Avalanche (AVAX) Coin Explained: Outlook, Pros and Cons

Avalanche (AVAX) is both a coin and a blockchain platform that competes with Ethereum. The native token of the Avalanche blockchain is AVAX, and it is currently listed on all major exchanges, including Upbit, Binance, and OKX.

• Avalanche is an Ethereum competitor that prioritizes scalability and transaction speed.
• The AVAX coin is used to secure the Avalanche blockchain and to pay transaction fees on the network.
• Avalanche's transaction fees and the rate at which AVAX coins are created are decided through a special governance model.

The Avalanche blockchain is known for delivering very fast transactions. The AVAX coin is used to pay transaction fees, secure the Avalanche network, and serve as the basic unit of account between the blockchains within the Avalanche network.

Avalanche aims to provide a platform that is fast, versatile, secure, inexpensive, and accessible. Avalanche is also an open-source project, so anyone can review and contribute to the platform's code.

When Was Avalanche Launched?

Avalanche was launched in September 2020 by Ava Labs, a team headquartered in New York. Ava Labs raised about $300 million in funding, and the Avalanche Foundation held private and public token sales totaling $48 million.

Avalanche Tokenomics and Supply

AVAX has a total supply of 720 million tokens. The table below summarizes Avalanche's tokenomics and staking rewards.

In addition, Avalanche staking rewards offer an annual interest rate of 11.57%. The minimum staking period is 2 weeks, and you need at least 2,000 AVAX to participate.

4 Key Features of Avalanche (AVAX)

Avalanche's smart contract platform supports both dApps and autonomous blockchains. Here are the four main features the Avalanche platform offers.

• Coin creation rate: The maximum supply of AVAX is capped at 720 million, but the rate at which new coins are issued is decided by AVAX users. AVAX holders can vote to adjust the amount of AVAX paid out as a reward for adding new blocks to the Avalanche blockchain, which lets them control the rate at which new coins are created.
• Transaction fee structure: The cost of processing a transaction depends on the transaction type and how congested the Avalanche network is. All fees are burned and taken out of circulation, which can make AVAX scarcer over time. Avalanche users decide transaction fees by voting, so Avalanche transaction fees can change.
• Consensus mechanism: Avalanche transactions use a unique approach in which many small, randomly chosen groups of network participants confirm a transaction before it is finalized on the blockchain.
• Participation incentives: Network participants can increase the amount of AVAX rewards they earn by providing high transaction throughput and fast response times.

Avalanche's Goal: The Fastest Smart Contract Platform

Avalanche is fundamentally governed by a proof-of-stake mechanism. AVAX holders must take part in staking, agreeing not to trade or sell their AVAX in exchange for the right to validate AVAX transactions.

AVAX holders who hold the largest stakes and actively participate as validators are the most likely to be selected for Snowman blocks. You also need to hold AVAX tokens to vote on Snowman governance proposals.

Built on its native token AVAX and multiple consensus mechanisms, Avalanche aims to be "the fastest smart contract platform in the blockchain industry."

Avalanche takes a unique approach by using three separate blockchains for its core platform. Avalanche seeks to improve scalability without compromising speed or decentralization. Three blockchains make up the core Avalanche platform: the Exchange Chain (X-Chain), the Contract Chain (C-Chain), and the Platform Chain (P-Chain).

• The X-Chain is used to create and trade assets. Transaction fees are paid in AVAX, and the blockchain uses the Snowman consensus protocol
• The C-Chain is for creating smart contracts. The C-Chain implements an instance of the Ethereum Virtual Machine (EVM), enabling EVM-compatible dApps. It uses Snowman, a modified version of the Snowman consensus protocol.
• The P-Chain is used to coordinate validators and subnets. It keeps track of active subnets and allows new subnets to be created. The P-Chain also uses Snowman.

One of the most important innovations of the Avalanche protocol is Avalanche Consensus, a method in which validators reach agreement quickly and cheaply through repeated subsampled voting.

Avalanche also uses subnets as a new approach to horizontal scaling, making it possible to build customizable, interoperable blockchains.

What Problems Does Avalanche Solve?

The three main problems Avalanche aims to solve are scalability, transaction fees, and interoperability. Why is that?

Blockchains have traditionally struggled to strike a balance between scalability and decentralization. As user activity increases, a blockchain network can slow down.

Bitcoin (BTC) is a good example. During periods of network congestion, transactions can take hours or even days to process. One way to address this is to make the network more centralized, speeding things up by giving fewer people the authority to validate network activity.

However, decentralization is critical to blockchain security. To solve this, Avalanche launched three main blockchains: the X-Chain, the C-Chain, and the P-Chain.

Because each blockchain takes on a different role, the Snowman consensus algorithm improves speed and scalability compared to running every process on a single chain. Avalanche developers can tailor the consensus mechanism to the needs of each blockchain.

The Snowman Consensus Mechanism

Unlike proof of work (PoW), proof of stake (PoS), and delegated proof of stake (DPoS), the Avalanche Snowman consensus protocol does not need a leader to reach consensus.

This has the advantage of strengthening the decentralization of the Avalanche network without sacrificing scalability. In contrast, proof of work, proof of stake, and delegated proof of stake ultimately rely on a single actor processing transactions while other actors verify that work.

Avalanche adopts a consensus protocol optimized for a directed acyclic graph (DAG). This allows the network to process transactions in parallel. Validators check whether a new transaction is valid by polling a sample of other validators. After this random subsampling is repeated a certain number of times, it is statistically proven that the transaction is extremely unlikely to be fraudulent.

Every transaction is finalized immediately, with no further confirmation steps. Because the hardware requirements for running a validator node and validating transactions are low and easy to meet, this benefits performance, decentralization, and energy savings.

To sum up, the Snowman consensus protocol is built on the Avalanche consensus protocol and is characterized by processing transactions linearly. This characteristic is useful when working with smart contracts.

Avalanche vs. Ethereum: Key Differences

So you might be wondering how Avalanche differs from Ethereum. Avalanche and Ethereum are both platforms that use blockchain technology, but there are a few important differences.

Transaction Speed

Avalanche processes 4,500 transactions per second, which is far faster than Ethereum's limit of about 12.5. However, it has not yet been proven whether Avalanche can sustain this speed.

Scalability

Avalanche claims that by taking advantage of its parallel nature, it can theoretically validate transactions faster than Ethereum. Ethereum, on the other hand, is set to greatly improve its transaction speed with the Merge upgrade in September 2022, and is projected to be able to process more than 100,000 transactions per second.

Fee Structure

Ethereum burns only part of its transaction fees and returns the rest to the network. In contrast, all of Avalanche's transaction fees are burned, and they are controlled by user governance.

How Do I Buy AVAX?

The most common way to buy AVAX tokens is with Korean won through a domestic exchange such as Upbit or Bithumb. Alternatively, you can buy Avalanche coins with a fee discount through an overseas exchange such as Binance or OKX.

Is the Avalanche Blockchain Safe?

Avalanche can be considered secure because of the randomness of its consensus mechanism. Avalanche is known to claim that its platform offers stronger protection against 51% attacks than other blockchains.

Wrapping Up

Avalanche (AVAX) is a blockchain platform that rivals Ethereum and is known for its high transaction speed and scalability. Avalanche's smart contract platform supports both decentralized applications and autonomous blockchains.

For DeFi platforms looking for an alternative to Ethereum, blockchains like Avalanche are quite attractive thanks to their EVM compatibility and low fees. That said, it's also true that DeFi platforms already have many alternatives when it comes to scalability and speed.

Avalanche has grown in popularity since its launch and has already caught up with Ethereum in total daily transaction volume, but it remains to be seen whether it can keep winning the competition against other blockchains such as Solana and Polygon.