Avalanche: The New DeFi Blockchain Explained

Avalanche: The New DeFi Blockchain Explained

The Avalanche blockchain is an open-source platform for establishing decentralized financial (DeFi) apps and corporate solutions in a highly scalable, interoperable environment. In late September 2020, the Mainnet went operational.

It’s the first smart contract platform to confirm transactions in under a second, support the Ethereum development tools, and allow independent validators to operate as complete block generators.

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What is Avalanche?

Avalanche is a new blockchain network with transaction speeds of less than a second and cheap costs. The project was launched in September 2020 by Ava Labs, a firm run by Cornell researcher Emin Gün Sirer.

Avalanche is an open-source platform for developing decentralized financial (DeFi) apps and business blockchain deployments in a scalable, interoperable ecosystem.

It is the first smart contract platform to validate transactions in less than a second, to support the whole Ethereum development tools, and to allow millions of independent validators to participate as complete block producers.

How is Avalanche different from other blockchain technology?

The consensus protocol distinguishes Avalanche from other decentralized networks. So far, only three methods to the consensus problem have been proposed: classical, Nakamoto, and Avalanche.

Following Nakamoto’s presentation of Bitcoin to the world, the world still desired a protocol that had all of the benefits of the Nakamoto consensus, such as robustness and real decentralization, with all of the virtues of Classical consensuses, such as speed, scale, and speedy finality, while also being energy efficient.

Avalanche borrows aspects from both solutions, including the Nakamoto model’s resilience and full decentralization. It also makes use of Classical consensus’s advantages, such as speed, size, swift finality, and energy efficiency. Avalanche is a revolutionary procedure that combines the two.

It has yet to be shown if it is feasible to have the best of both Classical and Nakamoto protocol without the drawbacks of either, although Avalanche has made significant progress.

How does Avalanche work?

Avalanche is a multi-chain framework with three blockchains that separate important operations and even use various data formats to provide developers the most freedom and control over their apps.

The Exchange Chain is the first (X-Chain). The X-Chain supports the peer-to-peer generation and exchange of assets, including Avalanche’s native coin, AVAX.

The Contract Chain is the second (C-Chain). The C-Chain is Avalanche’s default smart contract blockchain and a lightning-fast Ethereum Virtual Machine implementation. It is completely interoperable with Ethereum tools and Solidity smart contracts, allowing Ethereum developers to quickly move their apps to the Avalanche environment.

Finally, there is the Platform Chain (P-Chain). Staking, coordinating validators across networks, and building bespoke subnets are all handled by the P-Chain. Every Avalanche validator helps protect the core network by staking on the P-Chain, but these validators may also establish dynamic or private groupings of validators to operate subnets. The validators have total control over the data, economic model, virtual machine, and other resources on these subnets.

AVAX Token

The Avalanche (AVAX) token is the native token of the Avalanche platform, and it is used to secure the network through staking, peer-to-peer transactions, fee payments, and as a fundamental unit of account amongst the various subnetworks formed on the platform.

Staking on Avalanche

Staking is a natural method for participating in an open network because staking nodes are financially driven to act virtuously and avoid activity that would depreciate their stake value.

A node that wishes to join the network may do so without restriction by first establishing and locking a stake that cannot be changed for a length of time chosen by the token holder. A stake cannot be retracted or unlocked after it has been accepted, ensuring that all nodes have the same, consistent image of the network. And, even better, the stake incurs no additional fees for both the token holder and the network.

Unlike other systems that provide a proof-of-stake (PoS) process, AVAX does not employ slashing, therefore after the staking period ends, the whole stake is repaid.

How is Avalanche different from Ethereum?

Because many of the initial members of the team were associated with Ethereum in its early days, the Avalanche blockchain expressly declares that they do not want to be characterized as another “Ethereum killer.” When comparing Avalanche to Ethereum, the parallels between the two are considerably more obvious on the surface.

The Ethereum Virtual Machine (EVM) and its toolset are supported by Avalanche, but they address distributed issues in completely different ways beneath the hood. Ethereum now utilizes a proof-of-work mining method similar to Bitcoin, but it plans to switch to proof-of-stake when Ethereum 2.0 is released.

While proof-of-work is a good basis for solid protocols, it achieves this stability by purposely delaying network activities and confirmations, which is an acceptable trade-off in the context of Bitcoin’s digital gold argument. For the burgeoning community of DeFi makers and consumers, this is a considerably more difficult sell.

Ethereum will struggle to increase participation without incurring large fees and network congestion as long as it employs proof-of-work. Ethereum 2.0’s proof-of-stake methodology will assist, but its method of scaling, “sharding,” which tries to process transactions concurrently rather than sequentially, brings substantial complexity and execution risk.

The Avalanche family of protocols can achieve sub-second finality, accommodate 4,500+ transactions per second, and scale up to millions of complete, block-producing validator nodes in consensus.

Apps on Avalanche can run in their own subnets, which are separate blockchains. These subnets are still linked to Avalanche’s larger ecosystem of chains, but their interactions are now purely value-adding rather than competitive. This not only allows developers to create private subnets, but also lets them design the rules, economics, participants, and security of their own implementation.

Wrapping up

The Avalanche protocol aims to take the greatest features of existing distributed ledger technologies and package them into a neat package. By using Ethereum’s and the EVM’s innovations, as well as honoring age-old systems while modifying the underlying mechanics to achieve quicker, lighter, and lower operating costs.

The Avalanche blockchain development’s main feature is that it allows developers to establish their own blockchain platform. The advantages of speed and efficiency should be favorably appreciated by the community, while the benefits to builders are obvious. Only time will tell if Avalanche can compete in the competitive blockchain arena.

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