Exploring Avalanche (AVAX): Pros, Cons and Potential Risks

The crypto world is fast evolving, with several forms of crypto taking shape by the day. Today, we have a unique one, Avalanche. Which begs the question, what is Avalanche?

Avalanche (AVAX) is a cryptocurrency and blockchain system that poses as a competition for Ethereum. With AVAX as its inherent token, the Avalanche blockchain leverages smart contracts similarly to Ethereum to facilitate a couple of blockchain-based ventures.

Debuted in 2020, the purpose of Avalanche is to serve as a rapid, adaptable, secure, cost-effective, and easily accessible platform. Further, this project embraces an open-source approach, allowing external contributions to the platform’s source code.

This integration strives to enhance blockchain interoperability by bringing together a number of DeFi ecosystems, including established projects such as Aave and Curve.

How Does Avalanche Work?

Avalanche’s smart contracts platform caters to both DApps and autonomous blockchains. 

So, what sets Avalanche apart?

Coin Creation Rate

There’s a limit to the AVAX party at 720 million tokens, but it’s the AVAX users that call the shots on how quickly new coins join the scene. 

AVAX holders can influence the rate of creating other coins by casting their votes to tweak the amount of AVAX rewarded for tossing a fresh block into the Avalanche blockchain. 

Transaction Fee Structure

The cost of handling transactions is a bit tricky, shifting based on the transaction type and how busy Avalanche’s network is. But here’s the twist – all those fees? They don’t stick around. They get burned and taken out of circulation, giving AVAX that extra dash of scarcity.

And get this – the users on the Avalanche scene hold the power to decide how much you’ll pay for transactions. AVAX fees are basically up for a vote, making them as changeable as the weather.

Consensus Mechanism

Confirming transactions on the Avalanche blockchain is like putting together a puzzle. It uses a one-of-a-kind method that ropes in several small, randomly selected groups of network participants. 

This works together to give the nod to transactions to ensure everything is in order before approval.

Participation Incentives

High uptime and rapid response times can potentially increase the AVAX rewards for network participants processing AVAX transactions.

Vis a vis Avalanche, the proof-of-stake mechanism takes the reins. To be in the game, AVAX holders need to stake – committing not to trade or sell – their AVAX. 

In return, they gain the privilege to validate AVAX transactions. The ones with the most AVAX staked and actively playing the role of validators stand the best chance of being selected for Avalanche blocks. Moreover, if you want a say in Avalanche’s governance, holding AVAX tokens is a requirement. 

Pros and Cons

Advantages of Avalanche

  • Swift transaction processing times.
  • Incentivized participation through a rewarding structure.
  • Ability to support a multitude of blockchain-based projects.

Disadvantages of Avalanche

  • It faces strong competition from its counterparts.
  • Validators on Avalanche must stake 2,000 AVAX tokens.
  • Lack of penalties for malicious or careless validators, potentially impacting AVAX integrity.

Safety and Investment Risks of the Avalanche (AVAX) Blockchain

Avalanche stands out as a secure option, thanks to the randomization inherent in its consensus mechanism. According to Avalanche, their platform incorporates robust safety measures, reducing the vulnerability to 51% attacks compared to other blockchains. 

However, note blockchains with fewer participants are more susceptible to attacks, unlike those with a larger user base.

When it comes to AVAX, it’s essential to recognize it as a cryptocurrency and, therefore, a risky asset. While considering an investment in AVAX, thoroughly comprehend the associated risks and limitations. As a general rule, it’s wise not to invest more than you can comfortably afford to lose.

Avalanche vs Ethereum

You might be curious about how Avalanche sets itself apart from Ethereum. Initially, Avalanche asserted a considerably quicker transaction processing rate—4,500 transactions per second, as opposed to Ethereum’s circa 12.5. However, the network hasn’t yet demonstrated this speed. As of December 4, 2023, the Avalanche blockchain network averaged 12.89 transactions per second.

From November 26 to December 2, 2023, the network handled over 6.84 million transactions, averaging 11.33 transactions per second (just under one million per day). Even on its most rapid day, Avalanche reached around 75 transactions per second, still surpassing Ethereum’s capabilities.

Avalanche claims that the parallel nature of its consensus protocol is what theoretically allows the network to validate transactions much faster than Ethereum.

How Can I Buy AVAX?

If you’re looking to get your hands on AVAX tokens, the easiest route is using a well-known cryptocurrency exchange such as Coinbase. Below are 10 exchanges to aquire crypto assets.

  1. Binance: https://www.binance.com/
  2. Coinbase: https://www.coinbase.com/
  3. Kraken: https://r.kraken.com
  4. Bitfinex: https://www.bitfinex.com/
  5. Huobi Global: https://www.huobi.com/
  6. OKEx: https://www.okex.com/
  7. Gemini: https://gemini.com/
  8. Bittrex: https://bittrex.com/
  9. KuCoin: https://www.kucoin.com/
  10. Bitstamp: https://www.bitstamp.net/

Additionally, the Avalanche platform facilitates decentralized, peer-to-peer trading, allowing you to exchange AVAX with tokens based on Ethereum directly.

Why Use AVAX?

Avalanche provides a network that combines high fidelity and rigid security, striking a balance between transaction speed and cost-effectiveness. It remains user-friendly and reliably decentralized.

You get access to covered transactions and gas fees, smart contracts, and capitalizing on Avalanche’s staking rewards. For those intrigued by Avalanche’s DeFi programs or envisioning the potential for other decentralized applications on the network, holding AVAX becomes essential for active participation in these projects.

Image Source: Adobe Stock

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.