The little-known Avalanche network is a customizable and yet ready-to-wear blockchain which can adapt to clients needs. What are its characteristics and why might it soon be one of the key players in the blockchain world?
Consensus models history
To understand what makes the Avalanche network special, we need to examine their unique consensus model. After having used the Practical Byzantine Fault system since the 1980s, Bitcoin arrived in 2009 with its famous Proof of Work (PoW) consensus model. Synthetically, it is the way miners must find a solution to a mathematical problem to build a new block, checking balances and transactions and make them impossible to hack and alter. Then came Ethereum’s Proof of Stake (PoS), where owners of the cryptocurrency can stake their coins, which gives them the right to check new blocks of transactions and add them to the blockchain. Finally, in 2020, Avalanche launched their proprietary Avalanche Consensus Model. This one is rather complicated, but we’ll expose a high view of the concept, trying not to upset any Avalanche engineers.
The Avalanche consensus model
The Avalanche consensus model uses the classic Proof of Stake method, with a few tweaks to it. First, the Avalanche consensus model uses a form of subsampled voting, meaning that there is a large group of people that volunteer to participate in the network, and randomly get asked to check things. In other words, a group of people gets asked whether a certain transaction should be validated or rejected. Once the transaction is deemed valid, something called network gossip takes place, where participants exchange information back in forth, continuing to validate or deny transactions.
The great advantage of such a method is that the number of nodes or participants does not matter: consensus will be reached within the desired timeframe. Furthermore, this mechanism is much harder to attack. With Bitcoin, owning 51% of the network will give you control over it, and the same goes for Ethereum, for one owning 51% of all the tokens. With Avalanche, one would need to control over 80% of the network to perform an attack.
This model allows for up to 4,500 transactions per second, and per subnet, with a finality clock of around 3 seconds. Subnets will be defined later in the article, but if you have 1,000 subnets, you can imagine how many transactions per second it permits. These numbers dwarfed that of bitcoin, with its 7 transactions per second and hour-long finality. Ethereum does better – but still cannot compare – with 15 transactions per second and a 10-minute finality.
The Avalanche network infrastructure
Avalanche has one primary network, coming with three built-in blockchains. The first one is the X-chain, used for the management, creation and transactions of tokens on the network. The C-chain is specifically designed for smart contracts, and is an exact copy of the Ethereum code, meaning that ETH dApps can simply be copied and pasted to work on the Avalanche network, without much work needed.
While the primary network uses the Avalanche consensus model, AVA Labs (the lab that built the Avalanche network) created an even more powerful consensus model called the Snowman Protocol. The Snowman protocol is the linearized version of the Avalanche protocol, meaning that it can fit the needs of the Ethereum virtual machine. In other terms, the Snowman protocol has been optimized for smart contracts and high throughput, optimizing the interoperability with smart contracts on the ETH network.
Though these concepts might seem abstract to most readers, what one should remember is that Avalanche developers are always working with interoperability in mind, always optimizing for ease of use and connection.
Finally, the P-chain (or platform chain) is designed for the management of subnets, coordinates all the validators and the staking mechanism. But what are subnets?
Each subnet is a new network in the Avalanche ecosystem. Each subnet can have multiple blockchains built into it, just like the primary Avalanche network. Moreover, each blockchain in these subnets can have its own consensus model – which would mean that if you’re creating your own subnet, you could pick the consensus model that best suits your needs. Each can also have its own virtual machine, meaning that you copy that of Ethereum easily. Finally, each blockchain can be public or private. In summary, this is one of the most scalable and infinite projects ever.
By now, you might have grasped the power of the system: Avalanche is a customizable and yet ready-to-wear blockchain that can adapt to clients' needs. If anyone needs a blockchain for anything, instead of going through the tedious process of creating their own, they can simply open a new subnet on the Avalanche Network. With this system, there is no limit to what you can do. Whether you are a government, a business, a club, you can install a pre-made blockchain for which you can choose the consensus mechanism, the openness to the public, and even establish rules such as requiring a license or belonging to a specific geographic area.
Tokenomics of AVAX
AVAX is the Avalanche blockchain’s proprietary coin. First off, AVAX is a deflationary asset, with a maximum capacity of 720 million coins. Second, AVAX can be used as a governance tool on the platform: the more coins you own and stake, the more voting rights you have.
The bad news is that AVA Labs sold 127 million coins when they launched, and many of those coins are subject to a locking period. This mean that investors who bought at $0.50 and want to take profit, might sell at the end of their locking period, which could cause price drops – especially as these are official (see graphs below). Still, the unlocking periods are multiple, and they will not all take place at the same time. The founding team also kept 20% of the coins for themselves.
But here is the good news about AVAX, and the reason why its price has spiked in recent months. First, the Avalanche foundation has announced a $180 million incentive program to get people to try out their network. This means that they are literally giving away $180 million worth of AVAX coins for advertising purposes. The incentive program succeeded in bringing the biggest stablecoin players on board: Curve and AAVE. These have tens of billions of dollars of liquidity locked on networks like Ethereum and Polygon, and moving them to Avalanche was a key strategic play.
Following this success, Avalanche launched another $200 million program to incentivize four key areas of the ecosystem, namely DeFi, enterprise applications, non-fungible tokens (NFTs) and culture applications. Overall, the coin climbed from $3.3 in January, all the way up to $85 at the time of writing, with a peak to $146.
With a market capitalization of over $20 billion, the AVAX coin places itself as number 12 in the top cryptocurrencies at the time of writing, according to CoinMarketCap. With unique functionalities like a specific consensus model and the possibility to create a limitless number of subnets (or additional blockchains), Avalanche is one of the most versatile and highest compatibility projects in the blockchain environment.