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What is Avalanche?

What is Avalanche?

09 Nov, 2022 - 5 min read

Avalanche is an open-source, decentralised blockchain network that supports smart contracts. It is a platform for enterprises to develop and launch decentralised applications (Dapps) and other blockchain-based products easily and quickly.

Avalanche has three built-in blockchains that have their own individual functions but also operate as one primary network. This ensures there are no bottlenecks in the network, enhancing performance and speed.

The following three built-in blockchains work in tandem to power the Avalanche network:

Exchange Chain (X-Chain)
Platform Chain (P-Chain)
Contract Chain (C-Chain)

The Exchange Chain (X-Chain) is a decentralised exchange platform used for creating and exchanging digital assets such as crypto tokens and bonds. AVAX, which is Avalanche’s native token, is traded on the X-Chain. Any real-world crypto trading on the Avalanche platform happens over the X-Chain.

The Platform Chain (P-Chain) coordinates network validators (or peers), allows the creation of new subnets, and keeps track of all active subnets. A ‘subnet’ is a sovereign network of Avalanche validators working together to create and run their own blockchains.

The Contract Chain (C-Chain) allows the creation of smart contracts and smart contract-based decentralised applications. Anyone looking to build DAPPS on Avalanche would operate over this blockchain.

Each blockchain offers different functionality and, together, the three blockchains form the Primary Network.

Apart from its unique network structure, Avalanche also uses a novel consensus protocol to improve efficiency. The Avalanche Consensus Protocol is an enhanced version of the Proof of Stake (PoS) consensus mechanism recently adopted by Ethereum. A more efficient consensus protocol results in faster transactions, and according to Avalanche, the network can currently process more than 4,500 Transactions Per Second (TPS). In comparison, Bitcoin currently supports seven TPS and Ethereum currently supports 14 TPS. Faster transactions also result in lower energy consumption and lower network fees.

A ‘consensus’ in blockchain technology is the process of getting a majority of nodes on the network to agree on a decision (like the validation of a transaction). The Proof of Work (PoW) consensus mechanism used by Bitcoin was the first consensus mechanism to be developed. In PoW, miners solve a computational puzzle in order to validate a transaction (like the purchase of Bitcoins). PoW, however, is an energy-intensive mechanism, and this led to the development of the Proof of Stake consensus mechanism, which is now used by Ethereum. In PoS, validators stake crypto coins in order to get the chance to validate a transaction instead of using energy to solve a cryptic hash, and this makes it more energy efficient.

The Avalanche Consensus Mechanism is considered an enhanced version of the PoS mechanism. Just as in PoS, peers need to stake coins in order to participate in the validation process. The validation process itself, however, differs. The Avalanche PoS mechanism works like a rolling snowball. One node queries a fixed set of nodes and asks for their individual decisions and checks if a majority of them agree on a single choice. If they do, that is considered the collective decision. Each node then queries a set of other nodes and follows the same process, creating a snowball, or ‘avalanche’, of queries and decisions. When the number of nodes favouring a decision crosses a decided threshold, it is accepted as the network’s decision. This forms the consensus.

Unlike in other mechanisms, in Avalanche PoS, transactions can be batched and voted on in groups rather than one at a time. This reduces the time needed for validating transactions and is one way the Avalanche Consensus Mechanism achieves faster TPS.

Another way the Avalanche PoS is different to other protocols is in the finalisation of a block. In other consensus protocols, a block can be added to the chain and then removed (if two miners solve the computational puzzle in PoW at the same time, for example, one is removed). This usually results in a wait time before a transaction can be considered settled, which can be up to an hour. On the Avalanche network, the probability of blocks being falsely added is extremely low, so the acceptance and rejection of blocks are final and irreversible. This ensures that transactions are settled in seconds.

Disclaimer

This article is over two years old, last updated on November 9, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent cryptocurrency articles.

What is AVAX?

AVAX is the native token of the Avalanche platform. AVAX has three uses on the Avalanche platform:

It is used to pay transaction fees on the Avalanche network
It is used by validators for staking
It is used as a basic unit of account between the multiple Subnets created on Avalanche

You could also purchase AVAX as an investment and hold it in a crypto wallet but remember that cryptocurrency is a volatile asset and you could lose your hard-earned money during market downturns. Keeping in mind the volatile nature of cryptocurrencies, you may choose to limit the money you invest in AVAX (or any other crypto) to something you can afford to lose. If you want to buy AVAX tokens, you can do it through a cryptocurrency exchange in a few simple steps:

Create an account on a crypto exchange platform
Deposit fiat currency to fund your account
Look for AVAX
Purchase the quantity you want

Before you sign up with an exchange, make sure to compare crypto exchange platforms by analysing their features, benefits and fees. It’s also worth checking if an exchange is registered with AUSTRAC to make sure it complies with local laws and regulations.

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Vidhu Bajaj

Personal Finance Writer

Vidhu is a Personal Finance Writer at RateCity. She has been writing about finance topics from car loans and home loans to superannuation and cryptocurrencies for over five years. Before moving into finance, Vidhu went to law school where she studied human rights law. She has a Bachelor of Law degree and has previously worked in asset finance for Clifford Chance for more than four years. During her time at Clifford Chance, she worked in the India, London and Hong Kong offices on everything from aviation to vessel finance. In her spare time you’ll find her reading the Australian Financial Review or spending time with her dog Coco.