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Avalanche is an open-source platform for launching dApps, cryptocurrencies, and deploying other blockchains, all combined in one highly scalable ecosystem. The network has “near-instant” transaction finality and supports all projects developed for Ethereum. The platform aims to solve scalability, high gas costs, and interoperability issues faced by many protocols in various crypto fields.
The blockchain makes use of Virtual Machines (VM), which allows developers to omit such “lower-level logic” processes like networking, as well as avoiding consensus protocol or the general structure of the blockchain. These processes are handled by Avalanche in order to reduce the workload of dApp creators.
The network consists of three interoperable built-in blockchains separating the load of the whole network. Thanks to this approach, the platform improves the speed and scalability compared to running all processes on just one chain. The project employs a unique consensus protocol designed to fit the needs of their respective blockchains.
One of the key features of Avalanche which helps achieving its high throughput of 4,500 transactions per second is its method of blockchain data storage. The mechanics in place utilize DAGs or Directed Acyclic Graphs - a common data storage system in computer science, which is often used in artificial intelligence. The other key concept in use is the so-called vertices - these can be viewed as blocks of data containing the hashes of their parent blocks as well as a list of transactions that nodes can vote on in batches. An important feature of the Avalanche vertices is that they can have multiple parents unlike Bitcoin and Ethereum for example, where blocks of data can only have one parent and one child.
Arguably the most important building block of the Avalanche consensus is the Snowball algorithm. It is made up of four parameters, which are the number of participants in the validating process, the sample size (the number of validators sampled during each network poll), the quorum size (the number of validators that must agree on a transaction status during each network poll), and decision threshold, this number represents the number of times the network needs to get same consecutive responses from nodes agreeing on the validity of a transaction (or otherwise), in order to complete it.
The way the algorithm works starts by having nodes initially create a preference over the validity of a DAG, and the algorithm queries 20 nodes (the sample size). If the quorum size of 14 or more nodes give the same response it is adopted as the new preference. The polling then is repeated 20 times (decision threshold). And the fact that those parameters (sample size, decision threshold, quorum size) are constant, no matter how many participants there are in the network, gives Avalanche the ability to scale and process transactions in seconds and is referred to as subsampling.
When voting on the state of the network, the Avalanche nodes’ vote on vertices counts for all transactions within them, the vote also counts for all preceding vertices and the transactions contained in them due to the parent-child connection between them. The fact that one vote for a vertex is many votes in one and each vote is applied transitively upward gives the name to another Avalanche feature that is called transitive voting and is said to help with the transactions throughput of the network.
Avalanche’s optimizations also include nodes not having to wait for all network participants to cast their vote, since if a poll reaches a majority, or cannot reach it, the voting ends.
The three built-in blockchains on the network are called Exchange Chain (X-Chain), Platform Chain (P-Chain), and Contract Chain (C-Chain). They are validated and secured by the Primary Network. The P-Chain can also be used for the creation of custom subnets, provided the user has staked at least 2,000 AVAX tokens and is a member of it.
Subnets are a dynamic set of validators who work together in order to achieve consensus on the state of a set of blockchains. Through the architecture of the Avalanche protocol, subnets can ask validators to meet certain requirements, such as geographical location, KYC checks, holding certain licenses, minimum hardware requirements, or anything else they might decide.
One of the built-in blockchains is the Exchange Chain or X-Chain, which is used for the creation and exchange of digital assets. The network represents a real-world resource platform with a set of rules governing its behavior. All transactions occurring on the network are subject to fees denominated in the platform’s native token – AVAX.
The X-Chain uses the Avalanche consensus protocol, which consists of having all the nodes of the network process and validation of transactions in parallel to each other through repeated sub-sample voting. This method does not create blocks like in traditional blockchains, and instead utilizes so-called parented transactions, because of that all transactions on the network are finalized immediately without other confirmations needed. The Avalanche consensus protocol helps in performance and decentralization, as it makes running a validator node and validating transactions accessible thanks to low hardware requirements.
Another of the three built-in blockchains of the Avalanche network is the Contract Chain or C-Chain. It is used by developers in the creation and use of smart contracts and dApps. Besides Avalanche VM, this chain has an implementation of Ethereum Virtual Machine (EVM) allowing developers to deploy EVM-compatible dApps.
The C-chain employs a modified version of the Avalanche consensus protocol, called “Snowman”. Some of the differences in the mechanics of it and the other consensus method employed by Avalanche is ordering transactions linearly, which is especially useful when dealing with smart contracts, and the creation of blocks by the validating process. The Snowman protocol is developed by a team of Cornell computer scientists and is able to permanently confirm transactions in under one second, at a scale of 4,500 TPS.
The last of the three built-in blockchains making up the Avalanche network is the Platform Chain or P-Chain. This chain is the metadata blockchain, which coordinates validators, and keeps track of active subnets. P-Chain enables developers to create new subnets and complement them with validators. The P-Chain also implements the Snowman consensus protocol, as its linear nature makes it easier for the network to keep track of validators, as well as include and exclude them from subnets, if necessary.
Avalanche can be used in the creation and development of dApps, financial assets, and blockchain networks; it is also optimized both for enterprise-scale and public networks, which support custom sets of rules. The platform has implemented an EVM to provide a highly flexible and scalable environment for developers. The protocol supports trading and has its own governance token, used also as the main payment method for Avalanche fees. There is an official Avalanche wallet that can be easily created and used for storing AVAX coins and assets providing full custody over users’ funds.
Apart from using the Avalanche network for the creation of dApps and blockchains, users can also create ERC-20 tokens and mint them to any address. Tokens are accessible through the C-Chain and require deployable smart contracts on Solidity.
Avalanche AVAX staking programs are available to holders of the token and can be used to earn rewards, such as up to 11% APY for validation or delegation of the validating power to other validators on the chain. In order to participate in the validation process, users need to have at least 2,000 AVAX tokens staked. All validators can set their own fee for accepting delegations to their node. Currently, there is no slashing of staked tokens implemented on the platform, and the hardware requirements for running a node are advertised by the company as the “lightest hardware requirements of any blockchain”.
The AVAX token is used for securing the network by staking and running validator nodes or delegating validating power to other nodes, its maximum capped supply is 720M tokens, separated into two batches - the genesis block, which contains half of the tokens, and the other half - planned to be minted over time. All fees paid in AVAX are burned in order to increase the scarcity of the token supply.
AVAX tokens can also be leveraged and used as a basic unit of account between the multiple blockchains, they are also required in the creation of blockchains as well as for minting and trading tokens. Through the token, users can also interact with smart contracts.
The way AVAX’s monetary policy is structured aims to balance the incentives of the end-user by staking the token and using it to interact with the services provided by the platform. Through this system, the project’s participants act as a decentralized reserve bank.
The reward rates for AVAX-backed incentives will decrease over time as it gets closer to the capped supply, and the rate of minting is designed to react to changing economic conditions. All of the rates can be changed by token holders through community governance.
Avalanche was launched in September 2020, by a company called Ava Labs in the USA. The team raised $6M in a financing round followed by private and public token sales totaling more than $45M. Ava Labs is led by Emin Gün Sirer who besides from being an associate professor of computer science at Cornell University, is largely known among the scientific field for his contributions to peer-to-peer systems, operating systems, and computer networking. He developed the Avalanche protocol and its unique consensus model at Cornell University at first, with the assistance of Maofan Yin and Kevin Sekniqi.
The current team working in Ava Labs consists of experts in computer science, economics, finance, and law. The company has two offices – in New York and Miami. The Avalanche team has a collective experience from leading Fortune 500 finance and tech companies to high-growth blockchain platforms.
Currently, there are no Avalanche hacks confirmed, but there have been several exploits occurring on the network. It should be noted that so far, they have not been linked to security issues concerning Avalanche.
The Avalanche protocol has been audited by Halborn in September 2020 and June 2021.
The Avalanche ecosystem consists of around 400 projects, major investors in the platform include Polychain and Three Arrows Capital. In late 2021, the Avalanche Foundation started a program aimed to accelerate development, growth, and innovation across the network, through a fund worth over $200M. The program is called “Blizzard” and is the second such incentive launched on the network, following the $180M fund allocated to a program called “Rush” which gave out distributed assets among users providing liquidity in some pools. So far, there are over 10 projects that have taken advantage of the funding program.
Later in the spring of 2022, the Avalanche Foundation introduced Avalanche Multiverse, a $290 million incentive program designed to promote the adoption and expansion of its unique "subnet" feature. This functionality allows for the creation of scalable blockchain networks tailored to specific applications. The program aims to support various ecosystems such as blockchain-based gaming, decentralized finance (DeFi), non-fungible tokens (NFTs), and institutional use cases.
Although at the moment there is no public Avalanche roadmap, there is some information circling online about what the 2023 Avalanche roadmap is.
Avalanche is also working on reducing the size of the blockchain, as if it gets too large in the future, it would be difficult for more than a few validator nodes to store its full transaction history, which can compromise the decentralization of the protocol and become a security threat.
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Last updated: Aug 22, 2023
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