But the problem with Ethereum, according to its critics, is that its transactions are slow and fees are too steep for average users, leading some to call it “the blockchain for the bankers.”
In response, a wave of contenders has tried to usurp Ethereum’s success by solving its problems with a rival blockchain. One of the main rivals is Avalanche, which bills itself as “blazingly fast, low-cost and eco-friendly.”
Avalanche’s development is led by New York-based Ava Labs, which was co-founded by Emin Gün Sirer, a computer science professor at Cornell University, Kevin Sekniqi, a Ph.D. student, and Maofan “Ted” Yin, who wrote the protocol used in Facebook’s ill-fated digital currency project Libra.
What is Avalanche?
Avalanche’s native token, AVAX, is the 10th-largest with a market cap of $33 billion as of this writing in March 2022, according to data from CoinDesk.
Avalanche went live in September 2020 and has since become one of the largest blockchains. It has over $11 billion total value locked in its protocol, according to data from Defi Llama, making it the fourth-largest DeFi-supporting blockchain after Terra and Binance Smart Chain.
How does Avalanche work?
A blockchain, as a decentralized system, needs a way to reach decisions among its globally distributed participants (validators) who maintain the public ledger – a way to reach consensus governed by a protocol. In Avalanche, that role is fulfilled by the Avalanche Consensus Protocol, which was first proposed in 2018 by a pseudonymous group called Team Rocket – a precursor to Ava Labs.
The Avalanche Consensus Protocol claims to combine the benefits of two other sets of consensus protocols known as Classical and Nakamoto.
- Classical protocols: These are fast, green and low-maintenance, but aren’t typically decentralized or scalable. HotStuff, a Classical protocol, was famously used in Meta Platforms' (formerly Facebook) stablecoin project, Diem (formerly Libra).
- Nakamoto protocols: A breakthrough technology by Bitcoin’s pseudonymous inventor Satoshi Nakamoto, this kind of protocol offers decentralized, robust and scalable blockchains – as is the case with Bitcoin. But the network is costly to run, and transactions aren’t swift.
Avalanche is built across three chains:
- The C-chain.
- The X-chain.
- The P-chain.
They stand for contract, exchange and platform. The C-chain hosts Avalanche's DeFi ecosystem, which is where most users conduct a majority of their transactions. The C-chain is powered by the Snowman Protocol, a specific application of the Avalanche Consensus Protocol. (Many things on Avalanche are winter-themed.)
How does AVAX token work?
Affectionately called the “red coin” by its holders, AVAX is the native token of Avalanche, with a maximum supply capped at 720 million tokens.
AVAX has at least three use cases on the network.
While Ethereum’s gas fee is partly burned and partly paid to miners, Avalanche’s fee is entirely burned. According to tracker site BurnedAvax, more than 1 million AVAX have been burned as of this writing, or close to $1 billion.
Second, AVAX is used in staking, which is a term for pledging crypto, in this case AVAX, to participate in the validation process and help secure the blockchain.
Proof-of-work networks like Bitcoin rely on validators running powerful computers known as mining rigs to secure the network. For proof-of-stake networks like Avalanche, the economic resource required to be given the right to validate isn't running powerful computers, but locking up crypto assets. Users who stake at least 2,000 AVAX can run their validator nodes and receive AVAX rewards. Those with less AVAX can join staking pools and combine their assets together with others in the network to become a single validator.
The third use of AVAX is more technical and less of an interest to regular users. It’s used as a basic unit of account between the multiple subnets deployed on Avalanche. A subnet is a set of validators working to achieve consensus.
Read more: Top 6 Cryptocurrencies You Can Stake
And of course, like all cryptocurrencies on the market, AVAX is also a speculative, volatile crypto asset investors can buy and sell in the hopes of making a profit.
How to use Avalanche
Remember to choose C-chain, as otherwise your funds may be irreversibly lost on the wrong chain.
It’s also easy to bridge crypto from other chains into Avalanche, simply by connecting your DeFi wallet to a bridge protocol like Hop Exchange and following the instructions. Bridges are used to transfer tokens from one blockchain, or sidechain, to another – even if the two chains are directly interoperable.