What is Avalanche?
Avalanche is a layer one DAG-optimized consensus protocol that serves as a foundation for decentralized apps and customized blockchain networks. Avalanche is a worldwide distributed, interoperable, and trustless architecture by combining thousands of subnets to construct a heterogeneous interoperable network of multiple blockchains.
This is accomplished by Avalanche's unique consensus, which does not compromise scalability in any way.
We need to travel back in time to fully comprehend what that implies and how genuinely revolutionary it is.
Consensus & Byzantine General's Problem
Let us imagine a thought experiment, called Byzantine General's Problem, first published in 1982 by R. Shostak, that describes a following scenario:
1) Byzantine army are camped outside enemy city, each division commanded by its own general.
2) Each general can communicate with other by a messenger.
3) After observing the enemy - they must decide upon a common plan of action.
4) Some of the generals may be traitors, trying to prevent loyal generals from reaching agreement.
5) The generals must decide on when to attack the city, but they need a strong majority
In the above situation, the generals must have an algorithm to guarantee that:
(a) all loyal generals decide upon the same plan of action, and,
(b) a small number of traitors cannot cause the loyal generals to adopt a bad plan.
The loyal generals will all do what the algorithm says they should, but the traitors may do anything they wish. The algorithm must guarantee condition, regardless of what the traitors do. The loyal generals should not only reach agreement, but should agree upon a reasonable plan, a consensus.
The above thought process demonstrates that consensus is vital. Consensus in a distributed network is even more so. This leads us onto the next point.
Byzantine Fault Tolerance (BFT)
Derived from Byzantine General's Problem above, is a feature in the distributed network to reach a consensus, even when some of the nodes in the network fail to respond or respond within incorrect time. The objective of a BFT mechanism is to safeguard against the system failures by employing collective decision making (both – correct and faulty nodes) which aims to reduce to influence of the faulty nodes.
Classical Consensus
Classical consensus methods emerged long before the advent of blockchain technology in its modern form back in the 1980-90s. For many decades, this one family of consensus protocols was known, a “classical consensus protocols”. Since inception, these methods have mainly been used in distributed databases of varying degrees of decentralization. One of the most prominent was known as Practical Byzantine Fault Tolerance (pBFT) written by Barbara Liskov and Miguel Castro.
In short, such protocols achieve agreement through a procedure similar to that of a voting for a new bill in a parliament: with every validator voting on whether they would like to “accept” or “reject” that transaction.
While classical consensus protocols can confirm transactions very quickly, in a matter of just a few seconds, they can only do so when the network is small, typically less than a few hundred validators.
Furthermore, these protocols necessarily require knowledge of all participants, making them difficult to deploy in large environments, such as those needed for a global, open, digital currency.
Nakamoto Consensus
Now fast forward to the year 2008. Classical consensus was deemed unsuitable for Bitcoin's decentralization and security by Satoshi Nakamoto, especially at the time when the notion of cryptocurrency was unheard of. The Nakamoto Consensus was the first breakthrough in consensus systems. This removed the need for all-to-all communication, making it a perfect fit for open, permissionless environments where any node can join at any moment.
Unfortunately, these protocols also have a fatal downside: they are inherently slow, operating at only a few transactions per second, and confirming transactions in a matter of minutes. Furthermore they also have high energy usage.
Avalanche Consensus
In 2018, another family of consensus protocols was introduced, by anonymous Team Rocket in collaboration with a group of distributed systems researchers. The Avalanche protocol was the first member of this family. It was the biggest breakthrough in consensus since Nakamoto.
Instead of leaders being elected or earned through competition, Avalanche is leaderless in nature. Every node on the network has a vote, there are no special privileged nodes running things. Instead of all-to-all voting, these protocols randomly select a handful of participants and ask about the state of the network. This enables to confirm transactions in a few seconds and operate at thousands of TPS, while also enabling thousands to millions of participants, thus making them suitable for open, permissionless settings where validators come and go.
Only three times in the history of distributed systems have we had a new family emerge, and Avalanche was the third.
Background
Brain child of computer scientists Dr Emin Gun Sirer, who created a cryptocurrency prototype called 'Karma' back in 2003, which he summarized as follows,
Karma is a virtual currency for peer-to-peer systems. Its main advantage is that it is not controlled by any single entity. Its implementation, along with the means for the control of its supply and value, are entirely decentralized.
He was a professor at Cornell University for over 20 years, specializing in distributed ledger technologies. In 2018, Dr Emin took a leave of absence to create AVA labs, after reading a research paper on a novel consensus mechanism that was shared by a anonymous entity known only as 'Team Rocket'. Avalanche mainnet went live shortly after.
It's a DAG
Avalanche uses a DAG (Directed Acyclic Graph) optimized proof-of-stake consensus protocol called, Avalanche. In Avalanche consensus, validator nodes gossip with each other about transactions occurring on the network. This information spreads fast allowing all validators to reach an agreement about the current state of the network within seconds. This in effect makes network extremely hard to corrupt and one that can process over 4,000 transactions per second (TPS).
Finality
In Nakamoto consensus protocol (as used in Bitcoin), a block may be included in the chain but then be removed and not end up in the canonical chain. This means waiting an hour for transaction settlement. In Avalanche, acceptance/rejection are final and irreversible and take a few seconds.
Source: seekingalpha.com - solwealth
Three Blockchains
The Avalanche network consists of three individual blockchains: the X-Chain, C-Chain and P-Chain. Each chain has a distinct purpose, which is radically different from the approach Bitcoin and Ethereum use, namely having all nodes validate all transactions. Avalanche blockchains even use different consensus mechanisms based on their use cases.
Source: docs.avax.network
1) P-Chain - platform chain. Allows creation of subnets which are basically customizable avax blockchain
2) X-Chain - uses Avalanche's DAG consensus mechanism and hosts AVAX token along with other digital assets
3) C-chain - contract chain. Leverages Ethereum virtual machine to enable smart contract functionality.
In essence, Avalanche consensus combines the benefits of Nakamoto consensus (robustness, scale) and all the benefits of Classical consensus (speed, quick finality, and energy efficiency).
According to Ava Labs, the platform can handle somewhere in the order of 4,500 transactions per second, achieving finality in under 3 seconds, which arguably makes it better suited for massively scaling decentralized applications, which would be bottle-necked on many competing platforms.
Source: docs.avax.network
Custom Blockchains & Interoperability
Avalanche allows users to develop their own bespoke blockchains for specialized applications, and it supports a variety of unique virtual machines, including the Ethereum Virtual Machine and others. This virtual machine may then be put on a subnet, which is a bespoke blockchain network consisting of a dynamic group of validators working together to obtain consensus on the state of a set of multiple blockchains where complicated rule sets can be specified, including to fulfill regulatory compliance. Because any custom VM can be built on top of the platform, projects from any blockchain may be quickly moved over and benefit from Avalanche's speed, cheap fees, and customization.
Avalanche's interoperable blockchains are also unlimited in number.
OPENFI
This framework will evaluate DeFi protocols on Avalanche before such projects will get listed. Each protocol will be scored using six different metrics, some of these are how innovative the project is, team experience, network effect and projects fundamentals.
Future Potential
Source: coin98.com
The Avalanche ecosystem is rapidly growing. DeFi on Avalanche has almost $11 billion in value locked in, and numerous well-known applications, such as AAVE and Curve Finance, are built on top of it.
Some notable examples include:
Deloitte & Avalanche
Deloitte has formed a strategic alliance with technology firm Ava Labs to enable a new disaster recovery platform that uses the Avalanche blockchain to help state and local governments easily demonstrate their eligibility for federal emergency funding.
Particle - Powered by Avalanche
Particle, is a platform that will, for the first time in history, acquire and tokenize the world’s greatest masterpieces and build one of the best collections out there. This will be done via a Particalization Process which involves taking a painting’s title deed or the legal term for proof of ownership and dividing into a 100x100 grid resulting in 10,000 unique NFTs we call Particles. This has already been done with Banksy's art "Love is in the air", purchased by Particle at Sotheby's auction earlier this year for $12.9 million.
Avalanche & Mexico
The Congress of the Mexican State of Quintana Roo is implementing Avalanche’s technology, becoming the first national congress to use it for the digital certification of its legislative documentation, which works through the correspondence and file management system.
Fireblocks & Avalanche
Fireblocks, a leading provider of custody and settlement solutions for digital assets to more than 650 banks, hedge funds, and financial institutions, has launched support for Avalanche. Its institutional users can now access Avalanche’s C-Chain to custody and transfer the AVAX native token without jeopardizing efficiency or security.
Additionally, its users can access decentralized applications built on Avalanche through DeFi API or WalletConnect.
Development Fund
Avalanche has launched a fund worth more than $200 million to assist ecosystem development, growth, and innovation within the Avalanche public blockchain ecosystem and beyond. The fund will explore for possibilities to assist additional growing use cases like as security token issuances, liquidity providers, and self-sovereign identification, as well as four important areas of growth throughout the Avalanche ecosystem: DeFi, enterprise apps, NFTs, and culture applications.
Supply Dynamics
Source: docs.avax.network
Over 57% of all Avalanches supply is locked to secure the blockchain. Avalanche employs a transaction fee burning method similar to Ethereum, except that with AVAX, all transaction costs are burned, not just a portion of them, and asset, blockchain, and subnet formation fees are also burned. This is done across all three blockchains, resulting in a lot of token utility and buying pressure.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.