Understanding Avalanche - the Ultimate Competitor to Ethereum

Avalanche is a feature-rich and competitive competitor to Ethereum. This article walks you through the protocol from technical and analysis perspectives.

Understanding Avalanche - the Ultimate Competitor to Ethereum

Starting with the launch of bitcoin, blockchains have gathered immense attention from the developer’s community and now have become a crucial aspect of creating secure and permissionless platforms. Many of the blockchains currently available are inspired by bitcoin’s skeleton such as the acclaimed Ethereum and therefore have plenty of limitations. The proof of work consensus mechanism behind these blockchains inhibits scalability resulting in slow and expensive transactions along with compromising the decentralization aspect.

In the early days of cryptocurrencies, Bitcoin and Ethereum proved to be efficient but with each passing day, the number of applications being developed on these blockchains kept on increasing along with the user base resulting in some serious problems. The rise of Decentralized Finance is one of the major stakeholders that have increased cryptocurrency adoption to more than 300 million people worldwide. These DeFi apps have over $200 Billion in total value locked and have therefore led to multiple network congestion incidents in the past on popular blockchains like Ethereum, Solana, etc.

Most of the DeFi projects utilize layer-2 solutions to avoid network congestions and reduce the Ethereum gas fee. This process can help execute faster and cheaper transactions but ultimately add more complexity leading to security risks and vulnerabilities. In order to avoid all this hassle, there must be a blockchain that should be secure, decentralized, and must be scalable over a longer period contrary to the Ethereum blockchain and that is what Avalanche offers to its users.

Avalanche is believed to be the fastest smart contract enabled blockchain to date utilizing three different blockchains in its infrastructure to help with cryptocurrencies and all types of DeFi applications.

Introduction

Avalanche is an open-source blockchain platform developed by Ava Labs based in New York. Avalanche is termed as an extremely fast, low-cost, and environment-friendly layer-1 protocol created by a Cornell University Computer Science Professor and two of his Ph.D. Students. The concept behind Avalanche was presented back in 2019 by Professor Emin Gun Sirer and he claimed it to be the fastest blockchain with finality time way better than that of Ethereum. Avalanche has immense scaling capacity and blazingly instant confirmation time as it can easily process up to 4500 transactions every second as compared to Ethereum’s block confirmation time which is 14 TPS.

The Avalanche blockchain was officially launched at the end of 2020 and has managed to capture much attention soaring the total value locked in its protocols to around $11.9 Billion. This huge TVL makes it one of the leading blockchains that support DeFi apps along with Ethereum, Terra, and Binance Smart Chain. The innovative DeFi space of Avalanche hosts some of the most popular Ethereum-based protocols such as Aave and SushiSwap. Moreover, decentralized exchanges like Trader Joe with around $1.5 billion in its liquidity pools, and lending platforms like Benqi with more than $1 billion locked in its smart contracts are also running on the Avalanche blockchain.

Not only DeFi platforms, but Avalanche is also a shining star for the growing Metaverse space. Avalanche’s fast and low-cost transaction network is an ideal fit for the upcoming generation of blockchain games and virtual reality platforms.

Consensus Protocol

Just like any other blockchain, Avalanche also utilizes a consensus mechanism to ensure decentralization and make decisions among the validators of its blockchain network. This mechanism is termed as Avalanche Consensus Protocol and its concept was first presented by Team Rocket which is now Ava Labs back in 2018. This consensus protocol aims to blend the benefits of two other protocols i.e. Classical Protocol and the Nakamoto Protocol.

We all know the Nakamoto Protocols used by Satoshi Nakamoto in developing the Bitcoin. This consensus protocol is robust and offers complete decentralization for the blockchain network but is quite expensive and the transactions are delayed. While the Classical protocol was used in Facebook’s stablecoin Diem and offers better efficiency in terms of cost and maintenance. The classical protocol is energy efficient but doesn’t offer scalability or decentralization for the blockchain. The combination of these two protocols helps Avalanche Consensus Protocol to become more scalable, robust, sustainable, and highly decentralized at the same. It helps Avalanche network with high throughput and ensures less latency rate while resisting all types of foreign attacks.

How It Works

The working of Avalanche is rather unique as compared to its rival blockchains as it utilizes three different chains to help with different tasks in the Avalanche ecosystem. These different chains taking care of different tasks on the platform complement Avalanche’s commitment to strict security and complete decentralization. These three chains include Exchange Chain, Contract Chain, and the Platform Chain.

Contract Chain (C-Chain)

Contract Chain helps with the operation and running of smart contracts on the Avalanche blockchain. Smart Contracts are one of the significant aspects of Avalanche allowing people to seamlessly develop their DeFi applications on it. Moreover, this C-chain is also compatible with Ethereum Virtual Machine allowing Ethereum-based protocols to easily work on Avalanche benefitting from its robust features. The contract chain uses the snowman consensus protocol.

Exchange Chain (X-Chain)

Exchange Chain uses the Avalanche Consensus Protocol to help with the transactions, creation, and exchange of virtual assets on the Avalanche blockchain. Just like every transaction on Ethereum is charged with some amount of ETH, Avalanche blockchain utilizes its native token AVAX for charging gas fees on transactions and this AVAX token as well as other tokens on the platforms is running through the X-chain.

Platform Chain (P-Chain)

As different projects develop layer-2 solutions on Ethereum, anyone can also develop layer-1 or 2 blockchains on the Avalanche platform. The Platform Chain that uses the Snowman Consensus Protocol helps with the creation of these secondary chains or subnets on Avalanche and manages the coordination of validators on subnets. The subnets on Avalanche work exactly like the upcoming sharding update in Ethereum 2.0.

Avalanche’s native token AVAX

AVAX is the native utility token of the Avalanche platform and serves a variety of purposes. It has a maximum supply of 720 Million tokens with a market cap of around $21 billion. AVAX is also one of the leading cryptocurrencies on CoinMarketCap and is ranked at number 10. AVAX is also used to pay the gas fee on transactions on the Avalanche network just like ETH is used on the Ethereum network. The fee algorithm of the Avalanche network is also compatible with the gas fee model of Ethereum. However, one key difference between AVAX and ETH is that the amount of ETH charged as the fee on any transaction is partially burned and partially paid to the miners as a reward for validating transactions, while the AVAX charged as the gas fee is completely burned ultimately reducing the circulating supply of the AVAX token and increasing its value in the market.

Another utility of the AVAX token is that it can be staked. Contrary to Ethereum or Bitcoin which use a proof of work mechanism for validating the transaction, Avalanche utilizes a more efficient and sustainable proof of stake mechanism for validation and verification of new blocks of transactions. For a blockchain that works on the proof of stake mechanism, validators require the native cryptocurrency of the network that is locked in the staking pools. Anyone with at least 2000 AVAX tokens can become a validator on the avalanche network while those with small amounts of AVAX tokens can participate in staking pools to collectively validate transactions with other users and earn a portion of staking rewards. Moreover, AVAX is also used to create tokens, DeFi protocols, or subnets on the Avalanche blockchain as it serves as a source of payment and subscription to the network.

Avalanche Rush Program

The significant features including interoperability, scalability, usability, better transaction finality time, and the EVM compatible network make Avalanche a desirable and lucrative platform for developers and users. Avalanche has recently emerged to become one of the leading blockchains that have immense value locked in their DeFi protocols. However, Ethereum is still ruling the DeFi space with more than $120 billion in total value locked. In order to speed up its quest to attain superiority in DeFi, Avalanche also launched its Rush Program consisting of 180 Million dollars in funds to reward liquidity providers for its DeFi protocols.

This step of the Avalanche network has proved to be beneficial as popular DeFi protocols like SushiSwap, Kyber Network, Aave and Curve launched their projects on the Avalanche blockchain recently. Another important feature is the Avalanche Bridge which allows ERC-20 tokens to work effectively on the Avalanche blockchain. As the majority of tokens in the market are Ethereum-based so being compatible with EVM and ERC-20 tokens, Avalanche will automatically tap the billion-dollar market of Ethereum users.

Closing Thoughts

It’s still an early phase of the Avalanche as compared to Ethereum or other blockchains that have been in the crypto market for the past many years. Keeping in mind the Avalanche’s blazing processing speed, low-cost transactions, growing user base, and the rapid transition of DeFi apps to the avalanche network, there is no doubt that it will soon become the ultimate choice for developing Metaverse platforms, blockchain games, or DeFi protocols.

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