Avalanche: The Project on Track to Solve the Blockchain Trilemma

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This isn't a weather notice. If you're searching for one, you"ve hit the wrong post. If you're interested in Avalanche, the cryptocurrency, you"ve landed in the perfect place. This guide will summarize what AVAX is, how it started, and how you can make money if you choose to buy it.

Avalanche is a Proof-of-Stake blockchain with a specific focus. It aims to create a blockchain-based universal network to create, transfer, and trade digital assets. It also plans to overcome the issues the current networks face.

Before you say “another one?”, it's worth mentioning that Avalanche specifically addresses the three main issues usually associated with many cryptocurrencies, and Bitcoin in particular:

Screenshot of the Avalanche 3 pillars saying Blazingly Fast, Low Cost & Eco-Friendly.

That's not just a marketing thing; it seems Avalanche is on track to tick those boxes. That said, and before we go into details, let's dive into the short but impressive history of Avalanche.

A Brief Look at Avalanche's History

You can trace Avalanche back to 2018 to a document authored by Team Rocket called Snowflake to Avalanche: A Novel Metastable Consensus Protocol Family for Cryptocurrencies. The paper uses snow terminology to allude to the project's primary function:

“The paper describes the protocol family, instantiates it in three separate protocols, analyzes their guarantees, and describes how they can be used to construct the core of an internet-scale electronic payment system.”

One month after the release of the closest thing to an original whitepaper for Avalanche, in June 2018, American computer scientist and associate professor at Cornell University Emin Gün Sirer led the formation of Ava Labs. Sirer was one of the first academics to become involved in crypto and had made significant academic contributions to the Bitcoin and Ethereum environment.

Since Ava Labs was a Cornell University spin-off startup, the initial team also included two of Sirer's colleagues, the computer science PhD holders, Kevin Sekniqi and Maofan “Ted” Yin. A private testnet, an initial version of the network used to try out its functionality, launched precisely one year after the paper's release, on May 16, 2019.

Things took off quickly from there, starting with a public testnet that launched in April of 2020. On July 15, 2020, the team raised $42 million in less than 24 hours, selling AVAX tokens to the public in an Initial Coin Offering (ICO). Mainnet, the network's final, publicly accessible version, launched later in September 2020, and signs have been pointing up and to the right ever since.

Now that Avalanche has taken the crypto space by storm, what sets it apart from other coins?

What Sets Avalanche Apart from the Crowd?

New cryptocurrencies seemingly launch every day, and ICOs are a cent a dozen by now. That said, Avalanche has managed to set itself apart and carve out an interesting niche in this crowded space. Avalanche has a few features that allow it to stand out from the crowd.

Solid founding team: Sirer is a crypto veteran; he had created a peer-to-peer payment system called Karma six years before Bitcoin's invention. He has proposed a system to overcome the block size issue with Bitcoin. Sirer has also discovered potential security flaws in Ethereum. His co-founders were computer science PhD holders at Cornell University when Sirer created the company. That makes the core team as experienced and technical as it gets in a relatively young industry.

Specific goals: The platform plans to overcome existing cryptocurrencies', specifically Bitcoin's, shortcomings. Early on, Sirer identified Bitcoin's Proof-of-Work (PoW) concept as a shortcoming. The concept requires colossal computing power to calculate the next block, so Sirer called it wasteful and unfair.

He reasoned that to increase your potential Bitcoin mining earnings, you have to throw more calculating power at it. That, by definition, requires more energy. In turn, energy costs are the main price you pay to farm Bitcoin, apart from the hardware investments. That's why you"d get an unfair advantage if you live in a location where power is cheap.

That rationale threw PoW in the trash and led the team to settle on the Proof-of-Stake (PoS) framework since it doesn't require any mining. Instead, the system randomly rewards users based on their participation percentage.

For example, if you were to stake 10% of all available coins of a cryptocurrency using proof-of-stake, you"d have a 10% chance of getting a reward. Staking is a simple action, usually performed within a wallet. That means staking one or 1,000 coins of a cryptocurrency uses the same amount of energy, so no one has an incentive to one-up on calculating power.

Even with PoS, the system still has performance issues. To understand this, we have to look at the consensus mechanism which governs blockchain transaction validation.

What's the Avalanche Consensus Mechanism?

Let's go back and understand how blockchain transaction validation works. You and other users on the blockchain form a network, with each called a node or validator. A transaction needs at least 51% of all users to reach a consensus or agreement to be valid.

Imagine this real-life analogy: 10 people want to decide what to do one night. If six or more, the majority, agree to go see a movie, that's what the group will do. People usually make it more complicated, though. Someone who doesn't like movies would throw out the whole plan. Luckily, nodes or validators don't have opinions; they either agree to validate a transaction or don't.

In the 1970s, the first computers used something called the Classic Consensus Mechanism to agree on what's a valid transaction. All nodes had to communicate with all other nodes to reach a consensus. That was a slow, tedious, and limited process.

That's why Bitcoin adopted a new type of consensus: The Nakamoto Consensus Mechanism, named after Bitcoin's founder Satoshi Nakamoto. It used some of the same underlying principles but added significant functionality, notably PoW, to make it work for the Bitcoin blockchain.

Proof-of-Work's Speed Shortcomings

This consensus mechanism still suffered severe speed limitations. The two things to measure here are transactions per second (tps) and transaction finality, which is the time it takes for any transaction to get finalized.

Bitcoin does 7 tps, while Ethereum Classic does about 14. Visa, the credit card provider, can handle up to 4,000 tps. Talk about a rabbit versus turtle race! That's why Avalanche needed to create a more efficient way to reach consensus without compromising security. That way, it could provide what it set out to do–a decentralized platform, providing financial services to a potentially global audience.

Screenshot of a comparative table comparing Bitcoin, Ethereum, Polkadot, and Avalanche in terms of transaction throughput, finality, energy efficiency, number of validators, Sybil protection, and safety threshold.

That's what they did with their proprietary Avalanche Consensus Mechanism. Their whitepaper on the mechanism explains it in detail, and you can learn about it through these simplified versions.

In essence, it uses a combination of four underlying protocols, Slush, Snowflake, Snowball, and Avalanche, to reach a consensus in a different yet secure way. This process increases the maximum transactions per second to over 4,500 and completes them typically in under 2 seconds.

Both those numbers are the best blockchain technology has to offer to date.

Avalanche's Chains

Avalanche's consensus mechanism promotes sheer performance and allows for one of the most interesting features any blockchain in existence has: Subnets. Most of Avalanche's activity today occurs on the so-called primary subnet. This subnet contains all validators and is split into 3 chains according to the use case:

1. X-Chain (Exchange Chain): A simple payment optimized for digital asset creation and exchange.

2. C-Chain (Contract Chain): An EVM (Ethereum Virtual Machine, allowing for compatibility with Ethereum projects) smart contract platform for creating applications that require smart contracts to run.

3. P-Chain (Platform Chain): This chain coordinates all Avalanche validators and helps you create and manage subnets.

The P-Chain allows anyone to create a subnet on Avalanche. It only requires a subset of all validators to reach a consensus. While this may sound counterintuitive at first, it makes a lot of sense to avoid congestion on the primary subnet. Someday, even 4,500 tps won't be enough.

That's why it's good to have the option to create a new, separate, uncongested subnet for specific applications. That could circumvent the virtual traffic jam that eventually bogs down most blockchains.

Avalanche has all the right ingredients to be a successful project. Specifically, their consensus mechanism sets them apart and gives them a significant competitive edge. In theory, it allows Avalanche to scale to a level no other blockchain project has done before.

Now that we"ve covered Avalanche's trajectory, let's check out all you need to know about its token $AVAX.

$AVAX-All You Need to Know

$AVAX is Avalanche's token and cryptocurrency. Knowing more about its distribution and price history may swing your decision to buy or sell.

How Does $AVAX Distribute Its Tokens?

The Avalanche token has a hard cap or maximum supply of 720 million, the maximum $AVAXs that'll ever exist. A capped supply creates scarcity, an essential aspect to store value.

Ava Labs minted (created–as opposed to mined) half the tokens, 360 million AVAX, as part of the Genesis block. They sold a specific percentage to raise money for the project while reserving 25% for the founding team, the Avalanche Foundation, and strategic partners. The company, finally, allocated the remaining AVAX tokens to support the community through endowments, incentives, and airdrops.

The other half, the remaining 360 million, is a pool available to serve staking rewards. That means, if you stake your $AVAX tokens to participate in Avalanche's PoS mechanism, you'll get a reward equal to a percentage of the tokens you staked. For more info on staking, refer to our easy staking guide.

Screenshot of an Avalanche pie chart showing the distribution of AVAX tokens.

As for total supply, Avalanche sits comfortably in the middle: Bitcoin ($BTC) has a relatively low supply of 21 million tokens, while Cardano ($ADA) will issue 45 billion tokens.

What's $AVAX's Price History?

$AVAX's price started low compared to today, but it remains higher than most new projects. A seed sale pumped 18 million $AVAX tokens into the crypto market for $0.33 each in February 2019. In May 2020, another 24.9 million $AVAX tokens joined the blockchain at $0.50 in a private sale. Both sales came with a 12-month lock-up period, meaning you had to hold your tokens for 12 months before being able to sell them.

At their ICO, Ava Labs released tokens according to their lock-up period. 6 million tokens at $0.50 with a 12-months lock-up period. Ten times that amount, 60 million tokens, had an 18-months lock-up period. Last but not least, 72 million tokens boasted a higher price of $0.85 but with no lock-up period.

$AVAX started trading in September 2020 around the $4-mark, returning more than 470% to ICO investors and proving market support for the project. The rest of 2020 was pretty quiet, while sometimes even dropping below the $3-mark.

Then came 2021! February 2021 saw a spike to $55, followed by choppy waters, and the typical drop all cryptocurrencies saw in May 2021. From that bottom, $AVAX picked up momentum experiencing heavy trading volume on exchanges, with the price steadily rising and finally hitting an all-time high (ATH) of $134 on November 22, 2021.

Screenshot of a CoinMarketCao price chart of Avalanche between October 2020 and December 2021.

Where the price goes from here, no one knows. Yet, the meteoric rise in the last 12 months shows demand for the platform Avalanche aims to provide.

One date to keep in mind is March 4, 2022. That's when the lock-up periods for all the $AVAX tokens from the multiple sales expire, and the tokens join mainstream trading. That often leads to an increase in trading volume and significant price changes.

How to Make Money on AVAX? Yield Farming

Given its scalability and the specific focus on financial applications, it's not surprising that Yield Farming is hugely popular on Avalanche. Yield Farming is also known as Liquidity Mining and is also sometimes jokingly called decentralized finance's (DeFi) Wild Wild West. It allocates digital assets to various DeFi protocols to generate the highest APY from lending or other activities and maximize returns.

APY is short for annual percentage yield. The current APY on popular applications, like Trader Joe or Pangolin, goes from 10% for conservative trading pairs up to 100% and more. That's if you're willing to stomach the risk that comes with it. If you"ve staked $100, your total value locked (TVL), then you'll make $100 APY in the riskiest scenario.

TVL on Avalanche has exploded to almost $12 billion, making it the fourth-largest economy in cryptocurrency. That also signals an uptake in interest for the platform. Since a single transaction fee on Ethereum now surpasses $100, Avalanche's average 50 cent fee makes it a plausible alternative. That's especially true if you"ve missed the initial decentralized finance (DeFi) hype on Ethereum.

What's more, most ways to make money on Ethereum, the original DeFi platform, already are or will soon be available on Avalanche, and likely faster and cheaper. That said, financial services are Avalanche's main use case. Chances are the platform will establish itself as the number one network for financial services of any kind. That makes it an interesting project to keep an eye on for anyone wanting to make money in crypto as it price appreciates.

What's the Current Status of the Avalanche Network?

Avalanche has made quite the entrance: price-wise and in building a community. They already have almost half a million followers on their Twitter account. The AVAX Subreddit is home to 28,000 members and counting, and their Discord server also sees over 5,000 users online.

Fans are one thing, but is the Avalanche network still only a charming concept, or is anything being built or already live? The answer here is a resounding yes: Avalanche's mainnet is live and open for anyone to build on, and people do!

Hosting dApps

The pace at which dApps appear on Avalanche is impressive. dApp is short for decentralized application and encompasses any application running on the blockchain without needing a central, dedicated server. Classic examples are trading apps, where users trade cryptocurrencies directly peer-to-peer without any central infrastructure or intermediary.

Screenshot of the Avalanche ecosystem showing all the dApps categorized by wallet, defi, privacy, tooling +dapp, and NFT & gaming.

Avalanche is only one year old, and it's already hosting some applications popular among hundreds of thousands of users. Trading app Trader Joe has surpassed 250,000 active users and shows no sign of slowing down. Crypto exchange Pangolin describes itself as “a community-driven decentralized exchange for Avalanche and Ethereum assets”. It is also reporting an impressive monthly volume of 420,000 transactions already.

Avalanche has taken the crypto world by storm. It has creators racing to build the coolest apps and spectators cheering them on–and investing in the token. The goodwill isn't limited to classic fanboys only; some heavyweight crypto holders have come out publicly to praise what Avalanche is trying to achieve.

Screenshot of 6 endorsements of Avalanche by famous crypto personalities: Alexis Ohanian, Vitalik Buterin, Garry Tan, Alex Tapscott, Charles Hoskinson, and Roger Lim.

It seems Avalanche has all the right ingredients to become an audience favorite. The team behind it is legit, minimizing the risk of a rugpull or other scam.

Avalanche is also compatible with Solidity, one of the most popular programming languages for writing smart contracts. Many developers are already familiar with this language, making it easy to build on Avalanche.

When building on Avalanche, the sky's the limit (well, almost) for performance. The platform uses the Avalanche consensus mechanism to overcome many traditional scaling issues. That instills confidence in developers, knowing their dApps can serve a huge user count without any issues.

Since Avalanche seems to be well-positioned for growth and has got a cheering team already, you"d say what can go wrong? Consider these few risks to Avalanche's concept.

So–What's the Catch with Avalanche?

It's rare to see projects build their blockchain from scratch and even develop a new consensus mechanism. Many new crypto projects build on existing blockchains, and few have ever bothered to improve such a fundamental blockchain aspect as the consensus mechanism.

Yet, as with all new projects, risks threaten success.

Bugs

Coindesk reported a minor bug on Avalanche in February and May 2021. The Avalanche web wallet stalled for six hours after an airdrop (think $AVAX token handout to users).

Malicious Attacks

What's more, like with any project that garners similar attention, the bad guys aren't far away. Especially with Avalanche targeting financial services, any project running on it presents a juicy target for cybervillains.

The first hack on the Avalanche network occurred in September 2021, when cyberattackers hacked Zabu Financefor $3.2million. A few days later, the decentralized exchange NowSwap followed, losing $1million. To round off a turbulent month, the popular lending platform VeeFinance also saw cybervillains walking away with $35million, making it the biggest hack on Avalanche so far.

As the platform grows, we can expect even more hacks. That doesn't mean the fundamental architecture has anything wrong with it, though. Avalanche has already launched a bug bounty program to encourage users to actively find bugs before cyberattackers exploit them.

Scalability

Some questions on Avalanche's current performance scalability also arise. It isn't a full-fledged catch, but something to look out for. It's rather impressive at the moment, but at 10x or 100x the current network size, we still need to see how well the Avalanche consensus mechanism holds up, with its built-in randomization (as in, every node is equal and randomly asks others for confirmation).

Only time will tell just how solid the Avalanche platform is. We also need to wait and see how successful their bounty program is in closing loopholes. Still, three years into development and a little over one year after launch, Avalanche seems like a solid project with no major red flags.

What Are Avalanche's Future Plans?

The official roadmap doesn't cover 2022 yet, so specific milestones for the next 12 to 18 months are anyone's guess. That said, it's safe to say they'll likely continue building out their underlying technology and partnerships.

The Avalanche consensus mechanism supposedly provides unlimited scalability, creating exciting use cases, especially for global financial applications with numerous interactions. It'll be an exciting space to watch in terms of large-scale financial services.

Avalanche has also heard the concern over performance scalability, mainly based on the block contention issue (performance slows down if multiple nodes compete for access to the same node). That's why they"re currently working on an upgrade to the Avalanche consensus mechanism called the Frosty consensus. This change should implement leader nodes versus a completely leaderless system, hoping to streamline the consensus process even more.

For partnerships, it"d make sense for Avalanche to provide services to larger global financial institutions. Another logical next step is to partner with corporate giants who suffer from the current cluttered system the most.

How to Buy Avalanche

You can buy $AVAX on major exchanges like Coinbase and Binance. Each platform has different payment conditions, but, in general, you can use different payment methods, most typically credit cards. Alternatively, if you own other tokens or can't directly buy $AVAX with your currency, you can exchange it with a popular cryptocurrency, like $BTC or $ETH.

Final Thoughts

The Avalanche protocol is worth keeping an eye on. The team built and now run it with some serious street cred; it's blazingly fast and super easy to build on. It has a huge community behind it, and its solid development team is committed to constant improvements. It'll be interesting to see just how much Avalanche can revolutionize that huge beast called the global financial markets and tackle ongoing threats.

FAQ

What is Avalanche?

Avalanche is an open, programmable smart contracts platform based on blockchain technology and run by a team of computer scientists at Cornell University. They started development in 2018 and launched the mainnet in 2020. Avalanche features impressive performance and is easy to build on, making it an ideal platform for any type of decentralized financial services. Like any new project, Avalanche has its weaknesses to iron out and risks to mitigate like scammer threats and fraudulent projects. That said, Avalanche checks all the boxes and seems like a solid project worth keeping an eye on.

What is Avalanche built for?

In a broad sense, Avalanche was built with global financial services in mind. It aims to provide a fast, secure, and scalable infrastructure for digital asset creation, transfer, and trade. Its compatibility with Ethereum also means that, in theory, any app built on Ethereum could run on Avalanche as well. That opens up doors to an already impressive ecosystem.

What sets Avalanche apart from other blockchain projects?

The company behind Avalanche, Ava Labs, has developed its proprietary consensus mechanism. That improved their platform's scalability compared to what most projects in the space are currently capable of. The project aims to solve the blockchain trilemma.

What is AVAX?

$AVAX is the Avalanche network's native token. It has three main use cases: payments on the network, staking, and atomic swaps (peer-to-peer exchange of tokens across different chains). Ava Labs capped its supply at 720 million, with half already in issue to fund the project and support early development.

Where can I buy AVAX?

You can purchase $AVAX on major exchanges like Coinbase and Binance. Depending on the platform, you can buy $AVAX directly using different payment methods, most typically credit cards. Alternatively, if you own other tokens or can't directly buy $AVAX with your currency, you can exchange it with a popular cryptocurrency, like $BTC or $ETH.

What is the price growth of AVAX?

Ava Labs sold the first tokens in private placements and an Initial Coin Offering at a price ranging between $0.33 and $0.85. Compared to its November 2021 all-time high of $134, that's anywhere from a 15,700% to a 40,600% gain in less than 18 months.

Resources

Avalanche Website

Visit the Avalanche Official Website for the ultimate source of information.

Ava Labs Website

Get to know the company behind Avalanche by visiting the Ava Labs Website.

Ava Labs GitHub

Get into the code on the Ava Labs GitHub Page.

Avalanche Whitepapers

Get all the details from the Avalanche Whitepapers.

Avalanche Discord

Get involved in the Avalanche Discord Server.

Avalanche Forum

Explore answers in the Avalanche Forum.

Avalanche YouTube

See the latest videos on the Avalanche YouTube page.

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