralized finance.

TLDR; Alephium includes its own programming language focused on native smart contract security, allowing developers to concentrate solely on their application development.

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ALPH, Alephium’s Cryptocurrency

The ALPH token is at the core of Alephium’s ecosystem, fulfilling payment, security, and governance functions within the network. Its distribution and economic mechanisms are designed to support Alephium’s long-term sustainability while reinforcing its security and decentralization.

Roles of the ALPH Token

• Payment and Transaction Fees: ALPH is used to pay transaction fees on the network, whether for traditional transactions or smart contract execution. Alephium also has a mechanism that burns and destroys 100% of the tokens collected from fees, applying deflationary pressure on the asset’s price.
• Rewards for Miners: ALPH is also the reward mechanism for miners who ensure block security and validation within the Proof of Less Work (PoLW) consensus model. This mechanism will eventually adjust mining costs based on computational power and timestamp.
• Smart Contract Deployment and Security: Developers must hold ALPH to deploy smart contracts and store their data on the blockchain.

ALPH Tokenomics

The theoretical maximum supply of ALPH is capped at 1 billion tokens, though it will never be fully reached due to various deflationary mechanisms. ALPH token issuance is spread over a long period to support Alephium’s sustainable growth, with an issuance schedule planned for approximately 82 years. From this total amount:

• 860 million ALPH (86%) will be gradually distributed to miners as block rewards.
• 140 million ALPH (14%) were issued at the genesis block for allocations to the ecosystem, private sales, and treasury.

These allocations are subject to vesting periods to ensure long-term financial support. The 80 million ALPH (8%) allocated to past and future private sales are locked on-chain with vesting periods ranging from 2 to 4 years; the 30 million ALPH (3%) for ecosystem development are gradually unlocked over four years with quarterly releases; and the 30 million ALPH (3%) reserved for the team and treasury are locked for three years and are progressively released to support internal operations.

With each transaction on the network, 100% of the ALPH fees are automatically burned, removing these tokens from circulation. This system, introduced with the Leman update in 2023, strengthens deflation based on blockchain activity. The more the network is used, the more ALPH supply decreases, increasing the scarcity of tokens in circulation.

Additionally, when the Proof of Less Work mechanism is triggered (i.e., when the hashrate exceeds 1 EH/s), miners will need to burn part of their ALPH to cover mining costs. This model will also exert deflationary pressure on ALPH's price, offsetting some of the new tokens created by mining activities, balancing the inflationary effect of Proof of Work.

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Alephium’s Ecosystem

Overview

Alephium’s ecosystem is particularly vibrant, with a growing community and an increasing number of developers since the mainnet launch in 2021. It already has about fifty applications and protocols available for users. The Alphland website allows users to explore and sort them by categories (DeFi, Social, Gaming, NFT, etc.)

As of this writing, Alephium boasts a Total Value Locked (TVL) of $13.2 million, placing it at the forefront of Proof of Work blockchains incorporating smart contracts.

Beyond the technological aspect discussed in this presentation, Alephium is appreciated for the quality and simplicity of its user experience, particularly through its official digital wallet, available as a desktop application or web extension.

Decentralized Finance (DeFi)

• Ayin is a decentralized exchange (DEX) platform built on Alephium, inspired by the functionality of Uniswap and designed to provide decentralized and intermediary-free trading services. Users can trade assets with one another or deposit them in liquidity pools to support the protocol’s operation and earn rewards.

Among other Ayin products are the XAYIN Staking Pool, which allows users to stake AYIN tokens to receive returns indexed to platform fees (through a buyback mechanism), and the Pounder, which maximizes liquidity provider rewards by automatically reinvesting gains as new LP tokens.

In November 2024, Ayin announced the introduction of Meta-Fi, a platform combining multiple functionalities into a single interface, creating an ideal tool to optimize users’ experience and liquidity management efficiency.

For more information, see Ayin documentation.

• Elexium is a decentralized exchange (DEX) with its own Automated Market Maker (AMM) mechanism, based on a Vote Escrow model, popularized by Curve Finance on Ethereum.

The protocol allows users to provide liquidity across various pairs (ALPH/EX, ALPH/AYIN, or ALPH/USDTETH) and earn rewards. Governance participation is also possible by locking EX tokens, allowing users to decide the yields of liquidity pools.

For more information, see Elexium.finance documentation.

• AlphBanX is another protocol in development, aiming to allow users to use ALPH tokens for collateralized loans or borrowing, somewhat similar to Aave’s functionality on Ethereum. Additionally, users can participate in platform fees and arbitrage opportunities by staking AlphBanX’s native token.

For more information, see AlphBanX documentation.

Bridge

• Alephium Bridge is, as its name suggests, Alephium’s official blockchain bridge, designed to enable secure token transfers between the Alephium blockchain and other networks, particularly Ethereum. The operation principle is based on a lock & mint model, meaning that assets are locked on the source chain, and a “wrapped” equivalent is issued on the destination chain, ensuring that each token exists only in one location at a time.

Alephium Bridge’s architecture is inspired by Wormhole’s model: it relies on guardians, a decentralized network of validators observing transactions on each connected chain and producing Verifiable Action Approvals (VAA) to authorize cross-chain transfers.

This bridge opens up new possibilities for Alephium within the DeFi ecosystem, especially thanks to liquidity available on other blockchains. Future developments will include expanding the guardian network and supporting additional blockchains.

For more information, consult Alephium Bridge tutorial.

Wallets

Alephium has its own native wallet, available as both a desktop application and a browser extension. Other wallets are also compatible with Alephium, including FxWallet, OneKey, Sezame, and Zelcore.

Furthermore, Alephium has announced several important partnerships over the past few months. Among them is a partnership with Ledger, allowing users to securely store ALPH directly on their hardware wallets and interact with the Alephium ecosystem. Similarly, SafePal recently announced the integration of Alephium into its suite of tools (hardware wallet, mobile app, and web extension).

Other dApps

• AlphPad is a launchpad platform designed to support the growth of new projects within the Alephium ecosystem. The main idea is to provide infrastructure that facilitates fundraising by connecting project creators with investors in a secure manner.

AlphPad’s services for project developers are varied, ranging from token launches to marketing and technical assistance. Additionally, the platform is built on a Vault system, allowing users to lock tokens to unlock various benefits depending on their level.

For more information, see AlphPad documentation.

• Mined.fi is a developing platform that aims to tokenize cryptocurrency mining equipment and infrastructure. These are represented as Vaults that issue Liquid Mining Tokens (LMT), such as sALPH, sBTC, or sDOGE, offering users exposure to the mining revenues of Proof of Work blockchains, including Alephium.

For more information, see Mined.fi documentation

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Alephium’s Roadmap

Leman Update (March 2023)

The Leman update, deployed on Alephium’s mainnet on March 30, 2023, introduced several innovations to enhance developers’ experience and smart contract security, marking a major milestone in the development of a more robust and secure dApp ecosystem.

Here is a non-exhaustive list of the new features in Leman:

• Integration of Sub-contracts and Dynamic Array Indexing, making data access and storage for smart contracts more efficient and flexible.
• The External Call system allows developers to authorize only certain addresses to interact with the public functions of a smart contract, thus preventing attacks and security vulnerabilities.
• Improvement of the Difficulty Adjustment Algorithm (DAA) by standardizing mining difficulty across all Alephium shards (particularly by introducing a fee burn mechanism instead of distributing fees to miners), creating a fairer distribution of rewards and costs for miners.
• Support for Schnorr signatures, enabling multi-sig (useful for managing DAOs or enterprises) and key aggregation into a single signature (to simplify grouped wallet management).

See Alephium documentation for more on the Leman update.

Rhône Update (June 2024)

The Rhône update, deployed on Alephium’s mainnet on June 12, 2024, introduced significant infrastructure improvements impacting both user and developer experiences. Here is an overview of the new features in the Rhône update:

• Block time reduction, from 64 seconds to 16 seconds, thanks to a GHOST protocol that ensures increased security without affecting TPS. This reduction accelerates user transaction processing, making interactions with dApps smoother.
• Gas-free transactions: With the implementation of "PayForGas" within Alephium’s virtual machine, smart contracts can now cover gas fees for users, facilitating dApp usage.
• Smart contract storage fee reduction by 90%, from 1 ALPH to 0.1 ALPH, a particularly useful reduction for dApps requiring multiple contracts, enhancing Alephium’s appeal for developers.
• Introduction of a reentrancy protection at the function level, switching from a global lock at the smart contract level to a function-level lock, greatly improving the overall security of Alephium’s ecosystem.

This update also brings several significant improvements for developers, such as the introduction of mapping functionality (enabling optimized data management) and enhanced code modularity.

See Alephium documentation for more details on the Rhône update.

The Upcoming Danube Update

The Danube update is the next major step in Alephium’s roadmap and is expected to advance the network’s performance and robustness. It will introduce several important optimizations, including:

• Improvement of full node performance through data storage optimization and refinement of the BlockFlow algorithm for faster and more secure block production, targeting an 8-second block validation time.
• Integration of new features for UX and DevX, including PassKey to simplify new user onboarding, support for BLS signatures to open up cross-chain interoperability, and improved communication between shard groups to enhance transaction fluidity.

Other major new features

“This section is updated regularly by the OAK Research team to continue following Alephium's major advances following the writing of this content.

• Announcement of the launch of the bridge between Alephium and the BNB Chain: One year after connecting with Ethereum, Alephium announces the launch on the mainnet of a new bridge, this time with the BNB Chain.

It can be accessed directly via the Alephium Bridge and operates in a similar way to the Ethereum bridge. To find out more about this new feature, check out the official press release and also discover a tutorial to accompany you.

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Conclusion

Alephium is a layer 1 blockchain featuring an innovative infrastructure, inspired by Bitcoin's security model, Ethereum's flexibility and Solana's level of performance. To meet these ambitions, Alephium integrates technologies such as sharding, the stateful UTXO model and Proof of Less Work consensus.

Beyond the technological aspects, Alephium benefits from a lively and constantly expanding community and ecosystem since the launch of the main network in 2021. Dozens of protocols have already been deployed, and many more are due to be added in the near future, giving users access to a wide range of applications and services.

In the coming months and years, the challenge for Alephium will be to attract new users to increase its TVL and be able to compete with the EVM-compatible blockchains that today hold the lion's share of TVL in the ecosystem, thanks in particular to the DeFi players mentioned in the previous sections.

In a context where highly scalable, scalable and low-cost blockchain infrastructures seem to be taking off, Alephium could position itself as an interesting candidate for users looking for new solutions for their investments.

Editor's note: The limitations we see today for Alephium are accessibility with specific wallets for its use, as well as a limited TVL to appear in the top-ranked protocols on the various data and aggregation platforms. The technical solutions are interesting, however, and have caught our interest.

This analysis was commissioned by Alephium and written independently by the OAK Research team, based on available documentation and questions put to the team behind the project.