Avalanche, a Revolutionary Consensus Engine and Platform. A Game Changer for Blockchain

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Avalanche Hub

15 min readSep 22, 2020

It’s been over a decade since the launch of permissionless blockchains, yet adoption hasn’t grown much beyond speculation and crypto trading. The major hurdle in the widespread adoption of blockchains is their performance and scalability and these properties are deeply related to the consensus protocol— the core component of the blockchain.

Classical Consensus Protocols

Classical consensus protocols can offer fast performance and low latency, but due to their all-to-all communication, performance degrades quickly once over 100 participating nodes. The most scalable classical protocol, HotStuff used by Facebooks Libra (which was designed by Ted Yin, who is now working on the Avalanche protocol) only supports approximately 100 validators before the performance begins to suffer. Whilst other projects using classical consensus protocols claim to scale to thousands of nodes, they are selecting only a small random selection of nodes to perform consensus for each block, whilst the other nodes are not participating in consensus. The cost of violating safety in such a system is only as low as the cost of corrupting any subcommittee, which may be very low. They are also more fragile where accurate membership of nodes needs to be maintained, thus they are not suitable for large, open and permissionless networks where nodes may join and leave at-will.

Nakamoto Consensus Protocols

The first breakthrough in consensus protocols was with the Nakamoto consensus protocols which does away with the requirement for all-to-all communication and as such is a natural ﬁt for open, permissionless settings where any node can join the system at any time. Unlike classical consensus protocols they provide a probabilistic rather than deterministic safety guarantee. A protocol parameter allows this probability of a double spend to be rendered arbitrarily small, enabling high value ﬁnancial systems to be constructed on this foundation.

Yet, these protocols are costly, wasteful, and limited in performance. It requires useless calculations that use vast amounts of energy. Mining a block is difficult by design, so Nakamoto protocols finalize transactions very slowly — it takes an hour for a Bitcoin transaction to become final, and this low latency will not improve even as technology does.

Avalanche Consensus Protocols

“Only three times in the 45-year-old history of distributed systems have we had a new family emerge. Avalanche is a brand-new family, as big of a breakthrough as Satoshi’s protocol was; it combines the best of Satoshi with the best of classical in scales like no other that allow anyone to integrate themselves into the consensus layer.” — Emin Gün Sirer

Avalanche Consensus protocols was the next big breakthrough in consensus protocols, combining the benefits of Nakamoto consensus (robustness, scale, decentralization) and all the benefits of Classical consensus (speed, quick finality, and energy efficiency) and is a game changer for permissionless blockchains and mass adoption.

Protocols in the Avalanche consensus family operate through repeated sub-sampled voting and achieve all three properties of the scaling trilemma, first coined by Vitalik Buterin, consisting of Decentralization, Scalability and Security. Avalanche enables irreversible finality in sub 3 seconds (with most happening sub 1 second), quicker than a typical credit card transaction. They support many thousands of transactions per second, in excess of Visa’s typical throughput with 4500 TPS and importantly whilst being able to scale to unprecedented levels of decentralization consisting of tens of thousands of nodes, even upwards to a million nodes all participating in consensus at the same time. It’s also incredibly secure which can be parametrized with a safety threshold of 80% compared to 33%+1 with classical and 51% with Nakamoto. Avalanche uses Proof-of-Stake for Sybil control mechanism (often confused with consensus protocols), which allows tens of thousands of validators to have a first-hand say in the system while consuming minimal energy.

To learn more about how the Avalanche Consensus Protocols work see this article

The Avalanche consensus engine is revolutionary, enabling thousands of transactions per second at Layer 1, sub 1 second latency, incredibly secure and all with unprecedented decentralization, scaling to millions of validators all participating in consensus and with modest hardware requirements where anyone can join. But wait, there’s more!!

The Avalanche Platform

Avalanche was built with serving financial markets in mind. It has native support for easily creating and trading digital smart assets with complex custom rule sets that define how the asset is handled and traded to ensure regulatory compliance can be met. The assets could represent financial instruments such as equities, bonds, debt, fractionalized real estate, or anything else. Offering the best place to build DeFi applications but also the traditional finance market, where the derivatives market alone is worth a staggering $800 trillion.

Most projects have copied the network model from Satoshi of having just a single token, single virtual machine / scripting language and single network, resulting in having to compromise on a single solution, learning a new scripting language and difficulty in complying with regulatory requirements. Avalanche goes far beyond that, offering unparalleled customization.

Avalanche allows anyone to create their own tailor-made application specific blockchains, supporting multiple custom virtual machines such as EVM and WASM and written in popular languages like Go (with others coming in the future) rather than lightly used, poorly-understood languages like Solidity. This virtual machine can then be deployed on a custom blockchain network, called a subnet, which consist of a dynamic set of validators working together to achieve consensus on the state of a set of blockchains where complex rulesets can be configured to meet regulatory compliance.

Avalanche is a platform of platforms ultimately consisting of thousands of subnets to form a heterogeneous interoperable network of many blockchains, that takes advantage of the revolutionary Avalanche Consensus protocols to provide a secure, globally distributed, interoperable and trustless framework offering unprecedented decentralisation whilst being able to comply with regulatory requirements.

“So, we’ve built this ecosystem where you can launch new blockchains, whether they’re permissioned or permissionless, it does not matter. And they can all interoperate with other freely and move value around. And each one of these deployed blockchains within the Avalanche platform are running at blazingly high speeds”

Subnets

A Subnet manages its own membership and it may require that its constituent validators have certain properties such as requiring them be located in a given country, passing a KYC check or holding a certain license. So, you may have one subnet for validating a set of blockchains that deal with trading of securities in the US which requires validators be located in the US and hold certain licenses for example.

Other examples of subnets:

Specialises in the fractionalize and sale assets that correspond to real estate, where validators have to store archive records off chain for the property.
For very high-performance applications a subnet could require validators to require large amounts of RAM or CPU power for applications needing 10,000 + tps
Completely open where anyone is free to join and leave
Private subnets similar to enterprise blockchains such as JP Morgan’s Quorum, R3’s Corda and Hyperledger where access is restricted and the contents of the blockchains only visible to those participants.
Existing blockchains can port their state over to Avalanche and use its consensus mechanism for faster performance, finality and increased security. So blockchains such as Bitcoin Cash, Ethereum Classic could each have their own subnet and utilise POS, using their own token as stake.

With subnets, permissionless finance and traditional finance can co-exist on the same database. Legacy institutions looking for a profitable venue to park idle capital will be able to leverage this composability by, say, depositing stablecoins in a DeFi money market that offers a higher yield than traditional counterparts.

Each subnet can validate multiple VMs (blockchains) and also have its own token / fee structure. Anyone can create their own subnet by paying a subscription-style fee in AVAX or they can look to use an existing subnet. There is a special subnet called the “Default Subnet” which has the native token of AVAX. A Validator can validate multiple subnets but its also mandatory to validate the default subnet and stake 2000 AVAX.

The default subnet consists of 3 virtual machines (blockchains):

X-Chain

The X-Chain acts as a decentralized platform for creating and trading smart digital assets and is an instance of the Avalanche Virtual Machine (AVM). A smart digital asset is a representation of a real-world thing, such as an equity or bond, with a set of rules that govern its behavior, like “can’t be traded until tomorrow” or “can only be sent to US citizens.”

One of the assets traded on the X-Chain is AVAX. AVAX is the Avalanche network’s native token. When one issues a transaction to a blockchain on the Avalanche network they pay a fee denominated in AVAX.

P-Chain

The P-Chain is the metadata chain on Avalanche and coordinates validators, keeps track of active subnets, and allows for the creation of new subnets.

The Platform Chain implements the Snowman consensus protocol powered by Avalanche.

C-Chain

The C-Chain is a new, (originally) empty instance of the Ethereum Virtual Machine. It is compatible with all of the key Ethereum tooling that has fuelled decentralized finance’s (DeFi’s) growth to-date, including MetaMask, Web3.js, Remix, Truffle Suite, and Embark Platform. So current Ethereum applications can easily try Avalanche and take advantage of being able to process thousands of transactions per second, finalise transactions in seconds, extremely low gas fees and Solidity works out of the box!

There will also be a separate subnet for Athereum which is a ‘spoon,’ or friendly fork, of Ethereum, which benefits from the Avalanche consensus protocol and applications in the Ethereum ecosystem. Unlike the C-Chain, Athereum will have all of the state of Ethereum up to a certain, not-yet-determined block height. You can read more about it here

Performance

Current blockchain solutions are seriously limited in the number of transactions per second they can process. Bitcoin maxes out at around 7 tps and Ethereum 15 tps. In comparison Visa handles a daily peak of 4000 tps. Many newer and upcoming blockchain projects vastly overstate their reported tps, claiming hundreds of thousands of transactions per second and even a million tps. They use tricks to obtain theoretical maximum values which will never be achieved in real implementations such as using just 2 very high specification validator nodes on the same high speed network to reach consensus without signature verification or delaying consensus so there’s a backlog of transactions which all get processed at once.

With Avalanche each blockchain / Virtual machine is capable of processing in excess of Visa’s typical throughput of 4500 tps, the consensus protocol is CPU bound and was performed on modest hardware of just 2 cores and 4 GB Memory across 2000 nodes around the world. Higher specification nodes can achieve over 10,000 tps per blockchain / Virtual machine and thus subnets can be configured for those environments rather than forcing them for everyone reducing decentralisation. These are also metrics are at the base-layer without rollups etc. Layer-2 scaling solutions immediately augment these results considerably.

Transactions per second is just one metric though, what’s equally important, if not more important with regards to finance is latency. Throughput measures the amount of data at any given time that it can handle whereas latency is the amount of time it takes to perform an action. It’s pointless saying you can process more transactions per second than VISA when it takes 60 seconds for a transaction to complete. Firms spend billions of dollars trying to reduce latency by fractions of a second to give them a competitive advantage. A recent study showed that Traders and hedge funds who use low-latency methods to gain an advantage in the stock market impose a “tax” on other investors costing as much as $5 billion per year across global exchanges. Actual settlement time in Capital Markets currently takes days and blockchain can significantly decrease that by streamlining the process and removing the need for intermediaries. Bitcoin has finality of 60 minutes, Ethereum 2.0 is 6 minutes, Polkadot is 60 seconds whereas with Avalanche it’s sub 3 seconds with most happening sub 1 second, immutable and completely irreversible. Low latency also greatly increases general usability and customer satisfaction, nowadays everyone expects card payments, online payments to happen instantly, with Avalanche that’s now possible.

Composability

The majority of DeFi solutions are currently built on Ethereum and have given us a glimpse of what’s possible. Ethereum provides composability where DAPPs can easily interoperate with each other and combined to build exciting new products, often referred to as “Money Legos”. Enabling funds to be moved from various yield farms, flash loan platforms, and into new digital assets seamlessly, but they are hampered by poor scalability and high gas fees.

In the search for additional performance many blockchains, including Ethereum 2.0, have opted for sharding, where DAPPs and transactions are distributed across many shards (blockchains) running in parallel. One of the biggest challenges with sharding is the inter-shard communication which adds a lot of complexity and breaks composability, as each shard is it’s own independant blockchain and so DAPPs and tokens assigned to one shard can not seamlessly integrate with DAPPs on another shard. As each shard conducts consensus independently, it is impossible to process a transaction across multiple shards atomically and cross-shard coordination must be done across multiple blocks on the different shards. In Avalanche’s subnets use the same underlying protocol for consensus on their transactions enabling atomic commitments–where a set of changes across multiple blockchains / virtual machines can be applied as a single operation, providing composability and performance.

Interoperability

Seamless fast interoperability is enabled between blockchains running on the same subnet, as well enabling interoperability with blockchains running on separate subnets. All blockchains within the Avalanche ecosystem can interoperate with each other, with no limits on the number of subnets, like with Shards / parachains. Subnets can interoperate directly with each other without having to go through a beacon / relay chain, so no bottleneck. Due to being able to run many custom virtual machines, bridges to other ecosystems will be possible. An Ethereum Bridge using an EVM virtual machine will be available shortly after launch. Avalanche’s sub 3 second irreversable finality is also a big advantage compared to other platforms with much longer finality such as Polkadot (which states 60 minutes in the whitepaper when connecting to external ecosystems).

The Team

Founded by a team of pioneering technologists and supported by finance experts, Avalanche is the perfect mix of innovation and experience to execute its visions and build the project into a truly global and permissionless smart contracts platform. These are some of the places where AVA Labs (the company building the first core client of Avalanche) team members have worked at:

Projects Building on Avalanche

Ava Labs, the builders of Avalanche was only founded in 2018, yet have achieved so much ground breaking work in such little time. An example of some of the projects building on and working with Avalanche can be seen below:

Polyient Games, the industry’s first investment firm focused on non-fungible tokens (NFTs) and blockchain gaming, has partnered with Ava Labs to build a dedicated NFT decentralized exchange (DEX) on Avalanche, the highly-scalable, open-source platform for launching decentralized finance (DeFi) applications.

“The current reality is that the congestion of the Ethereum network is hindering the adoption of blockchain gaming and the NFT asset class. By building on Avalanche, we are able to leverage a scalable infrastructure while maintaining bridges that facilitate the seamless transfer of ERC-20 and -721 assets.” — Brad Robertson, CEO of Polyient

The Turkish stablecoin BiLira will launch on Avalanche, prepping for a new scalable, fast, and safe solution for people to access crypto markets using the Turkish Lira.

“We believe in the power of Avalanche, and we think it will revolutionize the blockchain ecosystem. With the transactional throughput north of 4,000 transactions per second and transactional finality under 2 seconds, Avalanche is bound to become a global standard for all stakeholders in the ecosystem.” — Vidal Arditi, COO of BiLira

Ava Labs, the builders of Avalanche, has joined LACChain Alliance alongside 24 organizations such as ConsenSys, MIT Media Lab, Enterprise Ethereum Alliance. The LACChain Alliance is a global organization led by the InterAmerican Development Bank Group Innovation Laboratory to accelerate the development of the blockchain ecosystem in Latin America and the Caribbean (LAC) region.
AVADO — Plug and play hardware blockchain nodes that enable individuals to easily and privately access Web3 applications, participate in staking, and run incentivized Dapps to earn crypto. (@AvadoCloud)
Blockchain Academy Chile — Training and education platform for both technical developers and business entrepreneurs to learn about blockchain technology. (@blockacademycl)
Figment Networks — Your Web 3 Gateway. Offering institutional-grade infrastructure, software, and governance solutions for networks, token investors, and enterprise clients. (@FigmentNetworks)
Jelly Swap — Atomic swaps for peer-to-peer peer trades across different blockchains. (@jelly_swap)
Kurtosis Was Framed — A complete, end-to-end testing harness for AVA. Think of it like our Ethereum Hive.
NoTex — Simple to use word editor and decentralized blogging platform.
Protocoh — Nigeria-based team providing the infrastructure for automated payment processing, settlement, and fund transfer instructions in Africa. (@Get_Protocoh)

In addition to participating in multiple proof of concepts in the traditional finance space:

Successfully completed proof-of-concept to replace a Fortune 250 SaaS company’s blockchain efforts with an Avalanche blockchain-as-a-service deployment.
Tokenization of alternative asset shares and Development of a tokenization arm offering custody and management of third parties’ funds for a $150 Billion+ Asset management Firm
Tokenization of gold on a permissioned blockchain network between financial institutions and to support regulatory compliant privacy scheme for a Regional Commercial Bank

Governance

Avalanche provides on-chain governance for critical parameters of the network where participants can vote on changes to the network and settle network upgrade decisions democratically. This includes factors such as the minimum staking amount, minting rate, as well as other economic parameters. This enables the platform to effectively perform dynamic parameter optimization through a crowd oracle. However, unlike some other governance platforms out there, Avalanche does not allow unlimited changes to arbitrary aspects of the system. Instead, only a pre-determined number of parameters can be modified via governance, rendering the system more predictable and increasing safety. Further, all governable parameters are subject to limits within specific time bounds, introducing hysteresis, and ensuring that the system remains predictable over short time ranges.

The AVAX Token

AVAX is the native token of the Avalanche platform. It has a capped supply with a maximum of 720 million AVAX tokens, of which 360 million of those will be minted at Mainnet. Participants can participate in running a node or delegating through staking AVAX and are incentivized to do so because of staking rewards. Rewards vary between 7 and 12% depending on how long you lock the tokens for with a minimum of 2 weeks and a maximum of 52 weeks at a time.

Fees for all sorts of operations on the network in the default subnet such as transaction fees, subscription style fees for creating subnets and creating of blockchains are all paid out in AVAX through burning, thus increasing the scarcity of AVAX for all token holders and creating deflationary pressure.

As the default subnet has to be validated by every validator it creates an incredibly secure subnet which all participants can view the state, thus it should have a lot of exchange / asset transfers and thus more fees burnt in AVAX.

There are multiple vesting periods for the tokens minted at mainnet, ranging from 1 to 4 years, with tokens gradually unlocking every 3 months. Initially the circulating supply of AVAX will 24.5 million. Tokens that are vested will be able to be staked and locked up for periods

The recently public token sale raised $42 million in under 4.5 hours (and that was with a lengthy queue system) which included participants from an Ethereum Genesis address. The public token sale brings AVA’s total funding to date to $60 million. Last month, the project raised $12 million in a private token sale and had previously raised $6 million from prominent venture firms, including Andreessen Horowitz (a16z).

Not only have they provided a revolutionary consensus protocol, but also a revolutionary platform, enabling everyone to take full advantage of the incredibly high performance, low latency, unparalleled customisation, interoperable and unprecedented decentralisation network to enable mass adoption of Blockchain and transform traditional finance and DeFi whilst being able to comply with regulatory requirements.

The current market cap as of the time of this writing is $100 million and available on Binance, Houbi, FTX, OKEX, Gate.io,

If you want to learn more about Avalanche see the additional resources below:

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