Avalanche

What is Avalanche (AVAX)?

Avalanche is a third-generation blockchain platform that attempts to solve the blockchain trilemma of scalability, security, and decentralization with a unique proof-of-stake mechanism.

Avalanche’s raison d’etre is to host decentralized applications (dApps), which are built using smart contracts, on its network.

Blockchain interoperability is a base tenet of their design since they are written in the same Solidity language as Ethereum. This allows for the integration of many well-established decentralized finance (DeFi) ecosystems.

When Was AVAX Launched?

Avalanche’s mainnet was launched in September 2020, following the May 2018 publication of an article by a group of software developers called Team Rocket. The article outlined the basis for the AVAX protocol.

July 2020 saw Avalanche raise $42 million via an ICO. A year later, its Foundation held a token sale that raised $230 million from participants, including large venture capital firms.

A revised version of the original Team Rocket paper would be published in collaboration with the pseudonymous group and AVAX first took flight in an initial testnet in April 2020.

Who are the Founders of Avalanche?

Emin Gün Sirer, a computer scientist and professor at Cornell University, founded Ava Labs alongside Kevin Sekniqi and Maofan Yin shortly after the original release of the Team Rocket paper.

Ava Labs guided Avalanche through successful funding phases and its mainnet launch. The company continues to develop the project while also focusing on the continued integration of protocols, especially in the DeFi space.

How Does Avalanche Work?

While a lot of established blockchain projects often take a traditional approach towards consensus with either a proof-of-work (PoW) or proof-of-stake (PoS) model, Avalanche derives its name from its unique take on PoS.

After a user initiates a transaction, a validator node samples a small set of other validators to check for agreement on this transaction. This procedure is carried out repeatedly, with the validator’s message being sent to others again and again until the entire system reaches consensus.

In this way, a single transaction message becomes an avalanche.

How is Avalanche Secured?

Avalanche’s unique PoS mechanism provides consensus extremely quickly and at scale, but adds two more proofs when rewarding validators for behaving according to the protocol.

Proof-of-uptime scales rewards according to how long a validator node has staked its tokens. Meanwhile, proof-of-correctness ensures that the node has a good track record of behaving according to the rules set out by the software.

Thanks to these two proofs, validators are well incentivized for keeping Avalanche secure.

What Makes Avalanche Unique?

In addition to its unique proof-of-stake consensus mechanism and the use of proof-of-uptime and proof-of-correctness, Avalanche is also built using three different blockchains rather than just one.

AVAX, the native token of the Avalanche network, is exchanged on the Exchange Chain (X-Chain). The X-Chain is the default blockchain on which other assets are created and exchanged.

Avalanche’s Contract Chain (C-Chain) is based on the Ethereum Virtual Machine and provides the ability to create and execute interoperable smart contracts.

And finally, the Platform Chain (P-Chain) coordinates validators and allows the creation and management of subnets that validate user-created chains, which are similar to Polkadot’s parachains. These chains use their own sets of rules, but their validators must also validate Avalanche’s primary network.

This innovation with regards to consensus and triple-chain architecture, along with subnet functionality and interoperability with Ethereum, makes Avalanche very attractive to decentralized application (dApp) developers.

What are Smart Contracts?

Smart contracts are a key innovation brought to blockchain technology by its second generation, Ethereum. Avalanche, as a third-generation project aiming to tackle some of the same problems that Ethereum does, provides them as well.

Smart contracts are pieces of code that allow for the automatic execution of a predefined action when certain specified conditions are met. They are transparent and visible to all on-chain and cannot be edited or tampered with once deployed.

Smart contracts function similarly to a vending machine, where a user gets the desired item after making a selection and depositing the right amount of funds. They were created with the vision of eliminating the need for trusted—and expensive—third parties when making transactions of different kinds.

These smart contracts have allowed for the creation of dApps, which are controlled by programming logic written into their smart contracts rather than any individual or company.

How Much AVAX Is In Circulation?

Avalanche has a capped maximum supply of 720 million AVAX, 50% of which were distributed during its 2020 launch. The rest are generated via the minting process that rewards validators.

Unlike many competing blockchain projects, Avalanche does not reward validators with the AVAX paid as transaction fees. Instead, these AVAX tokens are burned, and a new AVAX is generated to reward validators.

As of June 2022, over 280 million AVAX are in circulation.

How Do You Buy AVAX?

You can purchase AVAX on most major cryptocurrency exchanges, in peer-to-peer trading, and on decentralized exchanges (DEX).

To purchase AVAX, all you will need is an exchange account or a wallet that supports the currency.

Is It Possible to Buy AVAX Instantly?

Thanks to Avalanche’s unique proof-of-stake system and the way it uses multiple blockchains, the network can process thousands of transactions per second. This makes buying AVAX a lot faster than purchasing Bitcoin or Ethereum.

AVAX transactions settle in seconds (under two seconds, to be precise). Purchasing AVAX P2P or on a DEX will be an extremely fast process, with the added benefit of low fees that are calculated in nAVAX. One nAVAX amounts to a billionth of one AVAX.

Purchasing AVAX on a centralized exchange (CEX) may seem instant, but remember that having AVAX in your CEX wallet doesn’t mean you actually hold the funds. They are in the custody of the CEX, while your account simply reflects the results of trades you make.

How Do You Store Avalanche?

You can store AVAX on a CEX account, although the actual wallet it resides in is that of the exchange itself. The user’s funds are reflected notionally and trades don’t see actual settlement unless you withdraw AVAX to a private wallet.

Private wallets come in two forms:

• Cold wallets. These wallets don’t connect to the internet. This provides a certain level of safety from any sort of online hacks since a hacker can’t access a piece of paper or a device that’s always offline.
• Hot wallets. Hot wallets connect to the internet. While perhaps not as safe as cold wallets, hot wallets tend to be a little more convenient and easy to use since they come in the form of either simple desktop clients or browser plugins. A notable example of this type is the Avalanche Wallet.

What is Proof-Of-Stake Versus Proof-Of-Work?

Proof-of-work (PoW) was first applied to the idea of digital money by Satoshi Nakamoto, who published Bitcoin’s whitepaper.

In a PoW blockchain, network participants, called miners, devote their computational power to solving problems. This ends up in the creation of new blocks on the chain, validated by other nodes.

This process of block creation is functionally a race. The higher the number of computational power miners are dedicating to the task, the better the chance of creating blocks and reaping the block creation reward they have.

Meanwhile, in a proof-of-stake network, network participants that own higher proportions of the coin supply have a better chance to create a block.

PoS participants stake, or lock, a certain amount of the coin in a special contract, and this staked amount dictates their chance of being selected as the next block producer. Being selected as a block producer is rewarded, and malicious behavior or disobeying the rules of the protocol may see these stakes being slashed or destroyed.

Avalanche Energy Consumption

As a network that relies on the proof-of-stake mechanism for consensus, Avalanche requires far less energy.

This is because its validators are not miners like in PoW, and the network doesn’t rely on having more and more machines with more and more computing power connected to it.

As far as PoS chains go, Avalanche’s electricity consumption hits the middle of the road.

According to the Crypto Carbon Ratings Institute’s 2022 report on PoS blockchains, Avalanche consumes 489,311 kWh a year.

This figure puts it at about 25% of Solana’s total consumption, approximately on par with Cardano and Algorand, but 7 times higher than Polkadot.

However, in terms of electricity per transaction, Avalanche was rated as one of the lowest at 4.76 Wh/Tx, while Cardano requires 51.59 Wh/Tx and Polkadot 17.42 Wh/Tx.

Is AVAX a Good Investment?

The main utility of the AVAX token is for paying fees on the Avalanche network and for participating in dApps built upon it. These AVAX tokens used to pay fees are burned, introducing an element of scarcity even though validators on the network are rewarded with AVAX for their staking.

As network use continues to grow and even more dApps come to the Avalanche network, the burn rate of AVAX has the potential to increase.

Furthermore, investors also have the security of Avalanche’s maximum supply cap as, unlike many other cryptocurrencies, its inflation mechanism has a limit.