Avalanche is a fast, scalable L1 that people can use to create applications, create DeFi protocols, and launch their own chains through subnets. What makes Avalanche special is its capability of launching subnets and its innovative consensus method. These two features make Avalanche extremely fast and scalable, while maintaining security and decentralization. This is Avalanche’s attempt to solve the scalability trilemma.
The Scalability trilemma that all blockchains face is that they can only choose 2 out of 3: scalability, decentralization, and security.
Without sacrificing decentralization there are two ways to scale a blockchain (increase its capacity/throughput). You can either expand vertically (make chains faster) or expand horizontally (increase the number of chains).
Vertical scaling is extremely tough past a certain point. Most come by creating more efficient data structures or enforcing beefier hardware requirements. These gains are gradual and likely won’t lead to 1000x returns.
Horizontal scaling involves executing multiple blockchains in parallel. Theoretically, you can have unlimited throughput gains. For example, to expand a 100 TPS blockchain you can run two of them in parallel, effectively giving you a 200 TPS blockchain.
Almost every L1 runs a single chain. Avalanche, on the other hand, runs multiple chains in parallel through subnets. Subnets are Avalanche’s form of horizontal scaling. Subnets function in a similar way to sharding. They create independent but connected instances of the same chain. Each subnet has two essential qualities:
- A virtual machine: How to process transactions.
- A validator set: Who can process transactions. Protocol designers can determine the visibility and accessibility of the subnet.
Avalanche already contains three primary blockchains:
- The C-Chain is an Ethereum Virtual Machine (EVM) chain for smart contracts
- The X-Chain is a UTXO-based chain for payments
- The P-Chain is a custom chain for platform governance and validator setup
Using an EVM, identical smart contracts can be deployed on both Avalanche and Ethereum. Developers could launch existing Ethereum apps on Avalanche to benefit from lower fees and faster transactions.
There are some huge advantages that come with building a subnet over a standalone L1:
- Abstracted low-level complexity
- Instant access to liquidity
- Choice of gas token: Avalanche provides a consensus engine and manages communications between nodes, but you can also launch your own token for your subnet.
Avalanche’s innovative consensus has allowed it to become one of the fastest blockchain networks out there. Transactions are finalized in under a second. This is much better than the competition. Look at this comparison of transaction settlement times by @CryptoSeq:
Most chains use either classical consensus or Nakamoto consensus. In classical consensus, every node talks to every other node to broadcast their choices. Classical consensus is very efficient for small numbers of nodes, but the networking overhead increases rapidly as the number of nodes increases. This means that it can’t scale to support large decentralized networks.
Nakamoto consensus is the consensus model that bitcoin uses. Here miners work and distribute their results. This model is scalable to a large number of users without compromising on performance, but the performance is terrible to begin with.
Avalanche consensus is a whole new class of consensus. It takes aspects of both classical and Nakamoto consensus and builds upon them. Here’s a meme by @Momentum_6 that illustrates this:
Avalanche consensus works by random subsampling. Only a fixed number of nodes are chosen to do the work for the entire network. Because nodes communicate with a small, fixed number of peers in each subsampling round, the messaging complexity of a single round is O(1). In simpler terms, it’s fast af no matter how many nodes there are. One really great property of Avalanche consensus is that it’s computationally efficient. This means you can run Avalanche on cheap hardware. You don’t need specialized mining rigs. Some users have even run validator nodes on Raspberry Pis. Because hardware demands are so low, the protocol has minimal environmental impact.
As the Avalanche network grows, demand for AVAX will rise. AVAX is used throughout the Avalanche network.
AVAX is used for:
- Staking. Users of the platform can set up a validator or delegate their tokens to stake and earn a passive income (~9%-11% return annually).
- Payments. AVAX transfers value at scale and speed through the permissionless Avalanche network.
- Utility. The creation of DeFi protocols, NFTs, and subnets will all use AVAX tokens (for network fees).
AVAX has a maximum cap of 720 million tokens. 360 million were released on the genesis block. Additionally, fees of every transaction are COMPLETELY burned, increasing scarcity and reducing supply. This means that in the long run, AVAX will be deflationary.
Staking AVAX also gives you a solid return at ~9–11%, depending on the staking period. Many people have locked up their AVAX as a result, which has diminished the AVAX supply further. Currently, $11.27B worth of AVAX is locked up. This is the 5th most for any chain. Here are the top 5 by @DefiLlama:
Avalanche also has a great team: @el33th4xor, @kevinsekniqi, @Tederminant. Avalanche’s innovative design, scalability, and returns for staking make AVAX really attractive. Avalanche is in a great position to grow rapidly.