It is easy to look at the big names in cryptocurrency like Bitcoin and Ethereum when searching for projects to invest in. Both of these projects have their merits, but neither is perfect. That reason is why there is so much press about the coming Ethereum update - people want to see what Ethereum will do to grow.
However, projects like Avalanche currently do something like what the big projects want to be like in the future. Here is a look at what Avalanche is like and what makes this project something that could be worth investing in.
Avalanche is a proof of stake (PoS) blockchain project that began its operations in September 2020. This blockchain operates as a potential solution to the blockchain trilemma problem that haunts many of the larger projects on the market today.
A part of its solution to the trilemma is its unique proof of stake systems. Proof of Stake continues to be a way for blockchain projects to create validators for their network without requiring expensive ASIC hardware seen with projects like Bitcoin and Ethereum. Lowering the bar increases the decentralization capabilities of the blockchain.
The Avalanche blockchain also features smart contracts, autonomous bits of code that execute when a trigger condition is met. Developers on Avalanche create these contracts using Solidity, the same coding language used in Ethereum's smart contracts. This choice allows Avalanche to operate with Ethereum and other blockchains based on the Ethereum Virtual Machine (EVM).
The concept of Avalanche goes back to May 2018, when a group of software developers called Team Rocket published an article detailing the workings of the Avalanche protocol. This pseudonymous group created much of Avalanche's workings, including the unique features meant to solve problems created by other projects.
Not long after that paper came out, a Cornell University professor named Emin Gün Sirer founded Ava Labs, the creators of the Avalanche blockchain. The group continues to develop the blockchain today.
Avalanche raised roughly $42 million through an initial coin offering (ICO) in July 2020, giving it the capital needed to begin its development. Since then, the project obtained investments from venture capital companies and other investors, such as Polychain, Three Arrows Capital, Mastercard, BitGo, and Deloitte.
Avalanche utilizes a multichain approach to process transactions and settle its governance. Three blockchains make up the core of Avalanche’s architecture.
The first of these chains is the Exchange Chain (X-Chain). This blockchain handles transactions relating to default blockchain operations and is where the protocol mints the native coin AVAX.
Secondly, there is the Contract Chain (C-Chain). This blockchain allows for the creation of smart contracts and manages their execution. Much like Ethereum, Avalanche’s smart contracts have interoperability with other blockchains, allowing services like crypto bridges to exist within Avalanche’s ecosystem.
Finally, there is the Platform Chain (P-Chain). This blockchain works with transaction validators as their platform for verifying transactions. Subnets built on top of Avalanche communicate with the mainnet through this blockchain, too.
Each of these blockchains relies on the proof-of-stake mechanism built into Avalanche.
The native token of the Avalanche platform is AVAX. This token powers the transactions across Avalanche's three blockchains. AVAX also acts as the distributed reward for users staking their AVAX in validator nodes or those who participate in decentralized finance (DeFi) dApps on the blockchain.
AVAX is also the token used to participate in governance on the blockchain. Users commit their AVAX to validator nodes during votes on protocol changes. The nodes then align themselves with which direction they want the project to go.
If you have heard blockchain developers talk about creating blockchain projects, you are familiar with the blockchain trilemma of scalability, security, and decentralization. This trilemma suggests that blockchain projects can design for two of those features, but creating a project with all three is nearly impossible.
The current solution for this problem is cross-chain communications. Rather than forcing users to do all of their transactions on one blockchain, interoperability allows blockchain users to find less-congested blockchains to handle their transactions and have lower-layer solutions settle the transaction data later.
This solution is currently being implemented by Ethereum via their 2.0 upgrade through shards and Layer-2 blockchains. Rather than retrofit this idea on their projects, Avalanche started as a multi-chain solution.
Avalanche also wants to ensure that its consensus model does not contribute to the growing concerns about cryptocurrency’s environmental worries. Due to the low-resource requirements of Avalanche validator nodes, Avalanche’s staking mechanism requires less energy than most other staking protocols, meaning Avalanche runs on less electricity than other blockchains.
Part of what makes Avalanche unique is its blockchain structure. Rather than relying on a single blockchain to process all transactions for the network, Avalahance uses three main blockchains, each with a dedicated category of functions it handles.
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