Avalanche is a new type of blockchain network that features sub-second transaction times and extremely high throughput with low fees. Avalanche is a platform for creating custom blockchain networks and decentralized applications (dApps).
Created by Ava Labs, led by Cornell researcher Emin Gün Sirer, the Avalanche crypto platform is one of many projects seeking to unseat Ethereum as the most widely utilized smart contract platform. Avalanche claims to achieve greater scalability than Ethereum via a high transaction throughput of 4,500 transactions per second (TPS).
Avalanche’s native AVAX coin, which has a capped supply of 720 million, is used not only as part of the Avalanche consensus mechanism, but also for paying network transaction fees. Avalanche and the AVAX coin have been used in multiple DeFi applications as well, with many more on the way. Let’s dive into Avalanche and find out why so many developers and users are excited about what this new network has to offer the blockchain industry.
The Avalanche architecture is somewhat unique in that it involves the interaction of several chains working in sync with each other. This differs from Ethereum, which can operate on its own without the need for other chains. It is similar to Polkadot, which also uses a series of synced-up chains for optimal operation.
In the case of Avalanche, the core architecture is a subnetwork called the Primary Network. This subnetwork, or subnet, is a group of transaction validator nodes that coordinate to reach consensus on the state of a set of blockchains. The Primary Network secures three built-in blockchains: the Exchange Chain (X-Chain), Platform Chain (P-Chain), and Contract Chain (C-Chain).
The Avalanche infrastructure is built to enable modular blockchains that are scalable and interoperable with other entities on the Avalanche blockchain.
Every validator can choose to ignore chains on a subnet to improve scalability on the entire network. Furthermore, subnets can choose to block a validator from joining, which would allow the validator to open a private subnet, demonstrating that each blockchain in the subnet is validated only by a set of trusted validators.
This mutual selection process differs from the validation methods on networks such as Bitcoin, where all nodes typically compete to validate all transactions. As a result, Avalanche’s subnets and their validators are able to create ecosystems that are specifically in line with their respective priorities.
A key aspect of Avalanche blockchains is the ability to design subnets that maintain particular properties, such as requiring validators to meet certain requirements for regulatory purposes. For instance, a private blockchain built on the Avalanche crypto network could require its subnet’s validators to complete KYC/ AML screening, live in a certain country, or hold a specific type of license related to financial management in that country.
Consensus Mechanism - Snowball
Just like on other blockchain platforms, the validators across the different subnets and private subnets on the Avalanche blockchain must reach consensus for the platform to validate transactions and create new blocks. Yet the way in which Avalanche reaches consensus fundamentally contrasts with that of other blockchains.
Avalanche’s architecture relies on a proprietary Virtual Machine known as the Avalanche Virtual Machine (AVM). The AVM allows subnets to achieve consensus in various ways. They may use either the “traditional” blockchain databases commonly used in crypto projects such as Bitcoin, Ethereum, or Cardano, or they can use other database structures - including the “block lattice” database structure of Directed Acyclic Graphs (DAGs), pioneered by crypto networks like IOTA, Fantom, or Nano. This flexibility helps ensure that projects relying on Avalanche can achieve a high degree of customization and maintain interoperability with the platforms of their choosing.
Avalanche uses Snowball, a Proof-of-Stake (PoS) consensus algorithm designed by Ava Labs. Snowball requires users to stake at least 2,000 AVAX, the native token on Avalanche, to become transaction validators. You can also participate in consensus by delegating at least 25 AVAX to a validator.
Within the Snowball consensus mechanism, validator nodes in a subnet repeatedly query each other to determine the validity of the network’s transactions until they reach a common decision - thus establishing network-wide consensus. The more AVAX coins a node has staked, the more frequently it is queried. All validator nodes must be a part of the Primary Network, and participation in other subnets is optional.
The Snow protocols operate by repeated sampling of the network. Each node polls a small, constant-sized, randomly chosen set of neighbors, and switches its proposal if a supermajority supports a different value.
Here’s an example of how Snowball works. First, a transaction is created by a user and sent to a validating node. It is then sent out to other nodes in the network. That same user may simultaneously attempt to issue a double-spend to a different validating node. To prevent double-spends, every node randomly selects a small subset of nodes and queries which of the conflicting transactions is valid. If the querying node receives a supermajority response in favor of one transaction, then the node that was issued the double-spend reverses it. Every node in the network repeats this procedure until the entire network comes to consensus on one of the conflicting transactions.
Avalanche supports standard Solidity-based smart contracts through the Ethereum Virtual Machine (EVM). If a developer requires EVM support but wants to deploy smart contracts in a private subnet, they can spin-up a new subnet directly. This is how Avalanche enables functionality-specific sharding through the subnets.
Furthermore, developers can interact with the Ethereum subnet if they need to interact with the currently deployed Ethereum smart contracts. Finally, if a developer requires a different execution environment from the Ethereum Virtual Machine, they can deploy their smart contract through a subnet that implements a different execution environment, since subnets can support additional features beyond VM behavior.
The Native AVAX Coin
AVAX is the native token of Avalanche. It is a hard-capped, scarce asset that is used to pay for fees, secure the platform through staking, and provide a basic unit of account between the multiple subnets created on Avalanche. AVAX has a capped supply of 720,000,000 tokens. The starting supply was 360M AVAX tokens at launch, but new emissions can be minted or earned through participating in governance.
Users can stake their AVAX tokens to become validator nodes, or to contribute to another existing validator node. Staking AVAX provides rewards in return. Many contemporary emissions models turn fee expenditures into rewards for governance participants. Avalanche, however, burns fees spent and pays validators from unminted supply, thus increasing the scarcity of AVAX. Fees are not paid to any specific validator.
The minting process offsets the transaction fee burning, therefore there is no danger of the system grinding to a long-term halt due to the gradual destruction of coins. The blockchain’s burn schedule is predetermined, however, a transaction native to a subnetwork may also specify its own transaction fee structure. It is then up to the creator of the subnet to choose a fee structure that incentivizes validation for open, permissionless subnetworks.
The demand for DeFi protocols has increased dramatically over the past 18 months, mostly due to the efforts of developers on Ethereum. Avalanche has launched a bridge between Ethereum and the Avalanche blockchain to allow users to deploy assets across both networks.
The bridge enables users to lock Wrapped ETH (WETH), ERC-20, or ERC-721 assets in the ChainBridge contract on Ethereum, and an equivalent token will be minted on Avalanche and deposited to the desired address. The asset then becomes available across any DeFi applications on Avalanche, and can be transferred back and forth at any time.
DApps On Avalanche
One of the prominent players in this new DeFi ecosystem is Pangolin, a community-driven decentralized exchange for Avalanche and Ethereum assets with fast settlement, low transaction fees, and a democratic distribution.
Other notable dApps include: Jelly Swap, Prosper, UNION, Aleph.im, Ankr, and Reef. The ecosystem of dApps is growing rapidly, as are the TVL and average daily users.