Most recent update: [June 26, 2023]
What is Avalanche?
Created by Ava Labs, Avalanche is a layer-1 blockchain that operates as a platform for custom blockchain networks and decentralized applications (dApps). As the Ethereum network is one of the leading currencies and the most popular blockchain for smart contracts, Avalanche is directly competing with the Ethereum network. It has set its target of surpassing Ethereum on that front.
The platform is equipped with an elevated output of nearly 6500 transactions every second without compromising scalability. In addition, it describes itself as a programmable and open smart contracts platform for several decentralized applications.
How Does Avalanche Work?
In an effort to continuously develop and improve on blockchain technology, Avalanche creators sought to develop a solution to some of the common problems of older blockchains like Bitcoin. Some of these include the lack of interoperability and issues with scalability and usability.
Avalanche tackles the problems mentioned above through a unique approach: using three separate blockchains.
- X-Chain: This blockchain is used for managing assets. It uses the Avalanche consensus protocol.
- C-Chain: This blockchain is used to create smart contracts. It uses the Snowman consensus protocol.
- P-Chain: This blockchain is used to coordinate validators. It also uses the Snowman consensus protocol.
The Avalanche consensus protocol checks validators’ transaction confirmations randomly by having all nodes work parallel with each other. The idea is that repeatedly doing random checks increases the probability that a transaction is true/valid. The Snowman consensus protocol works pretty much the same but uses blocks in a linear process.
History and Founders of Avalanche
The three people behind Avalanche are Kevin Sekniqi, Maofan “Ted” Yin and Emin Gün Sirer. A pseudonymous group called Team Rocket first released fundamental information about the protocol in May 2018 on the InterPlanetary File System.
A group of researchers from Cornell University then developed the technology, led by Cornell professor of computer science and software engineer Emin Gün Sirer. He was assisted by two of his doctoral students Maofan Yin and Kevin Sekniqi.
The AVA codebase for the Avalanche consensus protocol became open-source in March 2020, making it available to the public.
What Makes Avalanche Unique?
Avalanche claims a faster transaction processing time; 6,500 transactions per second versus Ethereum's limit of 15.62 The parallel nature of Avalanche's consensus protocol enables the Avalanche network to validate transactions significantly faster than Ethereum.
Avalanche was built to address many of the issues most blockchain networks are currently facing.
Two of the top issues that Avalanche addresses are:
1. Congestion- Avalanche was designed with scalability in mind. On par with top-tier payment processors like PayPal and VISA, Avalanche has sub-second transaction times. Avalanche has the capacity to process up to 6,500 transactions per second with sub-second finality.
2. Low fees - As an Ethereum competitor, Avalanche also trumps Ethereum in terms of gas fees. Fees on Avalanche are more affordable than Ethereum by a wide margin.
Fees on the network are used for various purposes such as for creating and minting assets, staking, transaction fees, and blockchain creation, after which these fees are burned, permanently reducing the number of AVAX within the platform.
Avalanche Tokenomics
The native token AVAX is a utility token. AVAX serves as the Avalanche ecosystem’s medium of exchange. In other words, the token is used as currency within the network, typically for fee collection in transactions, incentives, and many use cases. It is also used for staking AVAX, which secures the network. Stakers are then rewarded with more AVAX. Some users stake AVAX to earn passive income on the platform.
The maximum supply of AVAX is capped at 720 million tokens, but AVAX users govern how fast new coins are minted. High uptime and fast response times can boost the amount of AVAX rewards that a network participant can earn for processing AVAX transactions.
How is Avalanche Secured?
Avalanche uses Proof of Stake instead of Proof of Work, with nearly $10 billion of staked value securing the network. Over 77.26% of the entire supply was staked just six months after mainnet. In addition to being more secure, Proof of Stake also requires far less energy consumption.
With Avalanche, all the chains including in the primary network are secured by the full staked value of the network. In addition, Avalanche consensus is inclusive and not restricted to a small number of validators and can scale to millions of validators.
Risks Associated with Avalanche
Avalanche comes with its share of risks. The platform is not as road-tested as Ethereum, and unknown problems could throw a wrench in the works. Just as Solana had several outages in the past few months, Avalanche may falter, especially as it continues to grow.
Lastly, there are already a lot of smart contract cryptocurrencies on the market, and more will arrive. This is a fiercely competitive space, and just as Avalanche overtook older cryptos, newer players may emerge with different, faster technology.
Due Diligence
Before listing Avalanche on the VirgoCX Platform, VirgoCX performed due diligence on Avalanche and determined that Avalanche is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis includes reviewing publicly available information on the following:
- The creation, governance, and location of Avalanche and/or its primary development team;
- The supply, demand, maturity and liquidity of Avalanche; and
- Legal and regulatory risks associated with Avalanche.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
References:
https://www.securities.io/investing-in-avalanche-avax-everything-you-need-to-know/
https://www.investopedia.com/avalanche-avax-definition-5217374
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