What Is Avalanche and What Is It Used For?
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There are multiple projects in the cryptocurrency space trying to solve the blockchain trilemma, i.e., decentralization, scalability, and security.
Among them, Avalanche is one of the most well-known names. The blockchain uses a complex combination of different consensus mechanisms and a multi-chain structure.
However, several questions arise in the minds of investors. Is Avalanche any different from the rest of its competitors? Can the blockchain stand the test of time and prove its usefulness? What are the use-cases for AVAX crypto tokens?
This article will explore every aspect of Avalanche that you need to know to understand the project properly.
What is Avalanche?
Avalanche is an open-sourced and smart contracts compatible platform created to develop decentralized applications (dApps) and enterprise blockchain protocols.
Being open-sourced means that the distributed ledger technology (DLT) used by the platform is completely transparent and publicly accessible.
What Problems does Avalanche Solve?
Avalanche aims to become the world’s first decentralized smart contract platform that is able to handle global finance with super-fast transaction finality. Moreover, the project is focused on solving the widespread interoperability and scalability issues in the crypto space.
Older Proof-of-Work blockchains platforms, such as Bitcoin and Ethereum, can process only 7 and 25 transactions per second, respectively. When compared to some global centralized financial service providers, like Visa, which can handle up to 65,000 transactions in the same time, these platforms seem far too behind in speed and incapable of facilitating a large user base.
Another problem the cryptocurrency industry faces as it grows is the lack of interoperability. Though new blockchain ecosystems are emerging daily, each with its unique solutions to different problems, most of them are unable to communicate with each other. This factor seriously limits their functionality.
Avalanche is attempting to solve both these problems through its novel multi-chain infrastructure and a unique consensus mechanism. It allows the platform to currently process up to 6,500 transactions every second with a finality clock of fewer than 3 seconds.
However, theoretically, the Avalanche network can scale up to handle as many as several million transactions per second using its subnets (discussed later).
Similarly, the ability to facilitate a wide range of layer two public and private blockchains on its ecosystem boosts its functionality, allowing it to target all sorts of enterprises and businesses in every field.
Apart from that, other key objectives of the project include security, flexibility, low fees, and sustainability.
Background and History
Avalanche is the brainchild of Emin Gun Sirer – a software engineer and Cornell professor of Computer Science.
Emin released fundamental information about the Avalanche project in May 2018 on the InterPlanetary File System. Emin’s founding team for the protocol included two of his doctoral students, Kevin Sekniqi and Maofan Ted.
The codebase for the Avalanche consensus mechanism was made open-sourced in March 2020, allowing everyone on the internet to access it.
The mainnet went live in September 2020. Although the core features and functionalities are already functional, the platform is still technically under development.
Avalanche raised around $60 million through different ICOs (initial coin offerings) during 2019 and 2020. Since then, the project has raised additional several hundred million dollars through multiple crypto venture capitals.
There are two major organizations behind the development of the Avalanche project, discussed next.
Founded by Emin Gun Sirer, Ava Labs is a software company based in the United States. It is responsible for building the technology and working mechanism underlying the Avalanche network.
Avalanche’s development is coordinated and supervised by a non-profit organization based in Singapore named the Avalanche Foundation.
How does Avalanche Work?
Throughout the history of distributed ledger systems, there have been two major types of consensus mechanisms: the classical approach (also called PBFT) and the Nakamoto approach.
Protocols using the former approach are usually cheap, fast, scalable, and energy efficient. However, they suffer from limitations in terms of decentralization and robustness.
While the Nakamoto approach – first used in Bitcoin – is exceptionally decentralized and robust, it has several downsides, such as high latency, high energy consumption, and late finality.
Avalanche claims to be the first mechanism that can solve all consensus problems without compromising on any of its aspects. It combines the best of both worlds, the classical and Nakamoto approaches to present a protocol that’s fast, secure, scalable and built on the principles of decentralization.
To achieve this, Avalanche uses something called ‘subsampled voting.’ Through this procedure, a large number of users volunteer to participate in the network and are randomly picked to process transactions. They are asked if they think a certain set of transactions are valid or not.
Validators then undergo repeated voting (random subsampling) in which they share information back and forth multiple times. The process goes on until enough confidence is achieved. The validators then decide whether the transactions are to be accepted or rejected.
In the random subsampling, each validator is an entirely independent participant. Moreover, unlike the Proof-of-Stake or Proof-of-Work consensus models, the number of network validators does not affect the timeframe needed to reach the consensus. It means that the network will continue to perform with the same desired efficiency even if a significant number of nodes suddenly go offline.
In addition, Avalanche does not require highly complex computing powers to participate in the network. Any computer, regardless of its computational power or hardware specifications, is good to become a validator.
This feature makes the network far more energy-efficient than its predecessor blockchains which used the Proof-of-Work model.
Moreover, there is no limit as to how many users can participate in the network. Avalanche broke the 500 validator mark within a week of its mainnet launch. Currently, there are over 1,200 validators on the Avalanche network.
On top of everything, the Avalanche consensus model is much more secure than any traditional Proof-of-Work or Proof-of-Stake blockchain protocol. Usually, if someone gets control over 51% of mining computers or staked tokens, they can easily attack the system.
However, in the case of Avalanche, the person needs to control at least 80% of the network to be able to manipulate it.
As mentioned earlier, Avalanche is a multi-chain decentralized platform. The primary infrastructure is based on three separate blockchains.
X Chain (or Exchange Chain) is used to create and manage digital assets and tokens. It also facilitates the peer-to-peer transfer of the crypto tokens, including the platform’s native currency, named AVAX.
The X Chain is based on a unique type of consensus model named DAG (directed acyclic graph).
C Chain (or Contract Chain) is the second blockchain in the Avalanche network and is designed for smart contracts.
Moreover, it is an EVM (Ethereum Virtual Machine) blockchain, which means that it is fully compatible with Ethereum’s Solidity smart contracts. It allows developers to easily port decentralized applications into the Avalanche ecosystem.
P Chain (or Platform Chain) is used for the coordination of all the validator nodes across the network. Moreover, it is also responsible for managing the staked funds and creating custom subnets.
Subnets are new networks within the Avalanche ecosystem. Each subnet has complete control over its data, economic model, virtual machine, consensus model, and more. These subnets can have multiple blockchains with whatever consensus mechanism they want.
Moreover, they have complete freedom to keep their network permission-based or permissionless.
What is AVAX?
AVAX is the native crypto token of the Avalanche network. The maximum supply of the AVAX token is capped at 720 million coins. The smallest unit of AVAX is called nAVAX, and one nAVAX is equal to 0.000000001 AVAX.
There are two main uses for AVAX in the Avalanche ecosystem.
First, all transactions on the Avalanche network incur a gas fee. This gas fee is to be paid in AVAX tokens. The platform has based the algorithms for its transaction fee structure on the Ethereum dynamic fees model, EIP-1559.
However, all the AVAX used to pay transaction fees is burned, which reduces the total market supply and boosts its price over the long run.
Second, the crypto token is used to participate in the network through staking. Users with at least 2,000 AVAX tokens staked on the network can run a validator node, while the minimum staking requirement to become a delegator is 25 AVAX.
The minimum lock-up period is 14 days, and the staking rewards are around 9% for both parties.
The future of the Avalanche project eventually depends on the roadmap and how effectively the development team works to achieve the milestones. Moreover, its adoption in the industry will play a key role in determining its long-term value.
Ava Labs has already secured several high-profile partnerships, including Mastercard, Deloitte, and BitGo. Apart from that, the platform hosts around 200 dApps in its ecosystem, which collectively have 200,000 active monthly users.
With such a thriving network, which will grow exponentially in the coming years, Avalanche is definitely one of the most promising cryptocurrency projects you should keep your eyes on.
The editorial content of OriginStamp AG does not constitute a recommendation for investment or purchase advice. In principle, an investment can also lead to a total loss. Therefore, please seek advice before making an investment decision.