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To say that 2020 was an eventful year is a relatively mild understatement. In between dodging the odd pandemic, we've also had to deal with the slew of new Ethereum killer launches. Blockchain projects that are looking to seriously address the network scalability issues that we know all too well. Projects that have built a protocol that can seriously challenge the status quo and create a paradigm shift in the blockchain space. One such project is the recently launched Avalanche and it is one that I think has insane potential. So in this article I'm going to give you everything you need to know about the project. Are we taking a look at its history tech and its team? I'll also analyze its use cases and adoption potential, and I actually have a price prediction for their avax tokens (or Avalanche Coin). So you definitely don't want to miss that. Before we embark on this journey, we need to make sure that we're all strapped in safely. First order of business, I am not a financial advisor, hate to break the news to you. Just didn't take that test. What I present is educational content to be used as a handy supplement to your own research. Now with that out of the way, I would love to welcome anyone that's new here. I am "MrCrypt" your crypto dude and over here at the cryptolibrarynow I cover everything , well crypto. Ok, that's enough of the foreplay. Let's dance with avalanche.
What is Avalanche?
First things first, what the hell is avalanche? Well, it's an interoperable smart contract platform that was built from the ground up to not only be extremely fast and scalable, but also highly customizable. Not only does it support's the Ethereum virtual machine, but it also has support for application specific sharding , network level programmability and non fungible tokens. Now I know that is a lot, but I will be going through it in more detail shortly. Avalanche is basically a blockchain that its developers are hoping could eventually scale to visa level throughput with subsecond finality. A blockchain that is inclusive and does not require expensive specialized equipment to take part in. This is all possible thanks to their unique consensus protocol. That's not only highly scalable, but also incredibly decentralized. The network has been developed by some of the smartest brains in the blockchain space, pioneering researchers in the field of cryptography and distributed systems. It's being built by a blockchain development company called Ava Labs. They've been building the Avalanche protocol for over two years and have managed to raise a sizable amount of funding. This has been through a number of public and private rounds. In fact, during their public sale of their avax tokens in July, they managed to take in their hard cap of $45 million in the span of only five hours. Pretty crazy. This has all culminated in their recent main net launch which went live on Monday of this week's a much awaited event that had many in the blockchain space on the edge of their seats. Ok, that's a rough overview of the Avalanche network. But in order to understand how all of this is able to be brought together, we have to look at the heart of the network and that is, of course, their revolutionary consensus mechanism. So let's dive in, shall we?
Current consensus mechaninsm in CryptoWorld -:
When it comes to establishing consensus in distributed systems, there are two broad consensus disciplines that have been used in the past. Firstly, you have what is called classical consensus methods like Practical-Byzantine-fault tolerance (PBT). These are based on all to all voting by the nodes in the network. There cannot be a single chance of disagreement on the state of the blockchain by any of the nodes. This of course means that transactions can finalize in an instant after a node has received responses from the requisite fraction of the nodes, so it's fast. However, it does not scale well with the number of nodes participating. Fun fact about the classical approach it's currently being used by Facebook's Libra with only 100 validators. Ok, so the classical approach is not ideal for large distributed systems. However, things changed in 2008 when Satoshi Nakamoto released the Bitcoin whitepaper. This is where the term "Nakamoto consensus" came about. The way that this changed consensus is that made the correctness definition probabilistic. Unlike with the classical approach, an agreement on the current state of the blockchain does not have to be 100% correct all the time across all nodes, there is room for a tiny discrepancy that will eventually become insignificant. The more blocks there are. This is perhaps where you've heard of the longest chain terminology as it relates to bitcoin. Now, despite how revolutionary the Nakamoto consensus was, there are severe problems when it comes to energy use and transaction scalability, something we all know too well from bitcoins current woes. So those are the two most well known methods of reaching consensus. However, in 2018, as pseudonymous group named Team Rocket proposed a third class of consensus methods, which of course was called Avalanche. This brings together the benefits of both the classical consensus mechanisms and Nakamoto consensus. Basically, it showed that you could apply probabilistic approaches to your standard classical consensus. You can scale a Byzantine fault tolerant network without sacrificing security.Now, the exact mechanics of how this consensus mechanism works is beyond the scope of this article. There is a specific white paper for that. However, I do want to give you a bit of a high level overview.
Avalanche consensus mechaninsm-:
The consensus mechanism works by repeated sampling of the network. Essentially, each node will query a small constant sized and randomly chosen set of neighbors about the current state of the network. If at any point there is a super majority of these neighboring nodes that supports a different value than the node will switch. The term for this is network gossiping. The nodes will gossip with other validators about the validity of the transactions that are being proposed on the network. They can increase their confidence that they are about to submit a valid transaction record by polling the other nodes. Notice how the validators can continue polling a random K selection of validators and thereby increase the probability that they are about to submit valid transactions. I should also point out that this system as described gets Sybil protection through proof of stake. The chance of a certain validator being selected is proportional to the stake that they have in the network, the main benefit of this is that you make it extremely costly for any adversary to try and control a portion of the network. One final thing I should point out is that although the AVAX network will use a proof of stake mechanism, the Avalanche network enables subnets to be launched with proof of work and proof of stake. Something I'll come on to in a bit. It's also important to point out that Avalanche is a DAG optimized consensus protocol that's able to process transactions in parallel. This, of course means that particular transactions on the network will not slow it down as they do on traditional blockchain architectures. Oh, and if that's not complex enough, you also have another chain optimized consensus protocol called Snowman that is ideal for smart contract operations. Are you still with me? I know there's a lot to take in, so feel free to fire any questions into the comments and I will try to get back to them. So if there's anything you need to take away from this talk of the consensus method is that it is scalable, secure, and decentralized. It is solving for that dreaded blockchain trilemma that you'll often hear about. Four and a half thousand or more transactions per second. Transactions that settle in less than 3 seconds. Energy efficient with no hash rates required. A network that can scale to thousands or even millions of nodes and so on. Now of course I should point out that these are just estimates. The network has only been live for a few days and it will take time to see whether these forecasts will be borne out in practice. But I do like what I'm seeing on paper. Ok, that's the underlying consensus engine. I know I may have gotten carried away, but I only just scratched the surface. It really is one of the most important selling points of the Avalanche network. However, an advanced consensus engine is nothing unless you can convince developers to build on top of it. This is where the broader Avalanche platform comes in.
Avalanche Platform -:
The Avalanche platform introduces this concept of subnets or sub networks. Basically, these are a dynamic set of validators that work together to achieve a consensus of the state of a collection of blockchains. They are required to create their own custom incentive mechanism for their validators, which is why they can be proof of work or proof of stake. These subnets can also be permissioned and limited to a certain number of validators. This could make it ideal for those developers who are concerned about the privacy or security concerns of an open, permissionless network. He was a completely permissionless subnet. Then validators can decide which subnets they would like to join if a particular subnet does not apply to them, then they can just avoid joining it. This means that you can reduce transaction bloat. Remember, in other blockchain projects every validator has to approve every transaction on the network. Having said that though, there is one subnet that all the validators have to be a part of, and that is the default subnet. The default subnet validates a set of predefined blockchains, including the blockchain, where the AVAX token will reside. This also means that each of the blockchains within the other subnets has the ability to interact that old interoperability chestnut. This design of a network of interoperable subnets that are all connected to an underlying subnet makes Avalanche relatively similar in function to the likes of Polkadot with their para chains. Moving further down the tech stack, you have the virtual machines which can be seen as a blueprint for a blockchain. Each blockchain within the sub networks must specify which VM it runs. This gives further customization options to developers and Speaking of virtual machines, Avalanche features complete support for the EVM. This means all that etherium tooling that you're used to can be used right out-of-the-box. We're talking meta mask, new remix, etc. However, as the Avalanche network progresses, they envision a platform that will support a richer and more powerful set of smart contract tools. These include all of these tools over here. That parallel execution one is interesting as it will mean that operations on one smart contract can be run at the same time as another one in the same subnet means less bloat. Ok, So what does all this mean? Well, it basically means that Avalanche has built a highly customizable network that is well suited to a large swathe of developers and use cases. A network that leverages the underlying consensus engine and subnet to build a complete Internet of blockchains, each with its own consensus rules and controls. Now I don't want to get bogged down too deep in the tech here as I've not even touched on their native Avax token and this is no doubt one of the most critical components of the network. So let's take a look at it.
Avalanche Coin (or Avax Token) -:
AVAX , ticker AVAX is the native token that powers the Avalanche ecosystem. It secures the network, pays for fees, and provides the basic unit of account between the multiple blockchains deployed on the larger Avalanche network. So there are a number of demand drivers for the token, both from a utility. and staking perspective, there's also a governance component, which means that holders will have a say in the direction of the Avalanche network. Firstly, let's start on that staking component. Validators will have to put up a stake of AVAX in order to take part in the consensus mechanism. The number of resources spent by that validator are proportional to their stake. Similarly, the rewards that the validator will get are proportional to the stake that they've put up. The staking rewards are also based on proof. Of uptime and proof of correctness. Hence they are encouraged to stay online longer as their rewards are tied to these variables. The initial requirements in order to stake are only 2000 AVAX, so it's quite a low bar and inclusive. Staking rewards are paid out through special minting transactions where the validators will earn newly created avax subject to actively participating in the consensus. The exact amount of tokens that will be earned in the ecosystem is a function of how much is being staked. I'll get on to this in a bit onto the next use case, and we have those transaction fees. What's important to note here is that although these are paid in avax, they are not earned by the validators, they are in fact burned and taken out of supply. This has the positive effect of increasing value for all those in the network and not just the validators. Contrary to the way Bitcoin or Ethereum works with the miners. There are also some pretty unique designs around the fee structure at Avalanche. For example, the fees will differ according to the type of transaction setting up new subnets will demand the highest fees, whereas simple transactions and payments with Avax will cost the least and when it comes to transactions within the individual. But that's these will be paid in the native token with their own fee structure. You should also note that unlike is the case with Bitcoin or Ethereum, the fee is not set by the issuer of the transaction, but is set by a globally verifiable fee function. Generally as congestion increases, so will the fee. But this is not in the control of the transacting. Party. Finally, Avalanche will have a transaction tier system where there will be a free fee allotment for particular addresses. There is also the possibility for later iterations where transactions invoking parties earn free fees by committing a valid proof of work of some sort. So basically they can use some of their computation. Now to be able to transact the free. So these are all of the demand side drivers of the Avalanche ecosystem. As you can see, they've made Avax central to the operation of the network. Yes, the individual subnets can issue their own token, but Avax is initially needed in order to set-up these subnets. Avalanche has also created a demand for AVAX in order to pay standard transaction fees, but in such a way that no transaction can get precedent based on the gas they pay. Sounds pretty egalitarian to me. However, in order to determine just what impact this could have on price, if any, we have to take a look at the supply side factors.
AVAX Tokennomics -:
The first and most important thing to note here is that you have a total supply cap of 720 million AVAX tokens. The Genesis block that was initiated on Monday had an initial supply of 360 million tokens. when it comes to protocol inflation, the emission function is designed in order to reach that cap supply in a slow and steady way, similar to Bitcoin. Do note that the rate at which it reaches that supply CAP is a function of how much avax is staked, however, what's crucial to know here is that this reward rate is not a fixed parameter. Those that govern the ecosystem, token holders can choose the rate at which avax reaches that cap supply. This makes it much more robust than a number of other protocols that have a set and forget inflation. Schedule. For the first year of the main net launch, there is expected to be staking returns that range from between 7 to 12%. This is a pretty decent rate of return and is on the upper end of the return rates of all the proof of stake coins and tokens on Binance staking for example. Now I know what you're thinking. What about all those tokens that were sold in the seed, private and crowdsales? Are they not likely to flood the market and tank the price? Well, not really. There is a pretty strict token unlocking schedule from nearly all those tokens that were purchased. You can take a look at it here. Something that you will notice is that only public sale option B has no vesting at all. This means that they are the only individuals who can freely sell all their tokens right after the main net launch. However, they are a relatively small portion of the token supply and hence even if they do sell, it is unlikely to impact on the market supply too much. Ok, So what does all this mean for the price then? Well, you have a token that has incredible utility demand in the Avalanche ecosystem, an ecosystem that's likely to see rapid adoption given its unique consensus engine and tech stack. You also have to consider the fact that there's going to be a demand to stake and own a portion of the avax supply in order to vote on important governance. Decisions then on the supply side, you have a steady emission rate approaching a Max supply. This can never be increased and hence has properties of scarcity. However, we should also not forget that transaction fees are burned. This takes supply out of circulation and hence could blunt. Some of that protocol inflation, you then also have to consider that in order to be able to earn some of those rewards from the minting transactions, you have to lock up some avax as a stake. This of course takes avax out of the circulating supply, which means less going around on the market in order to buy. Now taking a look at these demand and supply factors, it's pretty damn clear that Avax has very compelling token economics. A protocol design that's built from the ground up to generate value for all of those who are participating. Moreover, the more that the underlying network is used, the more valuable it becomes. For those of you who have seen my article on valuing Ethereum, you will have heard me talk about this network valuation component called the Fat protocol theory. So All in all, a really valuable token in an ecosystem with lots of potential.
AVAX Potential -:
That's it for most of the overview. To be Frank, though, there's so much more that needs to be covered, something that I'll have to follow up in another article. I do want to leave you good people with some of my final thoughts though. Firstly, I will tell you straight out of the gates that I'm super impressed with the technology that's been developed for Avalanche, their unique consensus method could completely change the way we think about establishing consensus in distributed systems scalable in both network size and transactions. All the while being incredibly secure with strong economic incentives for honest behaviour. Then of course you have the rest of the tech stack, which not only makes it easy for Ethereum developers to build smart contracts on, but also one where they can develop their own independent networks and blockchains. Those that are free to establish their own methods of consensus and virtual machine states. All of this adds to demand for AVAX tokens. They're needed to build, needed to transact, needed to stake and partake in governance and as mentioned, they have a unique emission schedule that's likely to dampen. Inflation add to that a well thought out token unlocking schedule and additional tokens being locked up to steak, and you have the perfect ingredients for a price increase. I didn't even touch on all the star power behind this project. Not only is it being built by some of the smartest brains in the business, but it is also backed by a slew of Prestigious investors. These include the likes of Galaxy Digital, Andreas and Horowitz, Polychain Capital and a number of other well known seed investors. All individuals who would not be backing your run-of-the-mill shill ICO. I should also mention that a relatively large portion of those avax tokens has been allocated towards Community grants. This all helps supercharge developer adoption of the Avalanche network. This is something that has actually been taking place as a number of projects have already started building on it, even if it's only just launched on the main net. Are there any challenges? Well, the biggest I can think of is other blockchains. There are already a slew of competing projects that are all trying to offer similar use cases, albeit with different tech. These include the likes of polka dots, definity, the near protocol, Algar end, kadana etc etc and let's also not forget the Etherem2.0 is possibly around the corner. Could that throw a spanner in the blockchain? They already have considerable network effects in the D5 space, so yes, there are challenges, but at least they are known. When it comes to that AVAX token price, assuming that they're able to pick up some prestigious exchange listings, I would not be surprised if it were to be above $12 within a year. That would place some just above Litecoin in market cap. The momentum is there and the project is launching at the right time. Now of course, that's just my opinion as a crypto guy, not a financial advisor(This is not a financial advice) and that's it. My relatively brief overview of Avalanche, it's a project that I will definitely have to come back to. Of course, no article is complete without your all important feedback. So what are your thoughts on Avalanche and have you folks got any questions for me? Feel free to fire them into the comments. And finally, thank you so much for reading. I really do hope that you gained value from this article. If that is the case,and if you want to see more of this content going forward, don't forget to visit the cryptolibrary . You won't want to miss what I got.
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