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EducationalNovember 26, 2021

What is Avalanche?

Shubham Goyal
Product Specialist
November 26, 2021

Avalanche (AVAX) is a blockchain platform equipped with smart contracts with a focus on transaction speed, cheap prices, and environmental sustainability. The goal is to create a highly scalable blockchain that doesn’t compromise decentralization or security. Avalanche was launched by the Ava Labs team in early 2020 and has swiftly grown to sit just outside the top ten in the global crypto rankings. Avalanche TVL (Total Value Locked in the Protocol) is also on the steady rise, havingAvalanche dApps currently valued at $3 billion.

With a transaction throughput of 4,500 TPS, this novel crypto system claims to be more scalable than ETH. Avalanche’s native cryptocurrency, which has a restricted supply of 720 million, is used to pay transaction fees as well as participate in the Avalanche consensus mechanism.

Avalanche has built its own DeFi ecosystem to compete with ETH, and a number of Ethereum-based DeFi applications have connected with its platform, including bZx, SushiSwap, Reef, Securitize, and TrueUSD. Avalanche is also working on a bridge to the Ethereum blockchain, which will allow users to transfer assets effortlessly between the two networks.

This is turning into an intense race to build the world’s most efficient blockchain, so let’s dive deeper into how Avalanche and the AVAX token works!

Avalanche Network Architecture

The Primary Network or a subnetwork (subnet), is at the heart of Avalanche’s architecture. A subnet is a collection of transaction validator nodes that work together to obtain unanimity on the status of a cluster of blockchains. Three built-in blockchains are secured by the Primary Network:

  • X Chain – The X-Chain is a crypto asset creation and trading platform that includes AVAX.
  • P Chain – The P-Chain brings together transaction validators and keeps track of live and operational subnets, and allows users to create new subnets and customized blockchains, including private blockchains.
  • C Chain – The C-Chain allows us to build smart contracts.

Not only can primary networks (subnets) limit validators based on specified criteria, but validators can choose to become a part of as many or as few subnets as they want (provided they match each subnet’s prerequisites). In contrast, on networks like Bitcoin, where all nodes seek to validate every transaction, this mutual selection mechanism is used. As a result, Avalanche’s subnets and validators can actively design ecosystems that are tailored to their individual priorities.

The Avalanche infrastructure is designed to support modular blockchains that are scalable and compatible with other Avalanche blockchain elements, and the project aspires to connect to Ethereum and the larger blockchain ecosystem to a greater degree.

Avalanche Consensus Mechanism

As a blockchain network and cryptocurrency, Avalanche’s architecture is run by a proprietary VM known as Avalanche Virtual Machine. Subnets created on the Avalanche platform, for example, can use the AVM to reach consensus using “conventional” blockchain systems like Bitcoin or ETH, but they can also reach consensus using different database structures like Directed Acyclic Graphs’ “block lattice” database structure. Projects using Avalanche can achieve a high level of customization while being interoperable with a variety of platforms, solely due to its high adaptability.

Avalanche uses Snowball, which is a Proof-of-Stake consensus protocol designed by Ava Labs that requires users to stake AVAX in order to become transaction validators. To participate in the transaction consensus mechanism, each validator must stake more than 2,000 AVAX. This can also be done by transferring at least 25 AVAX to a validator, which would enable you to participate in consensus.

Validator nodes in a subnet continually query each other to evaluate the validity of the network’s transactions until they achieve a common decision and thus reach network-wide consensus using the Snowball consensus mechanism. The frequency of a node being queried is proportional to its stake in AVAX. The primary network is a prerequisite for all validator nodes, but involvement in other subnets is optional.

Validators are compensated with payouts proportional to their overall investment based on their uptime and reaction latency. The longer a stake is kept, the more are the earnings associated with that. You will also receive a payout if you delegate your AVAX coins to a validator who happens to obtain a reward. Finally, unlike previous PoS systems, Avalanche does not penalize rogue nodes by lowering their stakes; instead, they are simply not rewarded.

Avalanche Bridge

Avalanche is an Ethereum-compatible platform which uses the Avalanche Bridge to enable migration of ERC-20 tokens. The Avalanche Bridge, which works with Metamask just like Ethereum and Binance Smart Chain, is a wise step from a team that understands that ERC-20 tokens make up the vast majority of tokens.

The Avalanche network gains immediate exposure to billions of dollars in token liquidity by having a bridge in place for customers wanting to try Avalanche with their existing Ethereum tokens.

Avalanche, with its focus on DeFI and a three-pronged offering of customizability, scalability, and interoperability, aims to stand out in a crowded market of Ethereum competitors . Though it is unclear whether the Avalanche cryptocurrency and blockchain will prove to be a long-term threat to Ethereum as a competitor, the platform is well on its way to building its own ecosystem, with a focus on DeFi applications.

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