In this blog, we are going to explain what the Avalanche Network is, what makes it different from literally any other crypto application we’ve seen, and at the end, you’ll learn the secrets of the AVAX token, including exactly why the price recently went from sixteen dollars to fifty-five dollars in two weeks.
Consensus Models: A Brief History
To understand the Avalanche Network, we first need an economics lesson about their unique proprietary consensus model.
First of all, you need to know that the consensus model people used for a long time was called Practical Byzantine Fault Tolerance (PBFT). Around the 1980s, this algorithm took off and was essentially a computer science algorithm that helped a bunch of things come together and make a conclusion based on the information that they had.
Next up, around 2009, we had the start of Bitcoin, which introduced the Nakamoto era of consensus. Nakamoto created and shared the Proof of Work mechanism, which we have an entire video about but is in many ways better than the old Byzantine model.
Finally, in 2020, Avalanche launched their Avalanche Consensus Model Network. This thing is complicated, so I’m going to attempt to give you a high-level understanding of it without upsetting any of their engineers.
Avalanche Consensus Model Explained
Basically, the network follows Proof of Stake pretty closely but has a few unique differences. First off, the Avalanche model uses a form of sub-sampled voting. This means that there’s a large group of people who volunteer to participate in the network and get randomly asked to check things.
To put it in their own words, small random subsets of validators are asked whether they think the transactions would be accepted or rejected after it is initially thought to be valid. Something called network gossip happens, where the participants exchange information back and forth and continue to validate the transactions or deny them.
One of the benefits of this is that, contrary to Proof of Work and Proof of Stake mechanisms, it doesn’t matter how many nodes there are or how many people there are in the system; consensus will be reached within a certain desired timeframe. Also, due to some technicalities, this consensus model is actually much more difficult to attack. Unlike Bitcoin, where you would need 51% of all the computers to attack the network, or Ethereum 2.0, where you would need 51% of all the staked tokens to attack the network, with Avalanche, you would need to control up to 80% of the network to perform an attack.
Transaction Speed and Finality
This model allows for up to 4,500 transactions per second per subnet and has a finality clock of less than three seconds. Now, we’ll explain what subnetting is later because it is really important, but right now you just need to know that each subnet can process up to 4,500 transactions per second. If you have a thousand subnets, you can do a lot of transactions. Compare this to Bitcoin with seven transactions a second in an hour-long finality and even Ethereum, which pales in comparison with 15 transactions a second and a 10-minute finality.
Network Infrastructure: The Three Blockchains
Now that I’ve basically explained how the Avalanche consensus model works, let’s get into the real thing where Avalanche shines: its network infrastructure.
First off, Avalanche has one primary network that actually has three built-in blockchains. That’s right; Avalanche isn’t just one blockchain; it is at least three.
The X-Chain
The first blockchain in the network is called the X-Chain. This part is specifically for creation, management, and transaction of tokens on the network. Now, the engineers would tell us in technicality this is actually based on a DAG (Directed Acyclic Graph), which is a unique form of a consensus model unlike a blockchain, but it is out of the scope of this blog. I just thought it would be interesting to add that the Avalanche team is not married to one protocol.
The C-Chain
Next up, we have the C-Chain. The C-Chain is specifically for smart contracts. It is actually an exact copy of the Ethereum Virtual Machine, so you can instantly copy and paste and start using Ethereum dApps on the Avalanche network. In my opinion, they were very smart with this, allowing developers to move their projects over without doing much work. This chain also uses something called the Snowman Protocol, which I’ll talk about in a minute.
The P-Chain
So, we have the X-Chain for transactions and the C-Chain for smart contracts. Next, we have the P-Chain, or the Platform Chain. It is specifically for the management of the subnets and also coordinates all the validator nodes and the staking mechanism.
Subnets: Scalability and Customization
This brings us to a very big and very important question: What are subnets? Each subnet is a new network in the Avalanche ecosystem. That’s right; this system is scalable in so many ways.
Let me try to explain subnets. Each subnet can have multiple blockchains, just like the primary Avalanche network. Secondly, each blockchain in a subnet can have its own consensus model. From what I’ve heard, this means if you’re creating one, you can pick Proof of Work or Proof of Stake depending on your needs.
Another really cool thing is that each blockchain can have its own VM (Virtual Machine). You can copy the Ethereum Virtual Machine just like the primary chain did.
Another important thing about these subnets that I didn’t really understand at first is that they can be permissionless or permissioned. This means that they can either be public or private blockchains. Now, you might start to understand the purpose of this if you are a government and you want the full power of a blockchain without developing the groundwork. You can just add a subnet in Avalanche’s ecosystem. Maybe you’re a government or a business or an organization or some other protocol needing to use these very powerful tools without wanting to actually invest in something new.
In Avalanche, you can even change the rules for each blockchain in your network. You can make it so that it is compliant across many different geographic or political requirements. For example, you could say every validator in your subnet needs to have a license, or maybe they need to fill out certain tax information. Avalanche is built to be able to create and follow rules like that.
One last important thing to add is that to validate your own subnet, you are also contributing to the validation of the entire network via the primary three chains.
Snowman Protocol: Optimized Consensus
Let’s get into something fun. Moving on from the infrastructure, let’s get into a specific detail about the network. The main primary network uses the Avalanche consensus model, but Ava Labs created an even more powerful consensus model called the Snowman Protocol.
Yes, just to make you understand them, let’s talk about the quick difference between the Snowman Protocol and the generalized Avalanche Protocol because the difference is quite small; however, it is powerful.
The Snowman Protocol is the linearized version of Avalanche so that it can fit the needs of the Ethereum Virtual Machine. Basically, Snowman Protocol has been optimized for smart contracts and high throughput. On the other hand, Avalanche is a more general use case where it is implemented using a DAG structure, which is also seen on the X-Chain.
Like I said at the beginning, a lot of this stuff is really confusing, so I’m trying my best to explain it so that you can understand it. You may need to read this blog more than once. Summing it all up, these were a bunch of technical terms, but you just need to know that the Avalanche developers are really smart and basically optimize things as best they can for the situations that they see fit.
AVAX Tokenomics
Before we make any price prediction or let you in on some very useful information, let’s get into the tokenomics of the AVAX coin, which powers the network.
First off, there is a max cap of coins at 720 million. This immediately makes it a deflationary asset. Secondly, AVAX coins can be used as governance on the platform. This means the more coins that you hold and stake, you have more voting rights and you get to make important decisions in the future of the network.
Here’s the bad news though. Ava Labs pre-sold 127 million coins when they launched, and many of those coins are subject to an unlocking period. This means many investors who bought the coin at 50 cents may want to lock in some of their 100x profits and sell immediately whenever they can.
Now, this is bad news for investors, but the good news is that they aren’t dumping all of these coins at once. So, here’s a picture of their unlocking schedule, and if you’re thinking of investing in AVAX, be mindful of these dates and how the past dates have affected price. Another thing worth noting is that the team and the foundation were also given around 20% of all coins.
Recent Price Surge and Incentives
Finally, what you’ve been waiting for: the good news about AVAX and why their price has spiked so much recently.
The Avalanche Foundation has announced a 180 million dollar incentive program to get people to try out their network. This means they are quite literally giving away 180 million dollars for free as a form of advertising. This happens all the time in the DeFi world and it’s not a scam. The incentive program is supposed to bring two big players to the network: Curve Finance and Aave.
Now, Curve and Aave have tens of billions of dollars of liquidity locked up on networks like Ethereum and Polygon. So, it was really smart of the team to get them to come over to the AVA network. When this initially launched, we saw the price of AVAX spike from 15 to 55 dollars in a few weeks as hungry investors started bridging their money over using the AVAX bridge.
We will never give financial advice on this blog and we’ll probably never do price predictions, but this is a very bullish signal for anyone interested in the AVAX network.
Conclusion
Finally, we want to say thank you guys so much for reading through this blog. We hope that you’ve enjoyed it, and most of all, we hope to see you in the next blog.
