Everything you need to know about Avalanche

The area of Decentralized Finance (DeFi) is booming. DeFi has become very popular in the past few years as there seems to be a growing need for people to manage their finances and assets with more privacy and authority. Traditional financial institutions act as the middlemen and central authority in all transactions we made. Blockchain technology came to change that, by allowing people to remain anonymous in a secure and transparent way while maintaining full control over their funds.

Seeing the success DeFi experienced in the past few years, many developers are leaving Web 2.0 to jump on the train of Web 3.0. DeFi expands the model of decentralization to other areas. Developers are now exploring new frontiers where the principles of decentralization and the models developed in DeFi can be applied. From the gaming industry and the metaverse to social media platforms and real asset tokenization, developers are searching for opportunities to build new revolutionary decentralized applications.

Considering all these new applications of blockchain technology and decentralization, building the decentralized web on a single blockchain is not an option. Different areas and sectors require different levels of customization. For financial application time-to-finality and controls to meet regulatory compliance might be more important than in the gaming industry. Regarding gaming experience, speed and parallel processing might be more important, while for social media networks high throughput and storage might have higher priority.

This is where multi-chain platforms and Avalanche come into the picture. They allow developers and institutions to build tailor-made decentralized applications while being part of a larger ecosystem. Some small cases could certainly be built on a general-purpose smart contract platform, while some others might require a highly customized blockchain. Some cases fit perfectly the model of open public smart contract platforms while some others might require a permission-based or a fully private network. Avalanche provides all options. Below we will learn everything there is to know about the Avalanche blockchain platform.

What is Avalanche?

Avalanche is a Smart Contract Platform, a platform of platforms, and a Multi-chain network. It leverages the Avalanche Consensus protocol in combination with a Proof-Of-Stake (PoS) mechanism to protect the network against Sybil attacks.

The abovementioned combination enables the network to process up to 4500 transactions per second while reaching time-to-finality below 1 second. Time-to-finality is the time by which your transaction is completely processed and is irreversible. That’s especially important for financial applications, as someone doesn’t have to wait for one hour or a day to ensure that funds are transferred or transactions are processed.

It may sound a bit confusing with all these buzzwords put together, so let’s have a look at each part independently.

Avalanche as a Smart Contract platform

Avalanche mainnet, which was deployed in September 2021 comprised three blockchains. Among them, is Avalanche C-chain which is an EVM-compatible smart contract platform. EVM stands for Ethereum Virtual Machine and is the environment that enables the execution of smart contracts compatible with Ethereum.

The EVM compatibility of Avalanche C-Chain allows any application that runs on Ethereum to run on Avalanche C-Chain with no to minimal changes while benefiting from Avalanche consensus protocol and Proof-Of-Stake security mechanism. This implies that any application running on Ethereum can run on Avalanche C-chain faster, with lower fees, and in a more sustainable way.

Considering that Avalanche also allows anyone to deploy additional blockchains, then other types of smart contract platforms could be supported in addition to Ethereum. That’s where the platform of platforms comes into the picture.

Avalanche as a Platform of platforms

Avalanche capabilities expand beyond the Avalanche C-chain and the primary network with the use of subnets or subnetworks. Avalanche provides the tools and capabilities for any development team or institution to build highly customized blockchains.

At the time of writing, Avalanche provides everyone the option to deploy an EVM-compatible or an AVM-compatible blockchain with some basic configuration. AVM stands for Avalanche Virtual Machine and is the execution environment of Avalanche’s X-Chain.

More configurable virtual machines are expected to be available in the future. This implies that any development team or organization can pick an environment that best suits their use case, further customize it if needed, and deploy it.

Avalanche as Multi-chain network

Building your fully customize blockchain is one thing. Deploying it and securing it in a decentralized environment and setting up bridges, etc, is another. Avalanche subnet capability allows anyone to deploy its own customize blockchain as a subnetwork of the Avalanche network. Any blockchain deployed as an Avalanche subnet can benefit from both the infrastructure and services Avalanche provides as well as the services other subnetworks provide.

The more subnets are deployed, the more capabilities and services the existing subnetworks can leverage. Avalanche will provide the necessary interoperability mechanisms where the various blockchains and subnetworks can exchange assets and information. This creates a network effect, where existing subnetworks can benefit from the services provided by new subnetworks and vice-versa.

Avalanche Consensus Protocol

For non-computer scientists, think of the consensus problem as any problem a group of people is facing that requires a decision. For example, consider the case where you invite your friends over to watch a football match on the TV and you want to order food online. Some people might prefer Italian food while some others might prefer Japanese food. Your goal is to agree on whether you and your friends will order Japanese or Italian food, in other words, to reach a consensus.

In computer systems, a consensus protocol or algorithm defines the process by which computer systems follow to reach an agreement in a distributed network. Public blockchain networks are among those systems where many computers need to communicate with each other in a peer-to-peer fashion to perform changes on the underlying database – the blockchain.

To ensure that all computers have the same view of the blockchain, with every transaction the network has to exchange information in order to agree on the change. The consensus protocol or algorithm defines the process by which this network of computers follows in order to reach consensus.

Avalanche Consensus Comparison
Classical vs Nakamoto vs Avalanche consensus. Source: Seq’s Medium page

Before the Avalanche consensus, there were two more families of consensus protocols.

First, is the family of classical consensus protocols that includes Practical Byzantine Fault Tolerance and Cosmos Tedermint. The consensus protocols in this family use an all-to-all communication to ensure that all computers in the network reach the same decision, with absolute certainty. Although this approach can achieve high throughput and low latency, it prevents the network from scaling, as the more nodes you add to the network, the more time it takes the network to reach decisions.

Second, is the family of Nakamoto consensus protocols that have become popular with the rise of Bitcoin. Nakamoto’s consensus goes around the all-to-all communication by providing a probabilistic rather than a deterministic safety guarantee. This made the Nakamoto consensus ideal for open permissionless networks where anyone can join the network at any time. Although Nakamoto consensus allows networks to achieve higher scalability, it does so by sacrificing latency and throughout.

Avalanche and “The Snow” family of protocols developed for Avalanche combine the best of the two worlds. That is the high scalability, robustness, and decentralization of Nakamoto consensus and among others, the low latency, high throughput of Classical consensus. This combination enables the Avalanche network to achieve time-to-finality below 2 seconds which is on par or quicker than a typical credit card transaction. In addition, various sources indicate that the network can achieve a throughput of 34004500 transactions per second.

If you are a computer scientist willing to learn more about avalanche consensus check out the following sources: Seq’s Medium, Avalanche whitepaper.

Avalanche Platform Architecture

Everything in the Avalanche network is created as a subnet or a subnetwork. Each subnetwork is comprised of one to many heterogeneous blockchains interoperating with one another. At the time of writing, there is not a lot of public information available with regards to intra-subnet and inter-subnet communication. However, various sources indicate that Avalance is working on a communication protocol that will allow subnets to transfer value without the need of setting up bridges within the Avalanche network.

Avalanche Ecosystem
Avalanche as a network of subnetworks.

Avalanche network has the primary network as the core subnetwork of the Avalanche ecosystem. Every validator in the Avalanche network must validate the primary network in addition to any subnetwork. The staking requirement for the primary network is at the time of writing 2000 AVAX. The primary network is comprised of the following three blockchains:

  • Exchange Chain or X-Chain: Acts as a decentralized platform for creating and trading digital smart assets, a representation of a real-world resource (e.g., equity, bonds) with a set of rules that govern its behavior, like “can’t be traded until tomorrow” or “can only be sent to US citizens.”. The X-Chain is an instance of Avalanche Virtual Machine and uses the Avalanche consensus protocol. The main currency used to pay for transaction fees is AVAX.
  • Contract Chain or C-Chain: Acts as the main smart contract platform of the primary network. The C-Chain is an instance of Ethereum Virtual Machine and uses the Snowman consensus protocol. This implies that C-Chain supports the same standards as Ethereum network, such as ERC20 tokens and NFTs. Every application running on Ethereum can also run on C-Chain.
  • Platform Chain or P-Chain: The P-Chain is the metadata blockchain on Avalanche and coordinates validators, keeps track of active subnets, and enables the creation of new subnets. The P-Chain similar to C-Chain implements the Snowman consensus protocol.

Avalanche Subnets

Avalanche subnet as we mentioned earlier, is the capability provided by the Avalanche platform that allows anyone to deploy its own highly customized network comprised of multiple customized (heterogeneous) blockchains.

A subnet manages its own membership and it might set its own validator requirements, such as the location at which the validators may reside, passing a KYC check, or holding a certain license. That’s a very important property that allows blockchain networks to meet regulatory compliance.

Various regulators set their own rules that apply only to their jurisdiction. With Avalanche subnets you can have a subnet that meets the regulatory requirements of the European Union, another one for the United States, another one for Singapore, etc. Then all these different subnets interoperate with one another to exchange value and information.

Most importantly, subnets can also choose the network’s currency as well as the staking requirements for validators. Some subnet might issue their own currency to use for paying gas on the network as well as for securing the network. Some others might decide to use AVAX or some other currency.

The scope of subnet though goes beyond the Financial applications. Someone might decide to create a subnet optimized for the gaming experience. Another subnet might be optimized to run a social media platform. Consider that when we are referring to transactions in the decentralized web we mean interactions, building a social media platform or a game as we know them today on the blockchain, will definitely require its own subnetwork.

Avalanche also provides configurable virtual machines for someone to have a head-start when building its own customized network and blockchain. Currently, someone can deploy a new network with an Ethereum Virtual Machine or Avalanche Virtual Machine with some basic configuration.

We shouldn’t be surprised in the near future to see Avalanche offering more configurable virtual machines such as WASM (WebAssebly), Cardano VM, Solana VM, etc. This will allow each one to select the environment best suited for his/her use case.

A brief history of Avalanche

Ava Labs is the company behind the Avalanche blockchain. Ava Labs was co-founded by a team of Cornel scientists, Emin Gün Sirer, Kevin Sekniqi, and Ted Yin.

Avalanche launched its testnet in May 2019, while the mainnet launch followed in September 2021. The team is also behind the Avalanche consensus protocol that can reach transaction processing speed that could match visa. Avalanche can achieve this speed while addressing the scalability problems found in early blockchain networks such as Bitcoin and Ethereum.

Since its launch, Avalanche network has grown from a blockchain platform comprised of a few applications to an ecosystem comprised of hundreds of decentralized applications. Avalanche C-chain, which is the smart contract platform of the primary network, has grown to a DeFi ecosystem comprised of almost 200 decentralized applications with a total value locked exceeding 15 billion dollars.

As of April 2022, Avalanche has started also seeing its first subnetworks going live on mainnet, with many more currently on testnet. There are many rumors about big collaborations with Luna, Aave, and other institutions to build highly customized and scalable subnets on the platform.

What is the AVAX token?

Similar to other blockchain platforms, the AVAX token is used as the native currency on the Avalanche blockchain platform. As a currency, Avalanche’s AVAX can be used as a peer-to-peer payment currency as well as to pay for transaction fees while using the Avalanche primary network.

In addition, AVAX is used as the means to secure the network, deploy new smart contracts, deploy new subnets, create and exchange assets and incentivize validators. Avalanche governance is currently not in place, however, we should expect AVAX to serve also as the token to govern the protocol.

Someone has to stake at least 2000 AVAX in order to become a validator of the primary networks. Considering that Avalanche has a shared security model where every subnet validator must also validate the primary network, every subnet validator has to also stake at least 2000 AVAX, in addition to any other requirements from the subnet.

Avalanche’s AVAX token burn mechanism. Source: @CryptoSeq

AVAX was created with a capped supply of 720 million tokens, 360 million of which were released with the genesis block of the main net. The remaining 360 million tokens are being minted in accordance with an equation in the Avalanche whitepaper. Furthermore, Avalanche has a burning mechanism in place, where part of the transaction fees collected is burnt. Up to the time of writing, more than 1.3 million AVAX were burnt. This mechanism makes AVAX token deflationary.

How to buy Avalanche (AVAX)

Investors who wish to buy Avalanche ($AVAX) either as a form of investment, send funds, or use any of the dApps built on the Avalanche platform, can buy or sell $AVAX on one of the many cryptocurrencies exchange platforms. Some popular cryptocurrency exchange platforms you can use to buy Avalanche ($AVAX) are Coinbase, Binance, Gate.io, and Kucoin.

Final Thoughts

As we’ve seen in this article, Avalanche, with its innovative consensus protocol can achieve high throughput and sub-second finality, without sacrificing decentralization or security. This makes avalanche an ideal environment for many financial applications, DeFi, or even payments platforms.

Avalanche with the subnet capability further allows anyone to deploy its own highly customizable blockchain network optimized for their specific use-case. We haven’t fully seen the extent of subnet capabilities, however, many teams are currently working on deploying their own subnets.

Aris Ioannou
Aris Ioannouhttps://coinavalon.io
Aris created Coinavalon with the purpose of helping the average person navigate the decentralized web. Aris has been passively in the space since 2017 and full time since late 2020. Before Coinavalon, Aris worked as a Business & IT Architect in the financial services sector. Aris holds an MSc in Advanced Computing from Imperial College London, a BSc in Computer Engineering from University of Cyprus and currently pursuing an MBA degree from CIIM.

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