AVAX Is More Centralized Than Ethereum

What Is Avalanche?

Avalanche (AVAX) is a cryptocurrency and blockchain platform that rivals Ethereum. AVAX is the native token of the Avalanche blockchain, which—like Ethereum—uses smart contracts to support a variety of blockchain projects.1

The Avalanche blockchain can provide near-instant transaction finality. AVAX is used to pay transaction processing fees and secure the Avalanche network, and acts as a basic unit of account among blockchains in the Avalanche network.

With its mainnet launched in September 2020, Avalanche is an open-source platform created to build powerful Dapps (decentralized applications) and deploy custom blockchains.

It is the first smart contract platform that can approve transactions within a second. In addition to this, Avalanche claims that the network is capable of throughput orders of +4,500 transactions per second and that it is resistant to 51% attacks.

Avalanche consists of 3 types of chains: the Exchange Chain (X-Chain); Contract Chain (C-Chain) and Platform Chain (P-Chain). In addition to these chains, developers can create their own custom blockchains, which can be used for private use (permissioned blockchains) or public use (permissionless) purposes.

The network is also compatible with the EVM (Ethereum Virtual Machine), allowing developers to easily transfer their Ethereum DApps to the Avalanche network. Thanks to the custom blockchains, developers can choose to develop DApps for blockchains of their own design. This ensures that developers have a large amount of freedom in terms of how secure they want to make the platform and who can access the platform.

Like Ethereum, Avalanche can power a wide variety of applications like stablecoins, DeFi protocols (lending, savings, decentralized trading), and NFTs. Avalanche is also compatible with Solidity, the programming language used by the Ethereum network, which means developers from one of the largest and most engaged communities in crypto can build on Avalanche and use it to deploy custom private or public blockchains as “subnets.” And, whereas the Bitcoin blockchain can typically process around seven transactions per second, Avalanche claims to be able to process over 4,500 transactions per second. 

Understanding Avalanche

Avalanche’s smart contracts platform supports both decentralized applications (dapps) and autonomous blockchains. Here are some of the features that make Avalanche unique:

    • Coin creation rate: The maximum supply of AVAX is capped at 720 million tokens, but AVAX users govern how fast new coins are minted. AVAX holders can control the rate of new coin creation by voting to adjust the amount of AVAX that is paid as a reward for adding a new block to the Avalanche blockchain.
    • Transaction fee structure: Transaction processing costs vary depending on the type of transaction and Avalanche’s network congestion. All fees are burned—removed from circulation—to enable AVAX become scarcer over time. Avalanche users vote to decide the Avalanche transaction fee, making AVAX fees subject to change.
    • Consensus mechanism: Transactions on the Avalanche blockchain are confirmed using a unique method that requires many small, random subsets of network participants to confirm transactions before the transactions are considered finalized.
    • Participation incentives: High uptime and fast response times can both boost the amount of AVAX rewards that a network participant can earn for processing AVAX transactions.
 

Avalanche is generally governed by the proof-of-stake mechanism. AVAX holders are required to stake—agree to not trade or sell—AVAX in exchange for the right to validate AVAX transactions. AVAX holders with the most staked, and who actively participate as validators, are the most likely to be chosen as validators for new Avalanche blocks. Holding AVAX tokens is also required to vote on Avalanche governance proposals.

Who Are The Founders Of Avalanche?

Avalanche was launched by Ava Labs, founded by Cornell University professor Emin Gün Sirer, and Cornell University computer science PhD’s Kevin Sekniqi and Maofan “Ted” Yin. Gün Sirer is a veteran in cryptographic research, having designed a conceptual peer-to-peer virtual currency six years before the release of the Bitcoin whitepaper. He was also involved in work on Bitcoin scaling solutions and research on Ethereum before the infamous The DAO hack in 2016.

From that research arose the whitepaper that led to the foundation of Ava Labs in 2018. The project closed a seed round in February 2019 that included investors such as Polychain, Andreessen Horowitz and Balaji Srinivasan. Avalanche closed its initial coin offering in 2020 in under 24 hours, raising $42 million in the process.

“ We’re excited to be working with the experienced team at Avalanche and look forward to providing their smart contract developers with high-quality data at scale. Due to the scalability of Avalanche’s subnets, developers can expect to have large amounts of data available to them for the creation of various DeFi apps.”
Sergey Nazarov
Co-Founder of Chainlink
 
“Avalanche is a powerful and exciting new protocol that meets these challenges through Ethereum compatibility, high transaction throughput, and an architectural vision for very long-term scalability and security. We are proud to make Avalanche available to users of the Bloq platform for managed blockchain infrastructure services.”
Jeff Garzik
CEO of Bloq
 
“Avalanche is building an excellent platform with developers at the heart of it. This integration with Covalent significantly enhances the developer toolkit on Avalanche. The breadth and depth of Avalanche data now available will no doubt lead to even more powerful applications being built across the network.”
Ganesh Swami
CEO of Covalent
 

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“It is hugely rewarding for us to work with Avalanche, to underpin the security of a network that will facilitate trade across different financial assets at speed. Copper and Avalanche clients can be ready to trade on exchange within 100 milliseconds. We are working with Avalanche to bring crypto-assets one step closer to the mainstream.”
Dmitry Tokarev
CEO of Copper
 

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How Avalanche Works?

As mentioned earlier, the Avalanche network consists of 3 different blockchains.

First up is the X-Chain. This blockchain facilitates the ability to create assets and trade between individuals on a peer-to-peer basis. Like Fantom, Avalanche uses a DAG (Directed Acyclic Graph) mechanism to process transactions, which ensures high scalability. All transactions on the Avalanche network are done with AVAX tokens.

Next is the C-Chain, which is Avalanche’s default smart contract blockchain. The C-Chain makes it possible to implement the EVM extremely quickly. It is fully compatible with the programming language Solidity, which is mainly used for writing smart contracts on the Ethereum network. The C-Chain also uses a modified Avalanche consensus mechanism that provides the traditional blockchain ordering required for using smart contracts.

Lastly is the P-Chain. You could think of the P-Chain as the chain responsible for maintaining the Avalanche system. It is responsible for staking, validator coordination for different networks and for creating subnets. Every Avalanche validator participates in staking on the P-Chain to ensure the security of the core network. Validators can also form dynamic or private sets of validators to operate subnets. The job of subnets is to achieve consensus on one or more Avalanche blockchains. Both the P-Chain and C-Chain are secured by the chain-optimized Snowman consensus.

What Makes Avalanche Unique?

Avalanche attempts to solve the blockchain trilemma, which posits that blockchains cannot achieve a sufficient degree of decentralization at scale. A consequence of this are high gas fees, as is often the case on Ethereum.

To solve this problem, Avalanche designed three interoperable blockchains.

  • The Exchange Chain (X-Chain) is employed to create and exchange the native AVAX tokens and other assets. Similar to the ERC-20 standard on Ethereum, these tokens follow a set of standardized rules. It uses the Avalanche consensus mechanism.
  • The Contract Chain (C-Chain) hosts smart contracts and decentralized applications. It has its own Avalanche Virtual Machine, similar to the Ethereum Virtual Machine, allowing developers to fork EVM-compatible DApps. It uses the Snowman consensus mechanism.
  • The Platform Chain (P-Chain) coordinates network validators, tracks active subnets and enables the creation of new subnets. Subnets are sets of validators, sort of like a validator cartel. Each subnet can be validating several blockchains, but a blockchain can only be validated by one subnet. It also uses the Snowman consensus mechanism.

This division of computing tasks enables higher throughput without compromising on decentralization. For instance, private blockchains on the network could require its subnet’s validators to be sufficiently geographically decentralized or comply with certain regulations. Following this modular structure, Avalanche improves its interoperability with other blockchains wishing to integrate with the Avalanche ecosystem. Furthermore, the two different consensus mechanisms are designed with each blockchain’s requirements in mind, further improving their efficiency.

AVAX is the main cryptocurrency of the Avalanche ecosystem. Users receive rewards and pay fees using this toke. In total, there are only 720 million AVAX tokens scheduled for issuance. Of these, 360 Million tokens were minted at launch. According to the platform’s Tokenomics, the other 360 million are earmarked as staking rewards.

Avalanche (AVAX) Features

Virtual Machines

Virtual Machine (VM) defines the application-level logic of a blockchain. In technical terms, it specifies the blockchain’s state, state transition function, transactions, and the API through which users can interact with the blockchain. Every blockchain on Avalanche is an instance of a VM.

When you write a VM, you don’t need to concern yourself with lower-level logic like networking, consensus, and the structure of the blockchain. Avalanche does this behind the scenes so you can focus on the thing you would like to build.

Think of a VM as a blueprint for a blockchain; you can use the same VM to create many blockchains, each of which follows the same ruleset but is logically independent of other blockchains.

Why Virtual Machines?

At first, blockchain networks had one Virtual Machine (VM) with a pre-defined, static set of functionality. This rigid, monolithic design limited what blockchain-based applications one could run on such networks.

People who wanted custom decentralized applications had to create their own, entirely new blockchain network from scratch. Doing so required a great deal of time and effort, offered limited security, and generally resulted in a bespoke, fragile blockchain that never got off the ground.

Ethereum made a step toward solving this problem with smart contracts. Developers didn’t need to worry about networking and consensus, but creating decentralized applications was still hard. The Ethereum VM has low performance and imposes restrictions on smart contract developers. Solidity and the other few languages for writing Ethereum smart contracts are unfamiliar to most programmers.

Avalanche VMs (AVMs) make it easy to define a blockchain-based decentralized application. Rather than new, limited languages like Solidity, developers can write VMs in Go (other languages will be supported in the future).

Avalanche (AVAX) Pros & Cons

Pro #1 – Avalanche (AVAX) Has Unique And Innovative Technology

Many blockchains are either not scalable or lose functionality when trying to scale. It’s been a long-running problem for most blockchains.

The Avalanche network, however, overcomes most of the issues associated with other blockchains by having three interoperable blockchains:

  1. X-Chain – using the Avalanche consensus mechanism, the X-chain creates and exchanges AVAX tokens and other assets.
  2. C-Chain – the Contract Chain hosts decentralised applications and smart contracts. Through the Avalanche Virtual Machine (AVM), developers can fork EVM-compatible (Ethereum Virtual Machine) DApps
  3. P-Chain – the Platform Chain coordinates network validators. It tracks the active subnets and facilitates new subnet creation.
Pro #2 – Avalanche (AVAX) Is Scalable Without Compromising Decentralisation

Very few blockchains can scale without compromising decentralisation, but Avalanche can. The three interoperable blockchains allow for other blockchains to interact, and the potential for interoperability with multiple blockchains is unlimited.

The Avalanche blockchains adapt consensus mechanisms per use case, and Avalanche has more validators than other networks.

Another bonus is the minimum hardware requirements, meaning it’s easy and low-cost for validators to set up. Bitcoin rig setup requirements, for instance, are costly and complex for Bitcoin miners and use excessive energy resources.

Avalanche says that they have “the lightest hardware requirements of any blockchain platform.”

Pro #3 – Avalanche (AVAX) Is Interoperable With Other Blockchains

The interoperability of Avalanche factors significantly towards the scalability and future growth of Avalanche (AVAX). Very few crypto networks have interoperability between third-party tokens, and, without it, it’s a limitation on scalability. Interoperability helps improve the decentralised finance (DeFi) environment.

The Avalanche blockchain consists of thousands of subnets that form a diverse interoperable network of many other blockchains. The throughput is consistently high. The protocols and trustless framework are efficient and at no time compromises or risks decentralisation.

Pro #4 – Avalanche (AVAX) Transactions Are Super-Fast And Low-Cost

The transaction speeds for Avalanche are exceptional, with over 4,500 transactions per second (TPS) and make some crypto industry leaders look like snail-pace for transactions.

To compare:

  • Bitcoin (BTC) – 7 TPS
  • Ethereum (ETH) – 14 TPS
  • Polkadot (DOT) – 1,500 TPS

Comparing these speeds, Avalanche (AVAX) will likely gain popularity with merchants as a payment option. The Ethereum network states that their TPS will rise to 100,000 after the upgrade in 2022. Ethereum gas fees will reduce and put transaction speeds back ahead of Avalanche.

Many crypto enthusiasts and experts are saying that Avalanche (AVAX) is a real challenger for Ethereum. Right now, the network has a significant edge over the Ethereum network transaction fees, which may elevate it further as Ethereum continues with upgrade development.

Con #1 – Malicious Validator Activity Is Not Punishable

Many crypto networks punish validators for mistakes or fraudulent behaviour. It’s a process called “slashing.” Offending validators can lose some or all their crypto stake, which can be a significant investment depending on the crypto network. For instance, the Ethereum network has a minimum 32 ETH requirement to become a network validator and has a slashing protocol for validators. Losing 32 ETH at over $2.7k per ETH is a considerable risk.

Avalanche proudly states on the validators page of the website, “staked tokens on Avalanche are never at risk of slashing.”

It’s unknown why Avalanche doesn’t have a slashing protocol in place, and, of course, it could change in the future as AVAX increases in price.

Con #2 – Avalanche Is Expensive To Buy For Small Investors

Avalanche (AVAX) isn’t the most costly crypto to buy at $72.75 per AVAX token. But, for small investors, it requires more of a financial commitment than, say, Dogecoin (DOGE) at $0.14 per DOGE token.

The growth potential for Avalanche (AVAX) is exceptional for this unique crypto technology, but all financial advisors suggest not investing more money than you can comfortably afford to lose.

Con #3 – Competition From Other Blockchains

Right now, Avalanche is one of few crypto blockchains with Ethereum connectivity. Crypto blockchains require EVM (Ethereum Virtual Machine) to connect and branch from Ethereum.

The primary competition for Avalanche is Ethereum 2.0 (with 100,000 TPS after upgrade), Polkadot (DOT), Cardano (ADA), Terra (LUNA) and Solana (SOL). Although the latter does not have EVM, it can process 50,000 transactions per second.

As more cryptos emerge on the market, there will be other contenders to challenge Avalanche.

But, for now, the distinction of Avalanche from other cryptos almost guarantees that Avalanche can hold onto market gains for the interim. 

Although many crypto followers think that Avalanche is a contender for Ethereum’s hold on the #2 position by market capitalisation, once the ETH2 upgrade completes, Ethereum’s warp speed transactions of 100,000 TPS challenge even mainstream payment methods like VISA transactions.

Though there’s no mention of improving transaction speeds on the Avalanche website, it will be interesting to see if they intend to compete with Ethereum 2.0 transaction speeds in the future.

Con #4 – It’s Expensive To Become An Avalanche Validator

There’s always a price for becoming a network validator for a crypto network. If you want to become an Avalanche network validator, you need a minimum of 2,000 AVAX tokens. Today, that fee is around $145,500, as the price of AVAX is $72.75.

You must stake your AVAX for a minimum of two weeks and a maximum of one year and must be online and correct for a minimum of 60% of the time.

Those that can’t afford to become an Avalanche network validator can become a delegator with a minimum staking requirement of 25 AVAX tokens.

There is a maximum weighting for Avalanche validators, which is five times your stake, so for 2,000 AVAX, you can have 8,000 AVAX delegated. This restriction is to prevent fraudulent activity by creating nodes that may appear as delegators.

Avalanche network validators can set their own fees for delegators, but these are usually more than 2%.  Delegators still earn the same percentage of AVAX rewards, depending on the size of your stake.

 

How Many Avalanche (AVAX) Coins Are There In Circulation?

The total supply of AVAX is 720 million. Its token distribution is as follows:

  • 2.5% – seed sale, with 10% released on mainnet launch and the rest being released every three months.
  • 3.5% – private sale, with 10% released on mainnet launch and the rest being released every three months.
  • 10% – public sale, with 10% released on mainnet launch and 15% released every three months over a period of 18 months.
  • 9.26% – allocated to the foundation, released over ten years.
  • 7% – community endowment, released over twelve months.
  • 0.27% – testnet incentive program, released over one year.
  • 5% – strategic partners, released over four years.
  • 2.5% – airdrops, released over four years.
  • 10% – team, released over four years.
  • 50% staking rewards

Staking AVAX currently provides an annual reward of 11.57%, with the minimum time for staking being two weeks with a minimum of 2,000 AVAX.

Should You Buy Avalanche (AVAX)?

Avalanche checks a lot of boxes in terms of its management team and overall credentials. It has a solid purpose and appears to have attracted a number of interesting projects. Plus, it announced a partnership with Deloitte at the end of last year. Deloitte will run a new disaster recovery platform on the Avalanche blockchain.

But if you’re considering buying, it’s important to do your homework. Visit Avalanche’s website, read its whitepaper, and dig into its history. Take a look at its competitors and try to understand how it fits into the competitive landscape — that way you’ll also get a better idea of how the smart contract space might evolve longer term. It’s your money and you know your investment priorities better than anyone.

There are also some risks to be aware of, including the following:

  • There are already a lot of smart contract cryptocurrencies on the market, and more will arrive. This is a fiercely competitive space, and just as Avalanche overtook older cryptos like EOS (EOS) and Tron (TRON), newer players may emerge with different, faster technology.
  • There’s always the possibility of security or technical issues. Simply put, Avalanche is not as road-tested as Ethereum and unknown problems could throw a wrench in the works. Just as Solana’s had several outages in the past six months, Avalanche may falter, especially as it continues to grow.
  • Increased crypto regulation is almost inevitable, though we don’t yet know what shape it will take. This is going to have an impact on all cryptocurrency prices, and could particularly hit the decentralized finance industry.
  • Wider economic conditions have already caused the overall cryptocurrency market to shrink by around 30% in the past month. Governments are pulling back on their pandemic stimulus measures, which pushes people away from riskier assets like crypto. We don’t know what will happen to the global economy in the near future, nor what the knock-on impact for crypto will be.

If you want to buy Avalanche, you need to be prepared for volatility — crypto prices can rise and fall dramatically in a short amount of time. That’s why it’s important to only spend money you can afford to lose, and to first make sure you’re on top of other financial goals like your emergency fund and retirement savings. If the price does suddenly drop, you don’t want to be forced to sell at a loss or face financial ruin.

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