Avalanche is among the largest blockchain networks with a $1.37 billion TVL (Total Value Locked) and 39,000 unique wallet addresses, only surpassed by giants like Ethereum, Solana, BNB Chain, Cardano, and Tron. Its native token AVAX ranks #12 among all cryptocurrencies and has a $13.9 billion market cap. 

Let’s unpack how Avalanche works and what makes it stand out among other platforms. 

What Exactly Is Avalanche?

Avalanche is a Layer-1 blockchain founded in 2020 by Ava Labs, led by Emin Gün Sirer, a renowned computer scientist and professor at Cornell University. Sirer is known for his prior work on Karma, a Proof of Work cryptocurrency preceding Bitcoin, and his contributions to the Initiative for Cryptocurrencies and Contracts (IC3).

The project has attracted significant investment, including a $42 million ICO in 2020 and a $230 million token sale in 2021, with participation from prominent venture capital firms like Polychain and Three Arrows Capital. 

Ava Labs’ goal was to build a fast, secure, and versatile platform that would allow developers to create and deploy decentralized applications (dApps).

Avalanche uses a unique proof-of-stake consensus mechanism called the Snowman Protocol to achieve high transaction speeds. It also supports smart contracts written in Solidity, the same language used by Ethereum, which allows for interoperability with the existing Ethereum ecosystem.

How Does Avalanche Work?

Multi-Chain Architecture 

Avalanche operates as a ‘network of networks,’ comprised of three distinct blockchains:

• Exchange Chain (X-Chain): Facilitates the creation, trading, and transfer of digital assets within the Avalanche ecosystem.
• Platform Chain (P-Chain): Coordinates the creation and management of subnets, which are essentially custom blockchains within the Avalanche network. Each subnet is governed by its own set of rules and validators.
• Contract Chain (C-Chain): Supports the execution of smart contracts, enabling the development and deployment of decentralized applications (dApps) on the Avalanche platform. This chain is designed to be compatible with the Ethereum Virtual Machine (EVM), allowing developers to easily port Ethereum-based applications to Avalanche.

This architecture allows for cross-chain transfers between the three core chains. Furthermore, subnets enable the creation of specialized blockchains for specific applications.

Snowman Protocol

Avalanche’s Snowman Protocol works differently from Ethereum’s classic PoS. Instead of involving all network participants in every transaction validation, it uses subsampling. Random subsets of validators are chosen to confirm transactions, significantly reducing communication overhead.

What Is the AVAX Token?

AVAX is the native token of the Avalanche ecosystem. Token holders can vote on critical decisions such as protocol upgrades and fee adjustments. 

Beyond governance, AVAX serves as the primary medium for decentralized peer-to-peer (P2P) transactions within the Avalanche ecosystem. 

Furthermore, AVAX is essential for securing the network through staking. Validators are required to stake their AVAX tokens to participate in consensus and earn rewards for their contributions.

AVAX Tokenomics

There are 720 million AVAX tokens in total with the following allocation:

• Ava Labs Team (10%): These tokens are reserved to reward the core development team and founders of Ava Labs for their role in creating the Avalanche platform.
• Public Sales (10%): This portion of the tokens is available to the general public through token sales.
• Avalanche Foundation (9.26%): These tokens are allocated to the Avalanche Foundation, a non-profit organization that supports the growth and development of the Avalanche ecosystem. 
• Early Contributors (7%): This allocation rewards individuals and organizations who played a significant role in the early development and growth of the Avalanche network.
• Private/Seed Sales (6%): These tokens were sold to early-stage contributors, such as venture capital firms and angel investors.
• Strategic Partners (5%): This allocation is intended for strategic partnerships with other key players in the crypto space, such as exchanges, wallet providers, and other blockchain networks.
• Airdrop & TestNet Incentives (~3%): This portion of the tokens was distributed through airdrops and incentives programs to early adopters and participants in the Avalanche TestNet.

The remaining 360 million AVAX will be minted over time through staking rewards.

Avalanche also incorporates a deflationary mechanism by ‘burning’ all transaction fees. This means that whenever a transaction occurs on the Avalanche network, the fees associated with that transaction are permanently removed from circulation.   

Projects Built On Avalanche 

Avalanche hosts a growing ecosystem of decentralized applications (dApps) across various sectors. Some notable examples include:

• Aave: A popular lending and borrowing protocol that allows users to lend crypto assets and borrow against them as collateral.
• Avalanche NFT Marketplace: A dedicated marketplace for buying, selling, and trading NFTs on the Avalanche network.
• Crabada: A play-to-earn (P2E) game built on Avalanche, where players can mine Crabada crystals and engage in battles.

Avalanche vs. Ethereum 

Avalanche was developed as an answer to Ethereum’s shortcomings. 

While Avalanche initially touted significantly higher transaction speeds (4,500 transactions per second compared to Ethereum's ~14.6), real-world performance has shown a more modest average of 13.43 transactions per second during a recent week. However, Avalanche has demonstrated peak speeds exceeding 400 transactions per second, surpassing Ethereum's current capacity.

Transaction fees on both platforms fluctuate based on network congestion. However, Avalanche's fee structure is entirely governed by its users, while Ethereum's fees are dynamically adjusted based on demand, validator supply, and network traffic. Both platforms use fee-burning mechanisms, but Avalanche burns all transaction fees, while Ethereum only burns a portion.

Ultimately, Ethereum wins in terms of ecosystem size, while Avalanche offers better performance. 

Conclusion 

Avalanche has a lot of potential, but it needs to keep evolving to stay ahead. Attracting more developers, building a strong community around its applications, and ensuring its performance keeps improving are crucial to compete with leading networks like Solana and Ethereum. 

Trade AVAX on Tothemoon and join the Avalanche ecosystem! Support Avalanche on its mission to build a scalable and diverse dApp network. 

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