🤔 What is Avalanche ?
Avalanche is a smart contract-capable blockchain platform focused on transaction speed, low costs, security, scalability and decentralization.
💡 What role does AVAX token play ?
AVAX is the native cryptocurrency of Avalanche blockchain. It is used for:
- Transaction fee: Similar to Etherium, users have to pay AVAX tokens to include their transactions in the Avalanche blockchain. Complete transaction fee paid by the users is burned.
- Staking: Users can stake their tokens to participate in validating blocks and earn block rewards.
- Governance: Avalanche team plans to hand over the governance of the project to AVAX token holder.
📝 Origin of Avalanche
- Anonymous developers by the name “team rocket” launched the white paper “Snowflake to Avalanche” on ipfs in May 2018.
- Emin Gün Sirer, a computer scientist and associate professor at Cornell University discovered the whitepaper and decided to work on the project.
- He took a break from University and founded Ava Labs to work on Avalanche.
- In the next two years:
- The team collaborated with team rocket to publish the revised version of the original whitepaper.
- The project raised around $ 60 million in initial coin offerings.
- Cascade Testnet(Avalanche’s test net) went live in April 2020.
- Avalanche Mainnet was launched on 21 Sep 2020.
👴🏻 Emin Gün Sirer - Founder
- 1989-1993: Did Bachelor of science in computer science from Princeton University.
- 1993-2000: Did Ph.D. in computer science from University of Washington.
- 2001-2021: Professor at Cornell University.
- 2019: Founded Ava labs to work on Avalanche.
😌 What problems does it solve ?
- Speed: Its unique consensus mechanism and architecture allow it to confirm transactions in under a second.
- Scalability: It is capable of processing 4,500 transactions per second. This is less than other blockchains like Solana. However, it is a huge improvement over Etherium’s 13 transactions per second.
- Cheap: Transactions on Avalanche cost a fraction of fee as compared to Etherium 1.0.
- Live now, no future promises: Decentralized apps can easily migrate to Avalanche with minimal effort and changes to enjoy super-fast transactions and cheap fees.
- Flexibility: Avalanche’s subnet architecture makes regulatory compliance manageable. Developers can create a blockchain subnet that derives its security and scalability from Avalanche, but can be customized to follow any regulatory compliance, example:
- Validators must be located in a given country.
- Validators must pass KYC/AML checks.
- Validators must hold a certain license.
(To be abundantly clear, the above examples are just that: examples. These requirements do not apply to the Avalanche Primary Network.)
- Athereum = Avalanche + Ethereum: Athereum is an Avalanche subnet that is a fork of Ethereum utilizing the Avalanche consensus engine. This allows the subnet to have high throughput and nearly instant finality. Aethereum developers are able to use the full suite of Ethereum development tools (Web3js, MyEtherWallet, MetaMask, etc.). In addition, when the Ethereum state is ported to Avalanche all the existing holders of ETH with also have access to an equal amount of ATH, the native asset of Aethereum.
- Miner extractable value(MEV): Miners in slow blockchains like Etherium take advantage of how blocks are packaged to “front-run” profitable trades. The miners can see incoming transactions in real-time however, Etherium can only execute 13 transactions per second. They can use this knowledge to predict future price movements and benefit from it.
- No trusted third party: Validators run and maintain the blockchain. Users are in control of their funds. No single party has the power to influence the blockchain.
- No downtime: Thousands of node operators running 24 X 7 ensure the network is always online.
- Efficiency gains: Projects building on Avalanche do not have to run servers and hire an army of developers.
🤖 How does it work ?
Proof of stake(PoS)
Nodes have to stake minimum 2,000 AVAX tokens to participate in the process of validating transactions. The amount of block rewards the node gets is proportional to the amount of AVAX tokens staked.
Avalanche consensus mechanism
Avalanche operates through repeated sub-sampled voting.
A validator asks a small, random subset of validators whether they think the transaction should be accepted or rejected.
If a sufficiently large portion of the validators sampled reply that they think the transaction should be accepted, the validator prefers to accept the transaction. That is, when it is queried about the transaction in the future, it will reply that it thinks the transaction should be accepted. Similarly, the validator will prefer to reject the transaction if a sufficiently large portion of the validators replies that they think the transaction should be rejected.
The validator repeats this sampling process until most of the validators queried reply the same way for consecutive rounds.
In the common case when a transaction has no conflicts, finalization happens very quickly. When conflicts exist, honest validators quickly cluster around conflicting transactions, entering a positive feedback loop until all correct validators prefer that transaction. This leads to the acceptance of non-conflicting transactions and the rejection of conflicting transactions.
Avalanche consensus mechanism is much more secure than other consensus protocols. An attacker will have to gather 80% of the total supply as compared to 51% of the supply in other protocols like Etherium to successfully attack Avalanche network.
This unique consensus mechanism allows Avalanche blockchain to scale up to 45000 transactions per second.
Avalanche primary network consists of 3 built-in blockchains: Exchange Chain (X-Chain), Platform Chain (P-Chain), and Contract Chain (C-Chain).
Exchange Chain (X-Chain)
The X-Chain acts as a decentralized platform for creating and trading digital smart assets with a set of rules that govern its behavior, like “can’t be traded until tomorrow” or “can only be sent to US citizens.” These assets can be stablecoins, utility tokens, NFT’s, wrapped tokens, equity, and more.
The X-Chain is an instance of the Avalanche Virtual Machine (AVM). The X-Chain API allows clients to create and trade assets on the X-Chain and other instances of the AVM.
Platform Chain (P-Chain)
The P-Chain is the metadata blockchain on Avalanche that:
- Coordinates validators.
- Allows for the staking of tokens on the network.
- Keeps track of active subnets.
- Add validators to subnets.
- Enables creation of new subnets(Customisable blockchain that leverage Avalanche architecture).
Contract Chain (C-Chain)
The C-Chain allows for the creation of smart contracts using the C-Chain’s API. It is an instance of the Ethereum Virtual Machine powered by Avalanche.
C-Chain is compatible with all vital Ethereum tooling. Users can migrate their Dapps from Etherium to C-chain seamlessly. The network supports popular Ethereum tools such as MetaMask, Web3.js, Remix, Truffle Suite, and the Embark Platform.
Transaction fees for non-atomic transactions are based on Ethereum’s EIP-1559 style Dynamic Fee Transactions, which consists of a gas fee cap and a gas tip cap. The base fee increases when network utilization is above the target utilization and decreases when network utilization is below the target. Unlike in Ethereum, where the priority fee is paid to the miner that produces the block, in Avalanche both the base fee and the priority fee are burned.
A subnet is a dynamic set of validators working together to achieve consensus on the state of a set of blockchains.
Each subnet is a new network in the avalanche ecosystem that can have multiple blockchains just like the primary blockchain. Each blockchain in the subnet:
- Can have different consensus mechanisms like proof-of-work or proof-of-stake.
- Can be permissioned or private
- Can manage its own membership, and may require that its constituent validators have certain properties.
Demo of some defi apps built on Avalanche:
🏛️ Governance model
Avalanche team maintains and updates the codebase for nodes. However, the team cannot force thousands of nodes to upgrade to the changes made by them.
The team is planning to launch on-chain governance, however, the dates have not been confirmed.
🤑 How much money does the project have for future development ?
- The project raised:
- Feb 2019: $6 million in seed sale.
- Jan 2020: $12 million in private sale.
- Jul 2020: $42 million in public token sale.
- The project holds about 30% of the total AVAX tokens.
- Large number of projects are building on Avalanche blockchain.
- Rising demand: More and more decentralized apps are being built. As a result demand for scalable blockchain is growing.
- Approach: Avalanche blockchain uses a different consensus mechanism as compared to other blockchains. Time will tell how this unique approach plays out.
- Switching cost: It will be difficult for the projects to migrate to other blockchains with their ecosystem and userbase once they have established themselves on Avalanche.
- Network effects: More people will use Avalanche as more apps are being built. More apps will be built as more people use Avalanche. This positive feedback loop has potential to result in explosive growth in a short period of time.
- Avalanche runs Etherium virtual machine(EVM): Developers can easily migrate their apps from Etherium to Avalanche. They can also use Etherium tools like metamask, Web3js and MyEtherWallet to develop apps on Avalanche.
😨 Risks and challenges
- Code of Avalanche and projects built on it are open-source. This makes it very easy for scammers to copy the code and launch a fake cryptocurrency.
- Code is law: Smart contracts are uncompromisingly strict. Even the developers cannot go back and change what has been recorded on the blockchain. This is an advantage and disadvantage at the same time.
- Avalanche and projects built on it are a direct threat to current banking, government and legal system. Governments will resist and fight the change.
- Competition: There are many crypto projects that are in direct competition with Avalanche.
AVAX token had initial supply of 36,00,00,000 tokens. They were distributed as follows:
They will be released as follows:
- Deflationary: Complete transaction fee is burned.
- Inflationary: Validators earn block rewards for validating transactions.
The amount of inflation depends on block rewards – transaction fee. It is even possible that AVAX becomes deflationary if its block space is in high demand(users are willing to pay high transaction fee).
Token’s price increases due to demand pressure.
Demand pressure on AVAX will come from:
- Staking: Validators will acquire and stake AVAX to participate in block validation.
- Gas fees: Users will acquire AVAX to pay for gas fees – to execute their transactions. This transaction fee is burned, thereby reducing the supply.
- Speculators: They will buy AVAX for future price appreciation.
Supply pressure on a token decreases its price.
Supply pressure on AVAX token will come from:
- Block reward: Some validators will sell their block rewards.
- Early investors: They have made huge profits on their initial investment. Some of them will sell part of their holdings to realize gains.
🧐 Indicators to watch out for
- Network utilization is growing:
- Number of daily transactions is growing:
- Number of unique addresses is growing:
- YouTube channel is growing:
- Twitter following is growing:
4,500 transactions per second seems a lot if we compare it to 13 transactions per second of Etherium. However, it is not. 4,5000 transaction/ sec rate will not be sufficient to compete with other blockchains like Solana and Etherium 2.0.
However, the competition has just started – there is a long way to go. It will be interesting to see which blockchain wins.