What is Avalanche (AVAX)? How does Avalanche Network work?
The ultimate goal of a capable blockchain network is to record and distribute digital information without allowing anyone to edit it. In other words, a blockchain is a building block of immutable ledgers or records of transactions that cannot be deleted, altered, or destroyed. For this reason, blockchains are also called distributed ledger technology. So, what has all of this to do with Avalanche crypto or Avalanche Network? The answer is a resounding ‘everything.’
Avalanche (AVAX)’s blockchain platform is smart contract proficient and it focuses on three aspects: transaction cost, speed, and sustainability. All in all, Avalanche aims to deliver a blockchain network that is highly scalable and doesn’t leave out decentralization or security. In 2020, Ava labs launched Avalanche and it grew in popularity so quickly that it is a few ranks shy of coming in the top ten. Across Avalanche dApps, the Avalanche Total Value Locked (TVL) is approximately $3 billion at the time of writing.
Connecting your Avalanche (AVAX) Address to ZenLedger For Your Crypto Tax Forms
- To import your Avalanche (AVAX) transactions into ZenLedger for your crypto tax forms, all we need is your public address.
- Select the proper blockchain or wallet from the dropdown list.
- Paste your address into the address field in ZenLedger.
- Select if the wallet is based in the USA or not.
- Then hit ADD COIN button
How Avalanche Came To Be? What Is Its Purpose?
As we all know, Bitcoin was the first-ever blockchain and it was the pioneer in influencing subsequent blockchains. However, today, there are three main problems with it as compared to in modern chains:
- Bitcoin has slow and expensive transactions due to its PoW consensus
- As PoW chain validation requires a lot of resources, it defeats the purpose of decentralization
- It requires flexible solutions as blockchain adoption is increasing every day.
Even networks such as Solana and Ethereum are suffering from outages and network congestion. To solve these challenges, Avalanche was launched and we must say it does it quite well as it outshines other blockchain networks. Ava Labs believe that they have created the quickest smart contract blockchain network available today. They use not one, not two, but three blockchains to perform swiftly and to create a future that has crypto as its backbone technology.
How Does Avalanche Work?
As we’ve established, Avalanche is composed of three blockchain networks, but we now need to understand the reason behind it too. Here’s the catch: with Avalanche, instead of loading a single blockchain to do all tasks, each of its networks is designated to handle a single task. This distribution of tasks keeps the platform agile enabling it to achieve the holy trinity of security, decentralization, and scalability.
Since day one, Avalanche has always aimed for the quickest time to finality. In simpler words, it is the duration of the processing of the crypto transaction. After achieving finality, the transaction is ‘final’ as it cannot be reversed or altered. To put things in perception, where Ethereum achieves finality in 1 minute, Avalanche can achieve it in 1 second. Let’s take a look at the Avalanche network’s three blockchains:
- Exchange Chain
Avalanche uses the Exchange Chain or X-Chain to create and transact its assets. The AVAX crypto, the native token of Avalanche, is the most famous cryptocurrency on the network. However, PNG and JOE are popular as well.
On the Exchange Chain, every transaction’s payment is done in AVAX crypto. This is similar to the Gas fee paid on the Ethereum network. However, on the X-Chain, even if you use PNG or JOE tokens, the fee is always paid via AVAX.
- Contract Chain
One of the key features of the Avalanche network is smart contracts. Developers use this feature to create decentralized apps as it offers high scalability and security.
The smart contracts run by C-Chain are EVM compliant. It means that anyone can employ Ethereum’s smart contracts on the Avalanche network. It is important because current Ethereum apps like DeFi titans Aave are easily deployable on Avalanche. Here, developers have the liberty to use Ethereum tools while using Avalanche’s features after deploying Ethereum smart contracts.
- Platform Chain
With the Platform Chain or P-Chain anyone can build a layer 1 or layer 2 blockchains. A developer can push the limits of this network and can even create a bunch of blockchains. Avalanche calls them subnets with P-Chain as the main subnet common in all. P-Chain tracks all the validators and maintains the space of Avalanche subnets and these subnets also validate the Platform Chain.
How to Use AVAX Crypto?
In the Avalanche world, the Avalanche crypto or AVAX is the currency. This utility token serves as a medium of exchange in the Avalanche ecosystem. Besides using it as a currency, AVAX staking rewards takers with extra AVAX and keeps the network secure. The AVAX deflationary token mechanism is used to derive the compounding value from staking. However, the AVAx tokens paid as transaction fees are burned, which lowers the amount of AVAX in circulation permanently.
- Earn Rewards by Staking AVAX
Validators who own and stake AVAX tokens as collateral are required for all subnets, including the primary network. This doesn’t mean that you have got to be a validator to earn staking rewards. You can also delegate your stake to a validator to earn staking rewards. Presently, approx. 64 percent of AVAX tokens are staked and validators are earning a whopping 11 percent rewards APY and delegators are not far behind as they are earning 9.53 percent.
- Pay Transaction Fees with AVAX
As we know that AVAX is the default currency in the Avalanche ecosystem, it is also a common currency among subnets. It is important to use AVAX among subnets as it enhances the interoperability between them.
- Create Tokens and Subnets Using AVAX
Developers can use Avalanche’s network to develop custom blockchain networks and tokens. The platform can also be used to deploy DeFi protocols, NFTs, and games among a plethora of other things. Whether it is creating custom tokens with the help of X-Chain or releasing smart contracts using C-Chain it requires AVAX payments. If you are creating a subnet, it is a subscription-based model where you have to pay AVAX payments repeatedly.
Creating custom tokens using the X-Chain, launching smart contracts on the C-Chain, or generating subnets require AVAX payments. Subnets, in particular, are subscription-based with recurring AVAX payments.
In a crowded market of cryptocurrencies and blockchains, the Avalanche network seeks to distinguish itself by focusing on decentralization, security, and scalability. Avalanche is ideal for enterprise-level blockchain creation. It also stands out in the market due to its blockchain’s inclusive nature combined with its technical aspects.