All the main questions about Avalanche
What is Avalanche?
You have probably heard that ‘Internet of Finance’ slogan as you have also probably heard of Avalanche. In this article we will dig deeper into the new ecosystem that started from a consensus protocol and figure out what the Internet of Finance actually does.
Avalanche is an open-source platform that can be used for building new interoperable blockchains and decentralized applications on top of them. It is promised to be way faster than the existing systems (it finalizes transactions within 1-3 seconds) and offers a list of benefits not only to dapp owners but also to developers who can build those dapps more comprehensively and easily than they used to. The key feature that distinguishes Avalanche is that the protocol lets developers create their own blockchain ecosystems.
Another important feature of Avalanche is that it uses the sub-chain approach. The initial blockchain consists of three virtual machines: X-chain, P-chain and C-chain. Each is responsible for its own piece of work. X-chain is responsible for creating and trading crypto assets, P-chain’s department is coordinating validators and creating further subnets, and C-chain is an instance of the Ethereum Virtual Machine and works with all the Avalanche smart contracts (Solidity out of the box).
What is Avalanche Consensus?
Avalanche has risen from a consensus protocol, their first move was to improve the consensus mechanics itself. Let’s start from the basics.
What is consensus? As follows from the etymology of the word – consensus is a mechanism that would allow to reach an agreement between all participants of the network (validators) and make it work. In a blockchain, participants have to agree on certain principles that apply to everyone. Thus the consensus algorithm is a set of certain mathematical rules and functions that make it possible to reach an agreement between all validators and ensure that the network works.
There are three approaches that have been created and implemented throughout history: Classical consensus, Nakamoto consensus and Avalanche. Nakamoto consensus became a huge hit in the times Bitcoin emerged. The main difference between Classical consensus protocols and Nakamoto consensus protocols is that Nakamoto consensus does not require a designated leader and all nodes to approve one decision unanimously. With the Nakamoto consensus the permissionless era has begun.
However, the Nakomoto consensus requires a significant amount of energy, as it is based on the tons of calculations. The energy spent by miners of the Nakamoto-based systems is even compared in size to the amount of energy used by one medium sized country like Ireland. As a result, it is also very slow. You don’t need me stating examples of how slow Bitcoin transactions can be, do you?
And then came the Avalanche consensus. In 2018, an anonymous team called Team Rocket distributed a paper explaining how classical consensus protocols can be improved and upgraded. In a nutshell, they presented a hybrid consensus that could include all the benefits of Classical consensus and Nakamoto consensus and lack the disadvantages of both.
There the nodes of the network can interact with each other in real time, achieving reliable consensus. Each validator randomly selects K nodes from the total number of validators to “ask” them about their decision. The final decision is made upon the majority of decisions of the given round. And if the majority of decisions differs from the node performing this query, then it should update its decision and respond to other nodes with an answer.
Avalanche protocol works fast, performing a transaction under 3 seconds (under 1 second in most cases, as claimed by the protocol), many thousands of transactions are supported per second (it is claimed to be quicker than a typical credit card transaction). The Avalanche protocol uses a new approach to consensus that besides fast finality and high throughput, provides strong security guarantees – the safety threshold is higher than other blockchains’ at 80%.
How is It Different From Ethereum?
First, Ethereum uses the Proof of Work model, while Avalanche uses Proof of Stake. Ethereum will also use the Proof of Stake model for Ethereum 2.0, you would say. And that is true, only Ethereum 2.0 plans to use sharding as a way to solve the trilemma of blockchain systems (DCS triangle) and make the blockchain simultaneously decentralized, consistent and scalable. With sharding, DAPPs and transactions are distributed among blockchains in parallel, which means that each shard cannot easily communicate with another shard (imagine one DAPP trying to integrate with another DAPP from another shard). Avalanche’s subnets, however, use the same underlying protocol for consensus and thus a set of changes across multiple blockchains can be applied as one, making it easier and of course – faster.
Despite the apparent advantages against Vitalik Buterin’s decentralized giant, Avalanche does not claim to be another “Ethereum killer”. On the contrary, the team positions themselves as a kind of a ‘safety net’ for Ethereum during the complicated time of transition of the latter to the second layer, as Avalanche is completely compatible with all the dapps that can be easily transferred from Ethereum to the Avalanche ecosystem using the same Solidity smart contracts.
Who needs Avalanche and why?
Blockchains on Avalanche can be created with individual settings for each. That’s what makes the ecosystem suitable either for enterprises that wish to have the full control over their blockchain, or for decentralized applications that wish to transfer from Ethereum using Ethereum VM. Thus, if you want to move your existing DAPP to another ecosystem or create a new one – Avalanche gives you the opportunity to do it in your own ecosystem with your preferred settings.
What about DeFi enthusiasts? How can I use AVAX?
Besides discovering new DAPPs on Avalanche, all DeFi enthusiasts can learn to stake AVAX, the Avalanche native token, and earn rewards. The system is open for any new node that wishes to enter the network. And by the way, unlike many others, the slashing fines do not apply in the blockchain, so all stake will be returned to you when the staking period (determined by the token holder) is over.
What projects are there on Avalanche?
There aren’t many for now. According to AVAX Explorer, the daily transactions volume is rising, but not quite surging yet. With 90k addresses performing transactions throughout this month, the maximum 24h transactions volume peaked at 199,6 million. Coingecko and CoinMarketCap highlight a few notable projects of the Avalanche Ecosystem.
What is the team behind the project?
Avalanche was created by professor Emin Gün Sirer (CEO), the first author of the HotStuff protocol Maofan “Ted” Yin (Chief Protocol Architect) and an engineer Kevin Sekniqi (Chief Protocol Architect & COO).