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Beginner’s Guide to the Avalanche Network

A smart contract-capable blockchain that focuses on low costs, and eco-friendliness, the Avalanche Network is turning heads at 4500 TPS. Get started with our guide to the avalanche network.

With so many new protocols emerging and adding to the Decentralized Finance (DeFi) ecosystem, it is becoming increasingly difficult to keep track of everything going on in the market. Even so, there are platforms such as the Avalanche Network that cut through the noise to grab your attention.

So what exactly is the Avalanche network and how is it superior to its competitors?

Let’s find out!

The Avalanche Network is a smart contract-capable blockchain platform that focuses on low costs, eco-friendliness, and transaction speed.

In fact, since the very first day of the platform, Avalanche has aimed to achieve the fastest time to finality for blockchain transactions. The platform hopes to deliver a highly scalable blockchain that does not sacrifice in terms of security or decentralization. 

But that is just the tip of the iceberg. Read on to find out what Avalanche is all about!

What is the Avalanche Network?

Launched in 2020, the Avalanche Network is the latest development from the Ava Labs team. Right after its launch, the platform’s native token, AVAX, rapidly climbed up the cryptocurrency rankings and today sits right below the top ten crypto platforms. 

Pushing it that high on the charts is the fact that it allows anybody to easily produce their own multi-functional blockchains and decentralized applications (dApps). This makes it a favorite in multiple circles.

The platform has been designed with the purpose of addressing many of the restrictions of the other older blockchain platforms, including lack of scalability, centralization, and slow transaction speeds.

And to make it all happen, it uses a lot of innovative techniques. These include a unique consensus protocol that the platform came up with. This protocol promises high throughput capabilities, low latency, and resistance to almost 51 percent of security attacks. 

Avalanche launched its main net in September 2020, within just two months of raising 42 million USD in a token sale, which had sold out within just five hours.

What is AVAX?

AVAX is the native token of the Avalanche Network. It is a utility token that serves as the ecosystem's primary medium of exchange. Besides its use as the main form of currency in the Avalanche world, AVAX staking helps secure the network and rewards the stakers with more AVAX in return.

Compounding the value derived from staking is the AVAX deflationary token mechanism. AVAX tokens that are used to pay transaction fees are burned from the supply, which permanently lowers the amount of AVAX that is in circulation.

There are over 220 million AVAX tokens in supply today, with a maximum capped supply of AVAX at 720 million tokens. The genesis block contains 360 million AVAX tokens, while the remaining 360 million tokens will get minted over a period of time. 

Unlike Bitcoin, though, where the fees are distributed to all the miners, all the fees in the Avalanche network are burned. This increases the scarcity of token supply. Minting of new AVAX tokens offsets the burning because of the transaction fees.

Where and How can you Buy AVAX?

AVAX is available to purchase and trade on a wide range of exchange platforms, including CoinEx, WazirX, Binance, OKEx, Bitfinex, Paribus, OKCoin, Hotbit, and Huobi Global.

If we take the example of the Binance crypto exchange, which is currently the most liquid exchange for AVAX tokens, here's how you can buy the token on this exchange:

  1. Create an account on Binance and charge your wallet with one of the trading pairs for AVAX, for example, Tether (USDT). 
  2. Once your deposit has been confirmed, you can go over to the AVAX/USDT spot trading page. 
  3. At the bottom of this trading page, you will find the order panels, where you can select the 'Market' Tab. 
  4. Now, in the total field, enter the amount of USDT that you would like to spend on buying AVAX. Once you are satisfied with the amount, click on the 'Buy AVAX' button, and your order will be executed at the best price available.

You will then find your AVAX is available in your exchange spot wallet. You are now free to invest, withdraw, or trade with your AVAX tokens.

How Does the Avalanche Network Work?

At the core of the Avalanche Network is a system of three interoperable blockchains (hence the word “network”). These are:

  • The Exchange Chain, known as X-Chain
  • The Contract Chain referred to as the C-Chain
  • The Platform Chain called the P-Chain

The reason why the team has decided to use three blockchains instead of using just one blockchain is to prevent system overload. If all the transactions are taking place on one blockchain, it would lead to network congestion and that would slow down the transaction speed.

Having three blockchains, each specializing in certain tasks allows the network to function in a much more secure, scalable, and decentralized way.

Talking about the blockchains themselves, the X-Chain is used for making new digital assets, while the C-Chain is the platform's Ethereum Virtual Machine (EVM) implementation.

The P-Chain is used for creating subnets and coordinating validators. Subnets are a set of validators that are tasked with achieving consensus on one or more Avalanche blockchains.

Two of the blockchains of Avalanche, that is, the C-Chain and the P-Chain, are secured by the chain-optimized Snowman consensus (something the team behind the platform came up with by themselves). This paves the way for high throughput secure smart contracts.

Meanwhile, the X-Chain is secured by the DAG-optimized Avalanche consensus, which is a scalable and secure protocol that can achieve transaction finality within seconds.

Here’s a closer look at these three interoperable blockchains of Avalanche.

Exchange Chain (X-Chain)

The Exchange Chain or X-Chain is the main blockchain that is responsible for creating and transacting all the Avalanche assets. AVAX is presently the most popular cryptocurrency on the platform. That said, the decentralized exchange tokens PNG and JOE aren’t much far behind.

Transactions on the X-Chain generate the fees paid in AVAX. This is quite similar to how the gas fees on Ethereum get paid in ETH. What this means is that even if you are transacting in other tokens, fees will always get settled in AVAX.

It is worth mentioning here that AVAX is also used for paying any network fees, staking, and providing a basic unit of account between Avalanche subnets.

Contract Chain (C-Chain)

We have already laid down the premise that smart contracts are the key feature on which the Avalanche Network has been built. This feature allows for developers to build decentralized applications on Avalanche while also leveraging the platform's scalability and security benefits.

The C-Chain runs the smart contracts for the platform, and it is compatible with the EVM. Being EVM-compatible means that anyone can easily deploy Ethereum smart contracts on Avalanche. This is a big deal because the existing Ethereum apps such as Aave can easily deploy a version of their product on Avalanche without having to build a version separately.

Deploying Ethereum smart contracts on Avalanche has given developers access to Ethereum's features using the very same Ethereum developer tools as they always did. 

Platform Chain (P-Chain)

Avalanche's P-Chain lets anyone create an L1 or L2 blockchain. In fact, you can even go ahead and create a group of them. In Avalanche, as mentioned earlier, these blockchains are known as subnets, with the P-Chain serving as the default subnet that is common to all.

The P-Chain also manages the landscape of the Avalanche subnets by keeping track of the validators. At the same time, the subnets are also responsible for validating the P-Chain itself.

By dividing its architecture smartly into three separate blockchains, Avalanche is able to optimize its entire network for speed, flexibility, and security, without having to worry about any trade-offs.

This has made it a powerful and popular platform of choice for both enterprise and public use cases since the developers have provided a significant amount of flexibility in the types of applications that can be built. 

What is the Significance of Subnets on the Avalanche Network?

We have already touched upon the role of subnets on the Avalanche platform briefly. However, the importance of subnets demands more attention to be placed on them and that is exactly what we’re going to do in this section.

The manner in which the Avalanche subnets work is very similar to Ethereum 2.0 sharding. Simply put, a subnet is only a clone of the default blockchain that is connected to the platform at launch. For Avalanche, this is the primary network.

More importantly, subnets can be made by users on-demand, as and when needed. In practice, this means that a subnet, once its scaling limits get temporarily exhausted, can easily launch another subnet to meet or exceed the network traffic demands, thus freeing up the network for more transactions. This makes subnet creation an unlimited process wherein subnets can infinitely create more subnets.

Avalanche's P-Chain has a limit of around 4500 transactions per second. This is even higher than that of even Visa. By a margin of 100 percent, at that. However, owing to the unlimited capacity for generating subnets, Avalanche does not have a practical transaction per second limit. 

Now, even though subnets can create their own set of rules for how that particular blockchain will operate, all subnets are ultimately required to validate their own blockchain and the Primary Network chain as well.

Validating the Primary network requires every subnet to be a Primary Network member, a status that is given to those who are staking 2000+ AVAX tokens in the platform.

What Makes the Avalanche Network Special?

According to the developers of the Avalanche platform, it is capable of handling something in the order of 4500 transactions per second. This is compared to only around seven transactions per second for Bitcoin and 14 transactions per second for Ethereum. 

The Avalanche Network is also able to achieve transaction finality in just under three seconds. 

Time to finality is the time it takes for a crypto transaction to get processed and be considered irreversible and permanent. And once a transaction achieves finality, it is literally final itself. It cannot be altered or rolled back.

Finality is an essential feature of blockchain, especially when it comes to financial applications. However, time to finality is not equal across the different blockchains. 

For example, Ethereum achieves finality in around one minute, whereas Avalanche achieves finality in just one second. This is pretty close to near-instant in today's real-world usage.

The Avalanche Network is arguably better suited for massively scaling up decentralized applications, which would otherwise be bottlenecked and restricted on the other competing platforms.

And that's not all. Apart from being highly scalable, Avalanche has also been built to tackle the other major issue facing blockchain-based systems of today - interoperability.

The Avalanche Network achieves interoperability by enabling blockchains both within a subnet as well as between subnets to communicate with one another. This allows them to complement one another and provide supporting cross-chain value transfers. 

It is also remarkably inclusive. In a space where many proof of stake (PoS) blockchains allow only a select number of validators to take part in achieving consensus, Avalanche allows anyone staking at least 2000 AVAX to take part. 

The platform has completely finished off the concept of slashing. This means that users will not be able to see their stake penalized if their node malfunctions or misbehaves. This has been another welcoming move by the platform that appeals to its users.

As of now, the only true rival the Avalanche Network has is Ethereum, the blockchain platform that currently reigns supreme on the DeFi space. Even though the platform supports the Ethereum Virtual Machine (EVM), it uses a different consensus mechanism to secure its network while also supporting cross-chain value transfers without the requirement for bridges.

What can Users do on the Avalanche Network?

The Avalanche Network allows for users, individuals, as well as firms, to easily deploy their own purpose-built blockchains. This can either be for private use-cases, such as permissioned blockchains, or public ones, such as permissionless blockchains.

The platform is unique in that it makes use of a combination of multiple custom-built blockchains, along with a powerful proof of stake consensus mechanism. This makes it an incredibly powerful and decentralized platform for developers to build their products on.

Since Avalanche is compatible with the Ethereum toolkit, developers can easily port their Ethereum dApps to Avalanche, and it can easily launch a wide variety of decentralized applications on the platform.

These decentralized apps are able to run on their own independent Avalanche blockchain, which gives developers a great deal of control over how these are secured and how they function, along with who has access to them.

These capabilities are attracting many users from all over the world to the platform. And it is owing to these unique capabilities that the platform has witnessed the development activity on Avalanche skyrocket in such a short time. There are already a wide variety of applications available that are using Avalanche's technology, including applications surrounding private securities (Securitize), stablecoins (Bilira, which is a Turkish Lira stablecoin), and even prediction markets (Prosper).

What are the Staking Rewards on the Avalanche Network?

All subnets, including Avalanche's Primary Network, need validators who own and stake the AVAX tokens as collateral. However, that does not mean that you have to be a validator in order to get rewarded for staking AVAX. If you want to get AVAX staking rewards, you can also delegate your stake to a validator to earn a percentage of the staking rewards.

As of now, only around 64 percent of AVAX tokens are staked. Validators earn just a little less than 11 percent APY, and delegators can easily earn 9.53 percent staking rewards.

AVAX is the commonly used currency used between the subnets. It is important to use AVAX between subnets because it boosts interoperability between the subnets that would otherwise be using their own internal cryptocurrencies.

Two of the central use cases of the Avalanche Network revolve around creating blockchain networks called subnets and custom tokens. Developers are able to leverage the platform to deploy DeFi protocols, non-fungible tokens (NFTs), and games, amongst a whole range of other available options.

Creating custom tokens with the use of X-Chain, launching smart contracts through the C-Chain, or generating subnets all require AVAX payments. Subnets, especially, are subscription-based and involve recurring AVAX payments.

What is the Pangolin DEX?

When you enter the Avalanche ecosystem, it is important to familiarize yourself with Pangolin. Pangolin is a community-driven decentralized exchange (DEX) platform that is also supported by Ava Labs. 

Pangolin is an automatic market maker or AMM. This means that the DEX uses algorithms instead of order books to set prices. 

The DEX is an important part of Avalanche's rapidly growing ecosystem, and it has been built to demonstrate the unique and smart capabilities of the Avalanche platform.

Pangolin is also built on Avalanche itself, and thus it features very low fees and fast performance. It is also compatible with all Avalanche and Ethereum tokens, thus giving users a wide range of liquidity pools to trade from.

Just like many of the other AMM-type decentralized exchanges, Pangolin also features a liquidity mining incentive program. This incentive program allows liquidity providers to earn the DEX’s native governance token, known as PNG.

What is the Avalanche Rush Program?

There is no doubt that Avalanche's top-class transactions per second performance and its EVM compatibility are winning over some of the biggest names in the DeFi ecosystem.

Even though Ethereum is still the leader in the DeFi universe with a $158 billion total value locked, Avalanche is also quickly growing. It has also crossed $2 billion+ total value locked, indicating clearly that the network is rapidly garnering a following.

In an attempt to capitalize on its growing reputation, the platform launched the Avalanche Rush Program. It is an incentives program that is aimed at drawing liquidity into Avalanche's network of decentralized finance applications.

Avalanche Rush and its $180 million fund reward liquidity providers with AVAX token incentives. As of now, Avalanche Rush has proven to be highly successful.

What is the Avalanche Bridge for ERC-20 Token Swaps?

As mentioned above, Avalanche is an Ethereum compatible blockchain platform. And this compatibility is enabled by the Avalanche Bridge. 

ERC-20 emerged as the technical standard, and today it is used widely for all smart contracts on the Ethereum blockchain for token implementation and also provides a list of rules that all Ethereum-based tokens must follow.

ERC-20 is similar in some aspects to Litecoin, Bitcoin, and many other cryptocurrencies. They are blockchain-based assets that have value and can be sent and received. The major difference is that instead of running on their own blockchain, ERC-20 tokens are issued on the Ethereum network.

Having a bridge such as this in place for users who are interested in trying out Avalanche with their existing Ethereum tokens has given Avalanche an automatic exposure to billions of dollars of available token liquidity. 

The Avalanche Bridge works together with MetaMask in a similar manner as Ethereum, Binance Smart Chain, and Fantom do. In case you haven’t heard of MetaMask before, feel free to check out our article about it.

Using the Avalanche Bridge from Metamask will require you to have some amount of AVAX to pay the transaction fees.

Before You Go…

Even though Avalanche has been around for more than a year, it has rapidly moved up the crypto ecosystem and has made a name for itself. In line with this progress, there is a whole range of developments and product releases that are lined up for the users of the platform.

While things look great for the Avalanche Network right now, whether it holds its own in the future or not is something only time will tell.

Sherwood P

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