Avalanche is an open-sourced platform that supports smart contracts for launching decentralized application (dApps). It allows anybody to easily produce their own multifunctional blockchains. AVAX has fast transaction speeds, at a low cost and is more eco-friendly (compared to BTC or ETH). AVAX craves to deliver a highly scalable blockchain solution that does not sacrifice decentralization or security.
How does AVAX work?
Avalanche platform is unique when compared to other blockchain projects. There are three main features that distinguish it from other projects:
1) Consensus mechanism
2) Incorporation of subnetworks
3) Using 3 interoperable built in blockchains.
Avalanche Consensus Protocol
The concept of consensus involves how the blockchain network helps to validate transactions while remaining secure by employing a protocol that allows the different nodes to reach an agreement (or consensus). The two main consensus mechanisms for doing this are Proof of Work (PoW) or Proof of Stake (PoS). The original projects like BTC and ETH were original built on PoW while newer projects (AVAX) lately have been built on a version of PoS which has helped to improve performance and usability of newer projects.
AVAX novel consensus mechanism is built using a Proof of Stake (PoS) model. Avalanche consensus protocol works through repeated sub-sampling voting system. When a validator node is determining if a transaction should be accepted or rejected the validator asks a small random subset of other validators if they think the transaction should be accepted or rejected.
Validator are rewarded on a scale according to the amount of time a node has staked its tokens. This is called "Proof of Uptime" and if the node has historically acted according to the software's rules this is called "Proof of Correctness".
Staking for AVAX is remarkably inclusive as anyone staking at least 2,000 AVAX can participate as a validator node.
Subnetworks
One of the unique features of Avalanche is it allows individuals and firms to easily deploy their own purpose-built specialized blockchains, whether these be for private use-cases (permissioned blockchains) or public ones (permissionless). This system is system is similar to other blockchain scaling solutions, such as Polkadot parachains and Ethereum 2.0's shards.
Consensus on these chains is achieved by subnetworks (or subnets), that are groups of nodes that participate in validating a designated set of blockchains. All subnet validators must also validate on Avalanche’s Primary Network.
Three Built-in Blockchains
Three Blockchain one network AVAX spreads different responsibilities into different chains with each chain responsible for separate task within the broader Avalanche ecosystem. This distribution allows AVAX to accomplish the holy trinity of decentralization, security and scalability.
Exchange Chain (X-Chain): is the standard blockchain on which assets are created and exchanged. The native token, AVAX is on this chain.
Contract Chain (C-Chain): is used for the creation and execution of smart contracts. Because it is based on the Ethereum Virtual Machine, Avalanche’s smart contracts can take advantage of cross-chain interoperability.
Platform Chain (P-Chain): is used to coordinate validators and enables the creation and management of subnets.
AVAX Token
AVAX Token is a utility token that serves as the ecosystems common medium of exchange. AVAX staking helps to secure the network and reward those staking with more AVAX tokens.
The token is also capped at 720 million tokens and has a deflationary mechanism that is built in. How it accomplishes this is that tokens used to pay transaction fees are burned from the supply, this helps to permanently lower the amount of AVAX in circulation.
Avalanche vs. Ethereum
Avalanche differs from Ethereum because AVAX uses a consensus model based on Proof of Stake (PoS) vs ETH using a Proof of Work (PoW) model. This creates a clear difference in transaction speeds as with AVAX they can claim a speed of 4500 transactions per second (TPS) vs ETH limit of only 15 TPS. The majority of new projects have been using their own version of PoS to increase their performance and speed. However, with ETH network proposed PoS update coming soon AVAX and the other competitors may lose their advantages.
One other notable difference between the two projects is in the fee structure. Like mentioned above all processing fees for AVAX transactions are burned while only a percentage of transaction processing fees are burned by ETH network. Not all things are different however as both AVAX and ETH projects do vary based on the congestion of the network.
Summary
Avalanche uses a Proof of Stake (PoS) model which helps it achieve faster transaction speeds than Ethereum Network and allows it to be better suited for scalability.
By using its subnetworks it is capable of supporting many different blockchain-based projects.
AVAX is a fixed capped supply token like BTC which creates scarcity via a built in deflationary mechanism that burns transaction fees. So it will not suffer from continuous dilution like other platforms because of this it has peaked the interest of many investors.