Introduction
In recent years, blockchain technology has continuously evolved, providing innovative solutions to longstanding issues such as scalability, interoperability, and usability. Avalanche has also launched its dedicated solution, designing three independent blockchains within its main platform. Avalanche claims to be the "smart contract platform with the shortest finality time in the blockchain space," based on its native token AVAX and various consensus mechanisms. In this article, we will explore the factors behind this assertion and the solutions offered by Avalanche.
When Was the Avalanche Project Launched?
Avalanche was founded in September 2020 by Ava Labs, based in New York. Ava Labs has raised nearly $300 million in funding, and the Avalanche Foundation has conducted private and public token sales totaling $48 million. The founding team of Ava Labs includes Kevin Sekniqi, Maofan "Ted" Yin, and Emin Gün Sirer.
What Problems Does Avalanche Solve?
Avalanche primarily addresses three major issues: scalability, transaction fees, and interoperability.
- Scalability vs. Decentralization
For a long time, traditional blockchain projects have struggled to find a balance between scalability and decentralization. As activity on the network increases, congestion can occur quickly. Bitcoin (BTC) is a typical example: during periods of network congestion, users may take hours or even weeks to complete a transaction.
One approach to solving this problem is to increase the level of centralization in the network, granting certain individuals greater authority to validate network activity and achieve faster speeds. However, decentralization is crucial for blockchain security. New blockchain technologies attempt to solve these issues through technical improvements, and Avalanche presents a unique solution, which will be detailed below.
- High Fees
Another common issue with large blockchains like Ethereum is gas fees, which can rise with increased traffic. This ultimately discourages users from utilizing these blockchains, but competing ecosystems are still immature. For example, Ethereum remains popular, yet strong competitors have not emerged, leading to network congestion and high transaction fees. At one point, the average fee for a simple transfer on the Ethereum network exceeded $10. For complex smart contracts, fees could even surpass $100.
- Interoperability
Different projects and businesses have varying needs for blockchain platforms. Previously, blockchain projects had to choose between Ethereum, independent blockchains that could not be adjusted to their needs, or private chains. Finding a balance between customization and multi-chain collaboration has been a challenge in the blockchain industry. Avalanche's solution is subnets, which maintain the same security, speed, and compatibility as the mainnet.
How Does the Avalanche Network Work?
Avalanche employs a unique combination scheme consisting of three interoperable blockchains: the X-Chain, C-Chain, and P-Chain.
- X-Chain (Exchange Chain)
The X-Chain is responsible for the creation and trading of AVAX tokens and other digital assets. Users pay transaction fees using AVAX tokens, and the blockchain utilizes the Avalanche consensus protocol.
- C-Chain (Contract Chain)
The C-Chain allows developers to create smart contracts for decentralized applications (DApps). This chain implements a version of the Ethereum Virtual Machine (EVM), supporting EVM-compatible DApps. It uses the Snowman consensus protocol, a variant of the Avalanche consensus protocol.
- P-Chain (Platform Chain)
The P-Chain coordinates validators within the network, tracks subnet activities, and supports the creation of subnets. It also employs the Snowman protocol.
By assigning different functionalities to each blockchain, Avalanche enhances speed and scalability while avoiding the concentration of all operations on a single chain. Developers can customize consensus mechanisms based on the needs of each chain, and users stake and pay network fees with AVAX, creating a common usable asset within the ecosystem.
How Does Avalanche's Consensus Mechanism Work?
There are many similarities between the two consensus protocols used by Avalanche. The operation of this dual system is key to enhancing network scalability and transaction speed.
- Avalanche Consensus Protocol
Traditional consensus protocols, such as Proof of Work (PoW), Proof of Stake (PoS), and Delegated Proof of Stake (DPoS), require leaders to drive consensus, whereas the Avalanche consensus protocol ensures a high level of decentralization and scalability within the Avalanche network. Traditional protocols often evolve into a model where one party handles transactions while others validate them.
Avalanche employs an optimized Directed Acyclic Graph (DAG) consensus protocol, supporting parallel transaction processing across the network. Validators sample other validators to confirm whether they have validated new transactions. After multiple rounds of random sampling, the likelihood of transaction fraud is nearly zero. All transactions receive immediate confirmation without the need for additional operations. The hardware requirements for running validator nodes and validating transactions are very low, attracting a large number of participants, enhancing performance and decentralization while being more environmentally friendly.
- bSnowman Consensus Protocol
The Snowman consensus protocol is based on the Avalanche protocol but uses a linear transaction validation method, making it particularly efficient for handling smart contracts. Compared to the Avalanche consensus protocol, the Snowman protocol is more efficient during the block creation process.
- AVAX Token
AVAX is the native token of the Avalanche network, with a total supply of 720 million tokens. All transaction fees on the network will be burned according to a deflationary mechanism, benefiting the Avalanche community. AVAX has three primary uses:
Users can stake a certain amount of AVAX to become validators or delegate their tokens to other validators. Validators can enjoy an annual percentage yield (APY) of 10% and charge delegators a management fee, which can be set at the validator's discretion.
AVAX serves as a universal unit for subnets, facilitating interoperability between them.
AVAX can be used to pay for transaction fees and subnet subscription fees.
How to Stake AVAX Tokens?
AVAX holders can choose to become validators or stake their tokens with other validators to earn rewards. To become a validator, users need to stake 2,000 AVAX. The hardware requirements for validator nodes are very low; an ordinary personal computer is sufficient. If users stake AVAX with other validators, they can also earn rewards once those validators successfully confirm transactions.
- Customizable Blockchains on Avalanche
Avalanche offers functionalities similar to Ethereum and other layer-one blockchains. Developers can create tokens, NFTs, and decentralized applications (DApps), while users can stake tokens, validate transactions, and access over 400 DApps. Proponents of Avalanche believe its advantage lies in the optimization of these features. Additionally, Avalanche supports the creation of interoperable custom blockchains known as "subnets."
These highly scalable subnets are well-suited to meet the needs of large enterprises, many of which are building their own subnets. This enables both large corporations and small independent operators to interact with other users in the Avalanche ecosystem while benefiting from the security provided by the Avalanche mainnet.
Avalanche also features its own Avalanche Virtual Machine (AVM), which is compatible with the Ethereum Virtual Machine (EVM). Developers familiar with Ethereum’s Solidity language can quickly adapt to Avalanche's programming environment, facilitating the migration of existing projects.
How Does Avalanche Differentiate Itself from Other Scalable Blockchains?
The challenges and solutions faced by Avalanche are not unique; competitors such as Ethereum, Polkadot, Polygon, and Solana also offer similar scalable platforms and interoperable blockchains. So, how does Avalanche stand out?
- Consensus Mechanism
Avalanche's uniqueness lies in its consensus mechanism. While it is not the only blockchain using innovative consensus methods, Solana's proof of history claims a transaction throughput of up to 50,000 TPS (transactions per second), significantly higher than Avalanche's officially reported 6,500 TPS. However, TPS is merely one metric for measuring network speed and does not fully capture the finality of blocks.
- Transaction Speed and Finality Time
Another notable feature of Avalanche is its finality time of under one second. What does this mean? When evaluating network performance, one cannot rely solely on TPS to measure transaction processing speed; the final confirmation time of transactions must also be considered. Even if a network can handle 100,000 transactions per second, long finality times can still affect overall network efficiency. Avalanche claims to have the fastest confirmation times in the industry.
- Decentralization
The level of decentralization in Avalanche is also a distinguishing factor. Given its scale and the time since its creation, Avalanche boasts a large number of validators (over 1,300 as of April 2022) due to its reasonable entry requirements. As the price of AVAX rises, the entry threshold for validators continues to increase.
- nteroperable Blockchains
Avalanche’s interoperable blockchains do not have a quantitative limit, making it a competitor to Polkadot. While Polkadot also offers customizable and interoperable blockchains, it has limited available space in its parachain slot auctions, whereas Avalanche simply requires a straightforward subscription fee.
Conclusion
Decentralized finance (DeFi) platforms are actively seeking alternatives to Ethereum, and Avalanche's compatibility with the Ethereum Virtual Machine and low fees make it highly attractive. However, many alternatives have already emerged in terms of enhancing scalability and speed.
Since its launch, Avalanche's popularity has surged, with daily trading volumes nearing those of Ethereum. Whether it can compete with other blockchains like Solana or Polygon remains to be seen.
Risk Warning
While the cryptocurrency market offers significant growth potential and innovation opportunities, it also carries a high level of market risk and price volatility. The value of crypto assets can fluctuate dramatically in a short period, potentially leading to substantial financial losses for investors. Additionally, the cryptocurrency market faces multiple risk factors, including technical risks, legal and regulatory uncertainties, cybersecurity threats, and market manipulation. We strongly advise users to conduct thorough research and due diligence before making any investment decisions and to consult professional financial advisors. All investment decisions are made at the user’s own risk. Thank you for your trust and support of Venkate!
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