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If you’ve been following my articles, you might have already realized that I’m particularly fond of Smart Contract Platforms and Interoperability Projects, because they are the key to the required infrastructure for increasingly more applications and use cases to blossom in this space.
It is therefore no coincidence that platforms such as Ethereum, Solana, Terra, Cardano, Polkadot, Cosmos, are leading the marketcap ranking.
I previously wrote about all of them. The only other key platform currently in the top cryptocurrencies by marketcap I haven’t broken down for you yet is Avalanche, so it’s about time we give it the spotlight.
In a nutshell, Avalanche is also a Proof of Stake platform like most players I mentioned above. It’s probably the last one to launch, and yet still managed to position itself as one of the top projects.
Its unique architecture, consensus protocol and scalability benefits are the key elements that make it a very special.
I’ll be explaining these points below, but before let’s learn some basic facts about Avalanche!
What is avalanche?
Some core facts…
Avalanche is a Proof of Stake platform founded in 2018 by computer scientist and Cornell Professor Emin Gun Sire.
It is built by Ava Labs, a software company based in the US, which was also founded by Emin Gun Sire in 2018.
Avalanche’s mainnet went live in September 2020.
It’s development is cooridnated by the Avalanche Foundation.
It has raised multiple rounds of investment via coin sales during 2019 and 2020.
Although it is not limited to it, Avalanche is mainly known for Financial applications: it currently has over $10 Billion of Total Value Locked. This is mainly thanks to the $180 Million incentive program to scaling DeFi, succesfully attracting two of the biggest players in the filed, Aave and Curve Finance.
In terms of Tokenomics…
AVAX is Avalanche’s native coin, currently ranking as the top 10th cryptocurrency by market cap.
It has a maximum supply of 720 million coins, making it a deflationary asset.
AVAX is used for:
Paying transaction fees in the platform,
Staking to secure the platform,
Providing a basic unit of account between different subnets created on Avalanche.
It is also a governance token, meaning the more you hold and stake, the more voting rights you have in Avalanche’s decisions.
All transaction fees are burnt, which means validators only earn staking rewards.
The key call out here is that around 15% to 20% of AVAX was presold in different rounds during launch, and many of these coins are subject to an unlocking period that might affect the price. At the same time, the team and foundation also hold around 20% of the coins. Overall, a bit centralized in my opinion.
How does Avalanche compare to other Smart Contract Platforms?
To answer this question, let’s go through some key features the Avalanche team likes to highlighted:
Speed: Avalanche uses a consensus mechanism that enables it to confirm transactions within 3 seconds.
Scalability: because of this, they estimate they are capable of 4,500 tps (transactions per second).
Security threshold: blockchains like Bitcoin and Ethereum require a 51% of majority to attack the network, whereas with Avalanche the required percentage is at 80%.
Flexibility: can create custom subnets, both private and public, with own consensus mechanisms.
Smart Contract Support: it is EVM compatible (Ethereum Virtual Machine), therefore supports the creation of Solidity smart contracts (same coding language than Ethereum), which makes it very easy for developers to migrate to Avalanche.
But how does Avalanche achieve all these key benefits?
At the beginning of the article, I mentioned that the combination of 3 key elements make Avalanche standout:
Unique architecture (blockchain ecosystem),
Consensus Protocol,
Scalability benefits (Subnets).
So for those readers who are curious on knowing more about how things work on Avalanch in order to deliver the speed, security and scale, let me explain it to you.
1. First thing to understand is the architectural structure of Avalanche
Avalanche functions on a Mainnet that has 3 built in blockchains.
Each of these blockchains focuses on specific functions:
X-Chain (Exchange Chain):
creation, management and transaction of tokens in the network. It is where Avalanche tokens are issued, including native coin AVAX.P-Chain (Platform Chain):
for management of the subnets and validator nodes. This is where validators stake AVAX to secure the network. It also makes it possible to create subnets (custom blockchains).C-Chain (Contract chain):
this is where smart contract and decentralized applications are deployed. It is an exact copy of the EVM, allowing developers to move their projects over without much work, which is quite smart of a design.
All 3 blockchains are validated and secured by the mainnet (Primary Network).
2. Second piece is the consensus mechanism…
Avalanche is named after the Avalanche Consensus Protocol, so you get a sense of how relevant it is for the project.
Without going into technicalities, the way this works is mainly as follows:
Subsampled voting: small random subset of validators are asked whether they think the transaction should be accepted or rejected.
The validator repeats this sampling process until X number of the validators queried reply the same way (accept or reject) for Y consecutive rounds.
Then something called Network Gossip happens: participants exchange information back and forth to continue to validate or reject transactions, and involves gossiping transactions to other nodes on the network until they’ve all been made aware.
This consensus model is apparently much more difficult to attack (it requires up to 80% to perform an attack), and enables a high throughput of 4,500 tps per subnet, and a finality of less than 3 seconds.
………………………………………
Those who have been reading the charts more carefully might ask…
“But I saw that P-Chain and C-Chain uses a different protocol called Snowman Protocol…”
The asnwer is, you are right. Avalanche’s mainnet uses Avalanche’s consensus protocol, but Ava Labs created the Snowman Protocol for P-Chain and C-Chain.
The difference between both is small but powerful: the Snowman Protocol is a linearized version of Avalanche so that it can fit the needs of EVM (Ethereum Virtual Machine), so it essentially has been optimized for smart contract and high throughput.
3. The last piece of Avalanche magic formula is the Subnets
Subnet is a sub network in the Avalanche ecosystem, that is basically a group of selected validators working together to validate blockchains.
What makes it special is that each subnet manages its own membership
, which means it can set certain properties as requirements.
This is important because it factors in certain flexibility to customize to specific use cases and requirements, while at the same time being able to leverage full power of Avalanche’s blockchain without having to develope one yourself.
For example, you can create a subnet where only certain pre-defined validators may join and create a private subnet where the contents of the blockchains would be visible only to those validators. This is ideal for organizations interested in keeping their information private, such as governments.
My personal thoughts on Avalanche
From a product point of view, I believe Avalanche has achieved incredible milestones and offers immense amount of potential to continue growing. It deserves a lot of merit being among the top projects in this space, particularly considering that it’s mainnet launched less than 2 years ago.
However, if there has to be any question mark from my end, I believe it is not particularly transparent when it comes to AVAX distribution. Seems like early investors, the Foundation and team holds a sizable amount of AVAX, which is a bit more centralized than what you want.
At the same time, from a long term development standpoint, I’m yet to be fully convinced of what Avalanche stands for. What do I mean with this? Well, when I think of Ethereum, Polkadot, Cosmos or even Terra, it is very clear what is upmost important to them (be it security, decentralization, interoperability, or other aspect), and with it, the vision they are trying to bring to reality.
This is not the case with Avalanche, and because of this, they seem to be a bit more reactive when it comes to innovations.
What do you think?
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