Avalanche is one of the latest challengers to the altcoin throne, which is currently occupied by Ethereum. Avalanche offers similar functionality to Ethereum, but with much more modern architecture, which means faster speeds and lower fees. This guide will explore what Avalanche is, how it works, and how it differs from Ethereum.
What is Avalanche?
Avalanche is a versatile and programmable smart contracts platform. It can also be used to create decentralized applications (dApps) and custom blockchains. Launched in September 2020 by Ava Labs, Avalanche has quickly gained a substantial foothold in the crypto market, leading some to believe it could eventually overtake Ethereum in terms of market capitalization.
Ethereum was the original smart contracts and dApps platform; it has been one of the most innovative uses of blockchain technology so far. Unfortunately, Ethereum also has a few chinks in its armour, such as its high transaction fees and relatively slow processing times. This has opened the door for a number of projects such as Cardano, Solana, and now Avalanche.
Avalanche is a strong contender. It is much faster and cheaper than the current iteration of Ethereum, and also more versatile in that it can be used to create and deploy custom blockchains. Avalanche has also established its own decentralized finance (DeFi) ecosystem, featuring a range of Ethereum-based DeFi projects that have been seamlessly integrated, such as SushiSwap, Reef Finance, and True USD. Furthermore, Avalanche is developing the Avalanche Bridge, which will allow users to transfer assets between Ethereum and Avalanche.
How does Avalanche work?
The Avalanche protocol consists of three Avalanche blockchains working together: the Exchange Chain, the Contract Chain, and the Platform Chain. Because each chain deals with specialised tasks, it is much quicker and more scalable than most networks that run processes all on one chain.
Exchange Chain
The Exchange Chain (X-Chain) is used to produce and exchange a range of digital assets, including Avalanche’s own native token, AVAX. The assets created on Avalanche are governed by a set of rules, similar to Ethereum’s token standards. Transaction fees on the X-Chain are paid for using AVAX, and this blockchain uses the Avalanche consensus protocol to verify transactions.
Contract Chain
The Contract Chain (C-Chain) is a version of the Ethereum Virtual Machine (EVM) that allows developers to create smart contracts for dApps. This chain is 100% compatible with the existing Ethereum toolset, which means that developers can do anything on the C-Chain that they could do on Ethereum, but with the added benefits of the Avalanche network’s speed and cheap transactions. The C-Chain uses a custom version of the Avalanche consensus mechanism known as Snowman.
Platform Chain
The Platform Chain (P-Chain) organises network validators and enables the creation of new subnets. A subnet is a set of validators that provides consensus for custom blockchains. A blockchain can be validated by a single subnet, but each subnet can validate multiple blockchains. This chain also uses the Snowman consensus protocol.
Key Takeaway
The Avalanche platform is like a village with each store and household contributing to the village’s success. The Exchange Chain is the village shop, where citizens can buy and sell products. The Contract Chain is the workshop where everything is built, and the contracts are signed. The Platform Chain is the town planner that coordinates where all of the new houses will be built and where the most important citizens of the village, the network validators, will live and work.
What problems does Avalanche solve?
Avalanche attempts to solve three main problems. These are high fees, scalability, and interoperability.
High fees
A common issue with larger blockchains like Ethereum is their gas fees. Increased users and high traffic on the Ethereum network both contribute to the problem. Unfortunately, this often discourages people from using these blockchains, but the trouble is that the competition has less established ecosystems. Ethereum has been the most popular solution for many years, but this has led to constantly high traffic and fees. The Avalanche ecosystem aims to fix this problem by providing a fast and cheap network as well as offering access to a well-developed collection of dApps and services, along with a bridge to Ethereum.
Scalability
When it comes to blockchain technology, there is often a tension between decentralization and scalability. A platform that has many users and high levels of activity can find it difficult to validate transactions quickly. The Bitcoin network is a good example of this issue. During periods of high congestion, the Bitcoin network has sometimes taken hours or even days to fully validate transactions.
One solution to this problem is to make the network more centralized. If you give fewer users more power to validate network activity, the process can be performed much more quickly, because each validator is not required to cross-reference every transaction. However, decentralization is a fundamental aspect of cryptocurrency and blockchain technology. Avalanche attempts to solve this problem by employing its own consensus algorithm, but over a widely distributed network of validators.
Interoperability
Projects and companies have their own unique blockchain needs. Generally, projects have to choose between Ethereum, a private blockchain, or another blockchain that is not tailored to the project’s specific needs. It has traditionally been difficult to find a balance between customisability and interoperability, which is when multiple systems are able to exchange information and work together. Avalanche aims to solve this problem using subnets and custom blockchains that all utilise the network’s speed, security, and compatibility.
Key Takeaway
Interoperability is when multiple systems, such as separate blockchains, are able to exchange information and work together.
Avalanche vs Ethereum: Which is better?
Avalanche offers very similar functionality to Ethereum. Developers can create new smart contracts, tokens, dApps, and non-fungible tokens (NFTs). Users can stake coins, use dApps, and validate transactions on the network. Both platforms have a well-developed ecosystem to support developers and users, and with Avalanche’s Bridge to Ethereum, they are inseparable in a lot of ways. But the two platforms differ quite a lot when it comes to transaction speeds, fees, number of validators, consensus mechanism, and extra blockchain features.
Transaction speeds
Out of the two, Avalanche is the fastest smart contracts platform. In its current iteration, Ethereum can only process around 15 transactions per second (TPS), whereas Avalanche claims their network can process around 4,500! It’s important to note that the Ethereum 2.0 upgrade will vastly improve transactions speed. But until this is completed, Avalanche is far superior in terms of transaction throughput.
Did You Know?
The Ethereum 2.0 upgrade that is currently in development aims to vastly increase Ethereum’s capacity to upwards of 100,000 TPS!
Fees
Avalanche has much lower fees for transactions and deploying smart contracts. The average fee for a transaction on Avalanche is usually around $1 USD, however, this has been known to jump up to $10 during congestion. By contrast, the average Ethereum transaction fee can range anywhere from $3 to $70 depending on network usage, but there have been instances where transaction fees have been much higher than the average. These high gas fees have hindered Ethereum’s ability to scale effectively. Once again, the Ethereum upgrade aims to vastly reduce these fees. But for now, Avalanche is a low-cost alternative.
Validator nodes
Ethereum has a huge leg up on Avalanche regarding the number of validators securing the network. Avalanche has over 1,200 validators, which is an impressive number for such a new platform. However, because Ethereum launched in 2015 it has a much more established network that boasts over 400,000 validators. This makes it one of the most decentralized and secure blockchain networks in the world. Avalanche will most likely add large numbers to its tally as it further establishes itself, but for now, Ethereum is dominant.
Consensus mechanism
Ethereum currently uses a Proof of Work (PoW) consensus mechanism, where miners contribute computing power to verify transactions and generate new coins. After the upgrade, Ethereum will use a Proof of Stake (PoS) mechanism, which uses a system to randomly select users who are staking coins, to verify transactions and generate new coins.
Avalanche uses an entirely different method, the Avalanche consensus protocol. This mechanism ensures that all validator nodes work in parallel to verify other validator’s transaction confirmations randomly. After each transaction has received enough random subsampling, it is probabilistically established to be valid. This method is the main reason that Avalanche has such a high TPS. The Snowman mechanism is similar; however, it works in a more traditional linear manner with blocks.
Key Takeaway
The Avalanche consensus mechanism is like a super-advanced version of a group of students checking each other’s homework in class. It is a very time-efficient process, and if the answers are confirmed by multiple students, there is a very high chance they will be correct.
Blockchain features
Unlike Ethereum, Avalanche allows customised, interoperable blockchains to be created. There is no limit on the number of customised blockchains a user can create, but they will need to pay a subscription fee to operate each one, which is paid in AVAX.
What is the AVAX token?
AVAX is the Avalanche network’s native utility token. AVAX has three main uses. First, it can be used for staking. This will earn AVAX holders staking rewards in exchange for lending their coins to help secure the network. Second, AVAX is used to pay for transaction fees and subnet subscriptions. Third, AVAX functions as a universal currency between all subnets, which helps improve interoperability.
How to buy AVAX
You can buy Avalanche (AVAX) from most large cryptocurrency exchanges. Swyftx is a popular crypto exchange in Australia and New Zealand where users can buy and sell Avalanche coin with low fees and spreads, store it in their own secure digital wallet, and perform all their other cryptocurrency trading.
Summary
Avalanche is one of the most promising Ethereum competitors, with a fraction of the market cap. It offers many of the same features, as well as many improvements over the current iteration of Ethereum. The Avalanche price has recently exploded, which speaks to the foothold it is gaining in the crypto market. This guide has looked at what Avalanche is and how it works. It has also explored the problems Avalanche aims to solve and how it differs from Ethereum. For more great content about cryptocurrency and blockchain continue exploring Swyftx Learn!
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