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What is Avalanche (AVAX)?

Published
February 14, 2022
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    Blockchain technology could power everything from a decentralized internet to peer-to-peer transactions. However, most blockchain technologies are highly complex and energy-intensive, thanks to inherent trade-offs in the technology. Fortunately, new approaches to building blockchains are leading to fresh attempts to overcome these hurdles.

    Let's take a closer look at what Avalanche is, why it could replace Ethereum, and how individuals and developers can take advantage of its capabilities.

    Avalanche is a fast, secure, and low-cost blockchain that supports Ethereum's Solidity-based Dapps out-of-the-box. Will it replace Ethereum one day to become a leading network?

    What is Avalanche?

    Avalanche is an open, programmable smart contracts platform for decentralized applications. Unlike Bitcoin or Ethereum, Avalanche uses a proof-of-stake (PoS) mechanism for updating the blockchain, resulting in better performance at a lower cost. For example, Avalanche can process thousands of transactions per second (tps) versus just 14 for Ethereum.

    Of course, there are several trade-offs. For example, proof-of-work (PoW) mechanisms are well-established and secure, whereas PoS mechanisms are relatively new and could have vulnerabilities. PoS mechanisms are also inherently more centralized than PoW mechanisms since bigger holders can reap more rewards and further increase their holdings.

    Aside from transaction speed, Avalanche is also much more secure than PoW and other PoS blockchains. Bitcoin and other PoW blockchains are susceptible to 51% attacks since miners controlling more than half the hash rate could double spend. However, Avalanche uses a mechanism that increases the safety threshold to 80%—making it far harder to control.

    Avalanche as an Ethereum Competitor

    Avalanche is Solidity-compatible by design, meaning that it supports Ethereum Dapps. Developers can also use Remix, Tuffle, and Tenderly tools without extra configuration. And, for developers looking to move over existing apps, the Avalanche Bridge (AB) makes it easy to transfer Dapps and other assets between blockchains.


    Avalanche AVAX
    Avalanche’s Native AVAX Coin - 1-Year Performance - Source: CoinMarketCap

    Currently, Avalanche is the 12th most popular cryptocurrency with a market capitalization of about $17.2 billion—just a fraction of Ethereum's $304 billion market capitalization. But with Ethereum suffering from high gas fees and performance bottlenecks, there is no shortage of developers looking to switch over to the faster and cheaper AVAX network.

    Of course, Ethereum 2.0 promises to resolve many of these problems by moving over to a similar PoS mechanism. According to Ethereum founder Vitalik Buterin, Ethereum 2.0 transaction speeds could increase up to 100,000 TPS, making it faster than Avalanche's 4,500 TPS. However, there are still many hurdles to jump before those promises become a reality.

    Several other competitors are nipping at the heels of Avalanche and Ethereum, too. For example, Polkadot and Cosmos are two other layer-1 blockchains that compete with Avalanche. However, Avalanche can process significantly more transactions than these networks, has no limit on the number of subnets, and rewards validators of all sizes.

    How to Use Avalanche

    Avalanche is easy to use for both individuals and developers. 

    For individuals, Avalanche Wallet provides a simple, secure, non-custodial wallet. Users can also set up wallets on Ledger, and soon, Frontier and D'Cent. In addition, Avalanche tokens trade on Binance, Coinbase, and many other large exchanges. Finally, Avalanche Explorer makes it easy to find transactions, addresses, and other information on the blockchain.

    Users can set up an Avalanche wallet in a few easy steps:

    1. Go to https://wallet.avax.network and access your Avalanche Wallet.
    2. Click “Create New Wallet”.
    3. Generate a key phrase and verify you have a backup copy.

    AVAX has a supply that’s capped at 720 million. Like Bitcoin, the supply limit means that holders will not suffer from runaway inflation over the long-term, although the limit remains distant and new coins are minted all the time right now. Using AVAX, you can stake a minimum of 2,000 coins to become a validator or delegate your coins behind a validator to earn rewards.

    For developers, Avalanche is a drop-in replacement for Ethereum with out-of-the-box compatibility with Solidity Dapps. You can quickly run validators, mint tokens, and integrate exchanges, providing speed and scalability exceeding Ethereum's current capabilities. In addition, you can create private or public subnets with custom roles or deploy any VM.

    AVAX serves as the common unit of account for all subnets and any transaction fees and subnet subscriptions are payable in AVAX. All fees paid to the network are burned as a deflationary mechanism.

    Individuals and developers should remember that Avalanche is subject to the same taxation rules as other PoS blockchains. The IRS treats all cryptocurrencies as property, meaning transactions are subject to capital gains taxes. Fortunately, ZenLedger makes it easy to aggregate transactions across wallets and exchanges and compute what you owe.

    The Bottom Line

    Avalanche is one of the fastest blockchains out there, featuring support for Ethereum's Solidity Dapps. With significantly faster transaction speeds and lower costs than Ethereum, the network has become increasingly popular among some Ethereum developers frustrated with high gas fees and network congestion over the past couple of years.

    But, whether Avalanche will replace Ethereum remains to be seen. Ethereum 2.0 could address many of the popular blockchain's flaws, while new competition could also give Avalanche a run for its money. That said, Avalanche is among the top performing Ethereum competitors, making it a frontrunner for becoming a leader in the Dapp and DeFi space.

    If you're active in crypto, ZenLedger can help simplify tax time by aggregating transactions and computing capital gains or losses across cryptocurrencies, DeFi, NFTs, and other crypto asset classes. Plus, the Avalanche blockchain is natively supported!

    Sign up today to try it free!

    Get Started Now

    Simplifying DeFi, NFT, and Crypto Taxes for Investors and Tax Professionals

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