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What Is Avalanche (AVAX)?

November 24, 2021
by Leon Marshall,

Article Recap

Avalanche is a project that plays a different game from other frameworks out there. It does not aim to push out existing blockchains, but rather to connect them. Freedom in digital asset creation, distribution, and communication between blockchains is what it aims to achieve.

How are avalanches formed? First of all, they need snow. Then, a sloped surface. Finally, a trigger. Avalanche (AVAX) has all three ingredients. It implements the Snow family of protocols that allow it to enable asset creation and transfer seamlessly between subnetworks. A subnet can be any blockchain platform. For instance, Ethereum is available in its entirety on the C-Chain, one of the three main components of Avalanche. This has enabled developers to have full integration of already existing dApps and the building of Ethereum-compatible assets at a higher rate and at lower prices. Essentially, Avalanche‘s goal is to allow the freedom of creation, movement, and communication of and between blockchains and any kinds of digital assets. However, how can such a goal be achieved? Let‘s find out.

An avalanche of steps to fruition

Ava Labs is the team behind the Avalanche platform and its token AVAX. Founded by professor Emin Gün Sirer and computer PhD’s in computer science Kevin Sekniqi and Maofan ‘Ted’ Yinare, the three Cornell University musketeers are responsible for the platform that introduces the novel Snowflake protocol.

An interesting fact about Gün Sirer is that he was one of a team of three who worked on Karma – a peer-to-peer virtual currency concept six years before Satoshi Nakamoto’s Bitcoin. Although it did not work out due to being timed right after 9/11 and missing the idea of merging the proof-of-work consensus protocol with minting new supply, it was still a milestone that would eventually eventuate in the future. While Bitcoin was still in its early days, Gün Sirer was analyzing it and found it has a flaw called selfish mining. He would later address this in his work on Avalanche, along with research on Ethereum he did throughout the years. 

In 2017, he presented his findings after extensive collaborative work on Bitcoin and Ethereum. There were several concluding remarks, among which one reads “further research is needed to decentralise permissionless consensus protocols”. This is where Avalanche comes in. Just like Cardano, it is a third-generation blockchain, meaning it builds on the foundations of first-gen (such as Bitcoin) and second-gen (such as Ethereum) platforms. 

As a descendant, Avalanche also addresses issues like scalability that previous generations have. Instead of relying on a single chain of validators, it is a heterogeneous network of multiple blockchains with just as many groups of validators. As such, the issue of long waiting times to have a transaction validated while a block is generated gets resolved. Currently, it has an estimated throughput of 4,500 transactions per second, far above Bitcoin’s 7 and Ethereum’s 25 TPS. Security thresholds are also well-above the 51% standard of other networks (80% parameterized), so it’s entirely possible to share the smart contracts system Ethereum has. 

Avalanchenomics – AVAX

Where there is demand, supply is needed. On Avalanche, it is possible to transfer dApps from Ethereum seamlessly through bridges, reducing gas fees and covering demand on another. Of course, that is not the only source of demand, as peer-to-peer frameworks essentially are transaction platforms. So far, we have mentioned two demand sources – payments (transactions) and utility (dApps, NFTs, subnetworks, stablecoins, etc.). The third type is staking, which is to become a validator by staking their tokens or delegating them to be used as stake and earn passive income in the form of AVAX.

Due to the permissionless nature of Avalanche, meaning that consensus is independent from staking, validators cannot lose any assets after staking them. As a result, more participants are willing to partake in the process and earn rewards by generating blocks. Transactions, on the other hand, require fees, but those fees do not go to anyone and are instead burned (transferred to a wallet whose key has been disposed of). Ethereum 2.0, which is expected to fix the fundamental scalability issue of Ethereum, is in the workings and until then, the main Ethereum network can work proactively alongside Avalanche to avoid congestion.

Out of the 720 million tokens AVAX started with, half of them were minted and the other were left for stake use. Depending on the amount of AVAX staked, new coins will be created so that the capped supply can be reached at a steady, yet relatively slow pace. Even while that is happening right now, a portion of the supply is going towards validators as staking rewards. Ultimately, half of the supply will be allocated as rewards for staking over the course of several decades. Tokens sold on various sales (private, public, seed, etc.) are to be liquified by 2024-2025.

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You know everything, Snow protocol

By taking Team Rocket’s proposal of the Snow family of consensus protocols and adopting it in Avalanche’s system, a new, permissionless platform was born. Understanding how Avalanche works requires getting a grasp of the three (more expected in the future) chains that make it up – P, X, and C. All of those are a kind of subnetworks that have a dynamic set of validators who come to consensus on the state of a number of blockchain networks. Developers can build their custom subnets using any existing virtual machine. The subnet cap is non-existent and each subnet can be based on a different protocol (PoW, PoS, etc.), have unique validator rule sets with a spectrum of permissionless and/or permissioned networks.

The P-Chain, or Platform Chain, is the navigational repository where stacked tokens stay locked in. It’s all about coordinating individual validator nodes (that can be in the millions) to ensure the subnets are functioning properly. In other words, this is the communication tool of Avalanche, also used for staking and determining who is in the system.

The X-Chain, of the Exchange Chain, is a Directed Acyclic Graph (DAG) – a decentralized public platform for asset creation and exchange. Anyone can mint any digital asset (NFTs, tokens, equities, stablecoins, etc.) using a UTXO-based system, similar to that of Bitcoin, and the fees associated are paid in AVAX. This is also where transactions get linked to each other for the purpose of reducing waiting time. A key feature of the X-Chain is that transactions do not have to be sequenced with respect to each other – one transaction can be finalized while another is being worked upon, resulting in super-fast processing times.

The C-Chain, or the Contract Chain, contains the entirety of the Ethereum Virtual Machine (EVM). It is implemented for the sake of developers who wish to port over their apps on Ethereum. Some already ported famous dApps are MetaMask and Web3.js used heavily in DeFi. What the C-Chain offers that allures developers is full compatibility with Ethereum and allows the usage of smart contracts, but due to the scalability of Avalanche, it also has higher throughput for much quicker development and extremely low gas fees for those who find Ethereum a tad too expensive.

Finally, it is important to mention that Avalanche is in no way attempting to overshadow already existing blockchain platforms like Bitcoin and Ethereum. Its goal is that of becoming the Internet of Finance. As such, it aims to connect all blockchains, enabling the active communication between them and the transfer of assets from one to another seamlessly at a blazingly fast rate. Although other systems like Polkadot attempt to do similar things, Avalanche, however, is the only one to make the creation of assets and their exchange so quick and seamless. This technology is intended to be used to basically connect global financial networks in one single framework and give them the freedom to talk to each other and create custom subnets where they can thrive. It is certainly worth keeping watch of where Ava Labs takes this project and how AVAX evolves as a trading asset.

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All times are AEDT.