Carefully! Lots of text.
Avalanche's goal is to increase scale without sacrificing speed or decentralization. The platform is based on three blockchains: the exchange chain (X-Chain), the contract chain (C-Chain) and the platform chain (P-Chain). X-Chain is used for asset creation and trading. C-Chain is designed for creating smart contracts. P-Chain coordinates validators and subnets.
One of the most important achievements of the protocol is Avalanche consensus, which uses repeated validator voting, making reaching consensus fast and accessible. Avalanche uses scale-out subnets to create custom interoperable blockchains. The number of possible subnets is unlimited.
Introduction
As blockchain technology evolves, new solutions are emerging for scalability, interoperability, and usability. The Avalanche Network takes a unique approach by using three separate blockchains on its main platform. Thanks to the features of the native AVAX token and multiple consensus mechanisms, the Avalanche network calls itself “the fastest smart contract platform in the blockchain industry, as measured by time to completion.” In this article, we will take a closer look at the Avalanche solutions that allowed the network to claim this title.
When was Avalanche launched?
The Avalanche blockchain was launched in September 2020 by the Ava Labs team from New York. Ava Labs raised $300 million in funding, followed by a public and private token sale for a total of $48 million. Avax Labs was founded by Kevin Seknicki, Maofan "Ted" Yin and Emin Gun Sirer.
What problems does Avalanche solve?
There are three main problems that the Avalanche network aims to solve: scalability, transaction fees and interoperability.
Scalability and decentralization
Blockchains have always tried to balance between scalability and decentralization. A network with high activity may not be able to handle the load. For example, on the Bitcoin (BTC) network, during busy periods, transaction processing could take hours or even days.
One way to increase speed is to increase centralization by giving fewer people the power to audit network activity. However, decentralization is an important aspect of blockchain security. New blockchains are trying to solve this problem with advanced technology solutions, and the Avalanche network has been able to create a unique approach, which we will look at next.
High commissions
Another common problem with large blockchains like Ethereum is high gas fees, which increase in proportion to traffic and network activity. This makes it difficult to attract new users to the blockchain space, but the only competition is from less established ecosystems. Thus, the popularity of Ethereum and the lack of alternatives led to constant increased traffic and high commissions. Commissions for simple transfers can be more than $10, and complex interactions with smart contracts exceed $100.
Compatibility
When working with blockchains, different projects and businesses have different needs. Previously, projects were forced to work with Ethereum or other blockchains that were not adapted to their needs, or use a private blockchain. However, finding the balance between customization and interoperability across multiple blockchains is not easy. Avalanche offers its solution with subnets and custom blockchains that combine security, speed and interoperability.
How does Avalanche work?
Avalanche uses a unique combination of methods that consists of three interoperable blockchains: X-Chain, C-Chain and P-Chain.
1. The exchange chain (X-Chain) is designed for the creation and exchange of AVAX tokens, as well as other digital assets. Transaction fees are paid in AVAX and the blockchain uses the Avalanche consensus protocol.
2. Contract Chain (C-Chain) allows developers to create smart contracts for DApps. It partially implements the Ethereum Virtual Machine (EVM), enabling operation with DApps that are compatible with EVM. Chain uses a modified version of the Avalanche consensus protocol called Snowman.
3. The platform chain (P-Chain) coordinates network validators, tracks active subnets and allows the creation of new ones. He also uses Snowman.
Since different functions are distributed on separate blockchains, this allows for increased speed and improved scalability. Avalanche developers have adapted consensus mechanisms to the needs of each blockchain. Users use AVAX as a shared ecosystem asset for staking and paying fees.
How do Avalanche consensus mechanisms work?
Avalanche's two consensus protocols have a lot in common. This dual system guarantees improved network scalability and high transaction speeds.
Avalanche
Unlike Proof of Work (PoW), Proof of Stake (PoS), or Delegated Proof of Stake (DPoS), the Avalanche protocol does not require a leader to achieve consensus. This factor helps increase the decentralization of the Avalanche network without sacrificing scalability. PoW, PoS and DPoS process transactions by a single entity, whose work is also verified by a third party.
To optimize the consensus protocol, Avalanche uses a directed acyclic graph (DAG), which allows the network to process transactions in parallel. Validators randomly check other validators to determine the validity of new transactions. Statistics show that after a certain number of repeated random checks, a transaction cannot be found to be false.
All transactions are completed immediately, without additional confirmations. The hardware requirements for running a validator node and validating a transaction are low and affordable, which helps improve productivity, decentralization, and attract new users.
Snowman
The Snowman consensus protocol is based on the Avalanche protocol, but orders transactions linearly, which is extremely convenient when working with smart contracts. Unlike the Avalanche consensus protocol, Snowman creates blocks.
Token AVAX
AVAX is the native token of Avalanch with a maximum circulation of 720 million. All commissions on the network are burned by the deflation mechanism, which benefits the entire community. AVAX has three main applications:
1. AVAX can be staked to become a validator, or delegate the process to another validator. Validators can earn up to 10% APY (Annual Percentage Yield) and set a custom percentage fee for the rewards they receive from delegates.
2. AVAX serves as a common unit of account for all subnets, increasing interoperability.
3. Transaction fees and subnet subscriptions are paid in AVAX.
How to add AVAX to staking?
AVAX holders can earn rewards by becoming a validator or staking tokens through another validator. To become a validator, you need to stake 2000 AVAX.
The hardware requirements are low: to become a validator, all you need is a standard laptop or desktop computer. You can also stake tokens through another validator and receive rewards after successful confirmation of the transaction.
Avalanche Custom Blockchains
At a basic level, Avalanche offers almost the same features as Ethereum or any layer 1 blockchain. Developers can create new tokens, NFTs and DApps, and users can stake, verify transactions and use over 400 DApps. However, Avalanche improves these capabilities and also allows you to create interoperable custom blockchains - subnets.
A custom blockchain that uses a highly scalable subnet is well suited for large enterprises, many of which already use subnets. This allows large enterprise and small independent operators of these blockchains to interact with other participants in the larger ecosystem and rely on the security of the Avalanche mainnet.
Avalanche uses its own Avalanche Virtual Machine (AVM), which is compatible with EVM. Using the Ethereum Solidity coding language, developers can easily interact with Avalanche and bring existing projects to the platform.
How is Avalanche different from other scalable blockchains?
The issues and solutions mentioned are not unique to Avalanche. This network competes with other scalable platforms and interoperable blockchains such as Ethereum, Polkadot, Polygon and Solana. So what makes Avalanche different?
Consensus mechanism
One of its main differences is the consensus mechanism. Of course, Avalanche is not the only blockchain with a new consensus mechanism. Thus, Solana has a Proof of History protocol with a processing speed of up to 50,000 TPS (transactions per second), which significantly exceeds Avalanche's 6,500 TPS. However, TPS is just one speed measurement metric and does not take into account block completion.
Transaction speed and completion
Another important difference: Avalanche's completion time is less than 1 second. What does it mean? TPS is just one of the indicators when measuring speed. In addition, it is necessary to take into account the time spent on the complete completion of the transaction, after which it cannot be changed or canceled. TPS can reach up to 100,000, but due to the delay in completion, the network will still be slow. Avalanche positions itself as the fastest platform in terms of time to completion.
Decentralization
One of the main advantages of Avalanche is decentralization. Although the network is quite young, it already has a large number of validators (more than 1300 as of April 2022) thanks to the minimum requirements. However, as the price of AVAX increases, it becomes more and more expensive to become a validator.
Compatible Blockchains
There is no limit to the number of compatible Avalanche blockchains. In this aspect, it is in direct competition with Polkadot, another project with custom interoperable blockchains. Yet Polkadot uses limited space to sell on Parachain Slots auctions, while Avalanche uses simple subscription fees.
Summary
As an alternative to Ethereum for running decentralized finance (DeFi) platforms, blockchains like Avalanche are proving very attractive due to their EVM compatibility and low fees. However, when it comes to scalability and speed, DeFi already has a long list of alternative platforms.
The Avalanche network has been gaining popularity since its launch and has already overtaken Ethereum in terms of the number of daily transactions. But it is not yet known whether it will be able to compete with other blockchains like Solana or Polygon.
