What is Avalanche? - A Complete Guide

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February 26, 2023

In conclusion

History of Avalanche

A group of unnamed enthusiasts known as "Team Rocket" first introduced the Avalanche network on the InterPlanetary File System (IPFS) in May 2018. The network was subsequently created by Cornell University academics under the direction of Professor Emin Gün Sirer. Ava Labs was founded to continue the network's development once the research phase was complete, primarily to meet the needs of the sophisticated financial sector. The codebase of the Avalanche consensus protocol became publicly available and open-source in March 2020.

The three primary goals of the Avalanche network are as follows:

  • creating blockchains for specific applications that can either be private or public.
  • the creation and release of extremely scalable, decentralized applications (Dapps).
  • constructing sophisticated digital assets with unique agreements, regulations, and requirements (smart assets).

On July 15, 2020, the Avalanche initial coin offering came to an end, and the mainnet became operational in September of that same year. In September 2020, the native token AVAX was also made available by the protocol. Since then, Avalanche has delivered on its intention to be a high-performing, scalable, flexible, and secure blockchain platform, accessible to all. 

Introduction to Avalanche

Avalanche is a new method for building decentralized apps using blockchain technology. To ensure that all the information is correct and safe, it makes use of a mechanism known as "Avalanche consensus." 

The P, X, and C chains are three distinct components of the Avalanche network, which was introduced in 2020, and they all work together to make sure everything functions smoothly. 

What is P-Chain?

  • The main purpose of the P-Chain is for staking AVAX and serving as a validator.
  • If you're a validator or delegate to one, you'll receive AVAX rewards on the P-Chain.
  • It's possible to receive transfers from the X and C chains on the P-Chain.

What is X-Chain?

  • X-Chain is used for sending and receiving funds and is specifically tailored for transfers.
  • It cannot be used with MetaMask or similar wallets and is not compatible with DeFi platforms.
  • The X-chain address is accessed through the Avalanche wallet and is different from Ethereum-style 0x addresses.
  • The X-chain has a fixed transaction fee of 0.001 AVAX which is lower than fees on the C-Chain.
  • It is faster due to its streamlined nature compared to the more versatile C-chain.

What is C-Chain?

  • C-Chain is used for smart contracts and decentralized finance (DeFi) applications.
  • C-Chain uses Ethereum-style addresses with 0x at the beginning.
  • C-Chain can be added to MetaMask, a popular wallet for decentralized applications.

Avalanche has a few unique features, one of which is the ability to create "subnets," or smaller networks within the main Avalanche network. Different app types can have their own rules and parameters in this way while not restricting the network as a whole.

It is preferable to consider Avalanche as a network made up of numerous interconnected blockchains rather than viewing it as a typical L1 protocol. It makes use of a unique set of protocols to ensure that all the network's various components agree on what is happening. This contributes to Avalanche's status as a safe, decentralized, and reliable platform.

With the help of Avalanche, anyone can easily build a blockchain that performs exactly as they need it to. Even well-known programming languages like Go can be used to create these blockchains. Additionally, they can decide how the blockchains should function, including whether or not they should abide by specific regulations.

Avalanche can generate and sell digital assets with sophisticated regulations because it was created with the financial sector in mind. As the goal of Avalanche is to bring the financial sector into the crypto ecosystem, they needed to consider regulations. This is achieved thanks to subnets which lets developers arrange and determine every parameter based on their requirements. Thus, subnets create flexibility for developers to follow every regulation that the project considers. Through specialized links known as bridges, the network is also able to communicate with other systems, such as Ethereum and Bitcoin.

How Avalanche Consensus Works

A group of individuals known as validators can come to an agreement on anything through consensus. It assists in ensuring that all users on the network have access to the same data.

Proof-of-Work and Proof-of-Stake are approaches to limit who can participate in the decision-making process rather than true consensus-building mechanisms. To make decisions, they must be paired with a different process. For instance, Bitcoin uses the longest chain rule and Proof-of-Work to reach consensus. There have been three main approaches to obtaining agreement over the course of computer history: Classical, Nakamoto, and Avalanche.

A new kind of consensus procedure called Avalanche consensus provides the best of both worlds. It combines the advantages of Classical consensus, such as speed, swift finality, and energy efficiency, with the qualities of Nakamoto consensus, such as resilience, scalability, and decentralization. In a report published in 2018, a team of scientists by the name of Team Rocket demonstrated how the addition of probability can improve the efficiency of classical consensus.

With a low chance of safety violations, Avalanche Consensus is intended to be extremely secure. It is sustainable because it consumes very little energy and switches to a low-energy state when there is no work to be done. This enables quick and effective transactions, with irrevocable finality occurring in a matter of seconds. It can process thousands of transactions per second, which is far more quickly than a conventional credit card transaction.

The number of messages that each node must process remains constant as the network expands thanks to the scalability of the Avalanche Consensus protocol. As a result, it is appropriate for decentralized networks on a worldwide scale and can sustain millions of validators. The performance measurements were obtained from an actual, fully-functional network with 2000 nodes operating globally, and they can be further enhanced by using layer-2 scaling techniques.

Subnets in Avalanche

In Avalanche, a subnet is a distinct network with its own set of protocols and token economics. It entails a team of Avalanche validators cooperating to secure and validate one or more blockchains. Although a Subnet may contain numerous blockchains, each Subnet validates precisely one blockchain. Validators are able to belong to numerous Subnets.

The Primary Network is a unique Subnet in Avalanche made up of all the Avalanche validators that validate the P-Chain, C-Chain, and X-Chain blockchains that are already integrated. The Avalanche Primary Network must also be verified by every validator of subnets.

Unique characteristics of subnets include their ability to design their own execution logic, establish their own charge structure, keep track of their own state, control their own networking, and offer their own security. Other Subnets, including the Primary Network, do not share an execution thread, storage, or networking. As a result, scaling, low latency, high TPS, and cheap transaction costs are all possible.

Advantages of Avalanche Subnets

  • Independent Token Economics: Subnets are able to launch their own blockchains with specialized virtual machines, as well as their own native tokens, fee markets, and tokens.
  • Compliance: Subnets have the authority to specify criteria for validators, including location, KYC/AML checks, and licensing.
  • Application-Certain Requirements: To fulfil the needs of specific blockchain applications, subnets can define hardware specifications for validators.
  • Support for Private Blockchains: Subnets can be built as private, with access to the blockchains restricted to a set of predefined validators.
  • Separation of Interests: Validators' burden is reduced because they can only validate blockchains that interest them.
  • Subnets can offer incentives to Avalanche validators to encourage them to validate their Subnets.

Virtual Machines

In Avalanche, a virtual machine (VM) is like a blockchain's central nervous system. It instructs the blockchain on what to perform, what transactions are permitted, and how to communicate with users. Each blockchain on Avalanche is built using a virtual machine.

Avalanche developers can create decentralized apps more easily because of VMs. Go can be used to create virtual machines (VMs) rather than specific, constrained programming languages (and other languages will be supported later). Avalanche handles the network's operation and the consensus of transactions, so developers don't have to worry about those issues.

VMs offer more flexibility than other conventional blockchain networks, making them a superior option. For instance, Ethereum employs smart contracts as well, but it's slower and has restrictions that can make it challenging to develop decentralized applications. With Avalanche VMs, programmers may design their own unique applications without having to launch a brand-new blockchain network or worry about the security issues that come with doing so.

What makes Avalanche Unique?

It is obvious that Avalanche has a number of features that set it apart from the competition. Avalanche is superior in three key ways: security, performance, and customizability.

Avalanche Security

Every transaction is protected by Avalanche, which can scale to millions of validators and has full staked value securing all the chains in its primary network. Platforms like Cardano and Solana, on the other hand, adhere to the longest chain principle, where leaders can add blocks without first attaining agreement. Initial security is poor as a result, and finality can take up to 5 minutes or 13 seconds, depending on the case.

Proof of Stake is considered to be more energy-efficient and secure than Proof of Work. PoS works by requiring validators to "stake" a certain amount of tokens to participate in the validation process. This staked amount serves as collateral, incentivizing validators to act honestly, as any malicious behaviour will result in their stake being confiscated.

Sharding, on the other hand, divides a network into smaller pieces, called shards, to increase its processing capacity and reduce the load on individual nodes. While sharding can increase security by making it more difficult for an attacker to control a large portion of the network, it also creates new challenges, such as the possibility of an attacker controlling a significant amount of stake in a single shard while holding only a small portion of the stake in the entire network. Thus, it still lacks in terms of security compared to PoS.

Performance of Avalanche

Traditional consensus protocols start the decision-making process with rounds of communication between nodes and use all-to-all voting. As a result, there is a significant communication overhead, which slows the network down as it expands. Blockchains like BNB Chain have found a solution to this problem by skipping decentralization and just running a few nodes, however, this also centralizes the network.

Blockchain technology has made significant strides thanks to avalanche consensus, which leverages random sub-sampling of the entire network to reach consensus fast and with little overhead. Decentralization is now possible on a global scale.

Increasing the hardware requirements for nodes is another option to boost performance, but doing so also sacrifices decentralization. Solana demands powerful gear, although its claimed performance rates are exaggerated. Avalanche enables the construction of numerous blockchains, each with a high transaction rate tailored to the dapp, on top of it. Avalanche's principal network can scale to 4500 TPS per subnet while only requiring 2 cores and 4GB of memory.

Additionally, latency is crucial, and Avalanche offers a quick user experience with transactions being deemed final in under a second. Although layer 2 solutions have the potential to increase performance, they also have limitations. such as network fragmentation and liquidity.

The customizability of The Avalanche Blockchain

As previously said, Avalanche is a diverse platform made up of thousands of subnets that work together to create a network of several blockchains that is interoperable. Avalanche facilitates the building of application-specific blockchains that may be specifically tailored to fulfil requirements, in contrast to homogeneous blockchains like Ethereum, Solana, Near, and Algorand which offer a single solution.

Developers may concentrate on the application layer with Avalanche while enjoying the platform's performance, decentralization, affordable costs, and flexibility. Additionally, it supports regulatory compliance through the deployment of unique blockchains called subnets that can impose particular restrictions. It also has native support for trading digital smart assets. Because it allows connection with any unique virtual machine and facilitates quick adoption utilizing pre-existing infrastructure and tooling from other platforms, Avalanche is future-proof.

Avalanche Ecosystem Review

Avalanche's ecosystem expanded in 2022 as a result of the introduction of numerous significant initiatives. These initiatives led to the ecosystem being a centre for innovation, especially within DeFi. Although there are intriguing NFT and gaming projects, adoption in both sectors has not yet reached appreciable levels.

A number of significant players have made significant contributions to the ecosystem, including Trader Joe, BENQI, Platypus, Avascan, Avalaunch, Pangolin, GMX, Degis, Hashflow, Yield Yak, Vector Finance, and Colony. Trader Joe stands out as a pioneer in innovation, fostering a sense of community, and success. Its participation has greatly helped the Avalanche procedure.

Savvy DeFi, DeltaPrime, CIAN Protocol, Enclave Markets, Steakhut Finance, Dexalot, and Hubble Exchange are a few other DeFi projects that are anticipated to have a significant impact on the ecosystem in the future.

What to expect in the near future?

Investors should anticipate a number of significant changes in the Avalanche environment in 2023.

The LP capital efficiency was significantly impacted by Trader Joe's Liquidity Book, which promoted adoption. Given that Trader Joe is expanding to additional chains, Avalanche may attract new users and investors, particularly with the heavy cross-chain integrations with LayerZero and others.

In addition, USP, a stablecoin that Platypus, an Avalanche native stablecoin swap platform, is releasing. It can also be a vital factor to take into consideration that native stablecoins are a good approach to enhancing adoption and usage. Dexalot also launched its, CLOB DEX on a subnet, thus providing a low-cost trading experience like a CEX but on-chain. Thus, on Avalanche, more DeFi primitives are starting to emerge, thus it is preferable to look at this environment.

On the other side, Avalanche gaming is becoming more popular. Many AAA game development teams began using Avalanche to create their games. The two most well-known gaming projects to be released on Avalanche, Metaops and Shrapnel, have the potential to spur widespread adoption. The reason for these projects choosing Avalanche is mainly related to subnets.

NFTs on Avalanche still need to advance because there aren't any real blue-chip projects and/or communities. This aspect of Avalanche can certainly be improved. Even though Joepegs had a significant influence right after it launched, more new actors are still required.

The final factor that will transform the future for Avalanche is institutional subnets, which will bring in billions of dollars from the financial markets. The final example of it is Intain, which recently debuted the first institutional subnet on Avalanche. 

Conclusion

Thanks to its outstanding technology and capacity to comply with laws, Avalanche is one of the L1 protocols in the ecosystem that is best positioned. A new ecosystem is taking shape, and innovation, particularly in DeFi, is what's powering it. Avalanche will undoubtedly have a significant impact on the ecosystem given the growth of the gaming and NFT industries.

Resources

https://medium.com/avalanche-hub/avalanche-consensus-the-biggest-breakthrough-since-nakamoto-66e9917fd656

https://messari.io/report/state-of-avalanche-q4-2022

https://docs.avax.network/subnets

https://cryptoseq.medium.com/what-sets-avalanche-apart-from-other-blockchains-3c5f4a4c0889

https://medium.com/@mr_davis_12/avalanche-and-the-team-rocket-chronology-mystery-and-pseudonymity-30c17331f6a2

https://medium.com/@123juliuscaesar123/avalanche-ecosystem-2022-review-624cc6815fd7

https://medium.com/@defidecrypted/whats-the-difference-between-the-avalanche-c-chain-x-chain-and-p-chain-9af28f6524d8

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