Avalanche (AVAX) is a blockchain platform built for smart contracts, dApps, and subnets (customized blockchains). The network focuses on fast transactions, low fees, and energy efficiency. Avalanche crypto, called AVAX, is the native token.
Thanks to its three-blockchain architecture and its unique proof-of-stake consensus protocol, Avalanche has the capacity to deliver high throughput, and near finality of transactions, that could enable the network to scale without sacrificing its security or decentralization.
Keep reading to learn more about Avalanche and AVAX crypto and how the platform compares to other crypto projects.
How Does Avalanche (AVAX) Work?
Avalanche is part of a group of smart contract platforms that compete with Ethereum, collectively referred to as “Ethereum killers.” Ethereum (ETH) is the second-largest crypto by market cap and was the first blockchain to enable smart contract functionality. Smart contracts are programmatic agreements that are trustless, i.e. they don’t require third party authentication and can execute automatically when certain conditions are met.
Smart contracts allow for a variety of innovative features including decentralized finance (DeFi) applications.
Many complex apps for DeFi and non-fungible tokens (NFTs) have been built on Ethereum. This has created network congestion as users compete to have their transactions included in the next block, driving up gas fees.
As a result, protocols have begun building on layer-2 solutions. Avalanche wants to work around this need and instead have a layer-1 that can handle everything necessary for this kind of blockchain.
It utilizes three different blockchains to achieve this, allowing it to perform at a scale suitable for the broader internet. Each of the three blockchains performs a specialized task inside of the Avalanche ecosystem. On most other blockchains, a single chain handles all of the work.
Here’s a brief overview of Avalanche’s three different chains.
The Exchange Chain, or X-Chain, is the part of Avalanche that creates and transacts crypto assets. Avalanche crypto (AVAX), the native token of the Avalanche network, is the most popular crypto on the network, but several other tokens also have high volumes.
Transactions conducted on the X-Chain are paid for by fees denominated in AVAX. This is similar to how gas fees on Ethereum are paid with ETH. No matter what token someone is transacting with on Avalanche, the fees will always be paid with AVAX. AVAX fees are then burned, keeping the supply in check and demand relatively steady.
The Contract Chain, or C-Chain, is where smart contracts live. This chain is compatible with the Ethereum Virtual Machine (EVM), meaning developers can run Ethereum smart contracts on Avalanche. This makes it easy for existing Ethereum apps to deploy new versions of their software on Avalanche.
The ability to deploy Ethereum smart contracts on Avalanche lets developers use the features of AVAX while using the same ETH tools they are already familiar with.
The Platform Chain, or P-Chain, gives anyone the ability to create a layer-1 or layer-2 blockchain. These chains would be referred to as Avalanche subnets, while the P-Chain would be the default subnet.
The P-Chain coordinates the activities of the Avalanche subnets by keeping tabs on validators, although subnets also play a role in validating the P-Chain.
Advantages and Disadvantages of Avalanche (AVAX)
Let’s look at some of the benefits and drawbacks of Avalanche crypto.
In an extremely crowded field, Avalanche has emerged as a disruptive platform that’s interoperable with other blockchains — specifically with Ethereum. This has increased its accessibility and scalability.
Avalanche has also achieved a significant milestone by reaching transaction speeds of 4,500 transactions per second (tps). While a few other blockchains may have faster tps, Avalanche remains a standout in this regard.
It’s scalable, unlike some other blockchains, without compromising decentralization.
Avalanche claims to have “the lightest hardware requirements of any blockchain platform”, making it easy for developers to set up and run.
The price for becoming a network Validator is high: 2,000 AVAX tokens. As of May 5, 2022, that’s approximately $115,000. And you must stake AVAX for at least two weeks and a maximum of one year. (Delegators only need 25 AVAX.)
Unlike other platforms, Avalanche doesn’t have a slashing policy, whereby bad actors can be stripped of their stake in the case of fraud or other malicious activity.
Last, although Avalanche has enjoyed some success since it launched two years ago, the competition among platforms that are poised to deliver faster transaction speeds without sacrificing decentralization is fierce.
• Avalanche offers interoperability to developers and users.
• High cost to become a Validator.
• The platform has achieved 4,500 tps.
• No clear punishment for bad actors.
• Minimal hardware requirements create a low barrier to entry for developers.
• Faces stiff competition from other blockchains.
Who Created Avalanche (AVAX)?
Emin Gün Sirer, a professor of computer science at Cornell, is credited with launching Ava Labs in 2019, which in turn developed the Avalanche blockchain and AVAX cryptocurrency in 2020.
Sirer had a deep background in peer-to-peer systems (a common crypto term) long before this, however. He created a proof-of-work virtual currency called Karma in 2003, predating Bitcoin. He was also a member of IC3 (the Initiative for Cryptocurrencies and Contracts).
Ava Labs believe they are building the fastest smart contract platform that currently exists. “Time to finality” is a term referring to how long it takes a crypto transaction to be processed to the point where it is finalized, permanent, and irreversible.
In a relatively short time, Avalanche has broken through the pack of different cryptocurrency platforms, and is seeing substantial investment. The company raised $42 million in July of 2020 through an ICO; a year later they raised $230 million through a token sale.
Why Does Avalanche (AVAX) Have Value?
Ethereum achieves finality in about 60 seconds on average. Avalanche, by contrast, achieves finality in under two seconds. This is one reason AVAX could be considered to have value.
A fast platform with lower fees could definitely be an improvement over platforms like Ethereum, which have suffered high fees, network outages, or both in the past.
Investors betting on the AVAX token are likely hoping that adoption of Avalanche-based platforms increases, meaning there would be greater use of AVAX, theoretically leading to a higher price.
Price of Avalanche (AVAX)
As of May 5, 2022, the price of AVAX coin was trading at about $57.40 per coin. The all-time high of 146.22 was reached in November 2021. The all-time low of $2.79 was reached in December 2020.
AVAX has a market cap of $15.46 billion, and a 24-hour trading volume of $1.21 billion.
Why Use Avalanche (AVAX)?
Developers might want to use Avalanche to build scalable smart contract solutions. DeFi users might choose a platform built on Avalanche for faster transactions and lower fees. Speculators might buy AVAX tokens hoping to sell later at a higher price.
Does Avalanche (AVAX) Have Staking?
Avalanche (AVAX) uses a variation of the proof-of-stake consensus mechanism and does give users the right to stake their AVAX tokens.
The way consensus works on Avalanche is that a single transaction triggers a sampling process among a small group of Validators, who check for agreement. Validators repeat this process, and the consensus process gains momentum, similar to the way single snowflakes can become a snowball (and can turn into an avalanche).
How are Validators rewarded? Rewards are scaled based on the amount of time a node has staked its tokens (proof of uptime), and whether the node has followed the rules of the protocol (proof of correctness).
Avalanche can be staked on some large exchanges like Binance. Users of the Ledger Nano hardware wallet can stake their coins on the Ledger exchange. And more technical users who hold large amounts of Avalanche coin can stake using the Avalanche Wallet or an Avalanche Node.
Avalanche (AVAX) was created to solve the crypto “trilemma”: how to achieve scalability and security without sacrificing decentralization. Thanks to its unique proof-of-stake consensus protocol, Avalanche has the capacity to deliver high throughput, and near finality of transactions. Avalanche’s three-blockchain structure has also enabled efficiency as well as interoperability.
Like any form of crypto, Avalanche has its challenges. As the 13th largest form of crypto as of May 5, 2022, Avalanche faces considerable competition in its rise to the top. But overall its innovative approach has made Avalanche something of an industry disruptor.