This is going to be a fun video, because Avalanche is such a new protocol that one day we might watch this video and realize how crazy it was for us to explain so early. I mean, Avalanche hardly has any promotional material, just nerdy documentation and lengthy whitepapers. Lucky for you, that is exactly what we are into…
Welcome to whiteboard crypto, the #1 Youtube channel for crypto education and here we explain topics of the cryptocurrency world using analogies, stories, and examples so you can easily understand them. In this video we are going to explain what the Avalanche network is, what makes it different than literally any other crypto application I’ve seen, and at the end, you’ll learn the secrets of the AVAX token, including exactly why the price went from $16 to $55 in 2 weeks, and why something similar might happen again.
Let’s dig in.
Avalanche Consensus Model
To understand the Avalanche Network, we first need an economics lesson about their unique, proprietary consensus model.
First off, you need to know the consensus model people used for a long, long time was called “Practical Byzantine Fault”. Around the 1980s was when this thing took off, and was essentially a computer science algorithm that helped a group of things come to a conclusion based on the information they had.
Next up, around 2009, we had the start of Bitcoin, which introduced the Nakamoto era of consensus. Nakamoto created and shared the Proof of Work mechanism, which we have an entire video about, but is in many ways better than the old Byzantine model.
Finally, in 2020, Avalanche launched their Avalanche Consensus model network. This thing is complicated, so I’m going to attempt to give you a high-level understanding of it, without upsetting any of their engineers.
The network follows proof-of-stake pretty closely, but has a few unique differences. First off, The Avalanche model uses a form of subsampled voting. This means there’s a large group of people who volunteer to participate in the network and get randomly asked to check things. To put it in their own words ‘small, random subset of validators whether they think the transaction should be accepted or rejected”. After it is initially thought to be valid, something called ‘network gossip’ happens, where other participants exchange information back and forth and continue to validate the transactions or deny them. One benefit of this, is that contrary to PoW and PoS mechanisms, it doesn’t matter how many nodes there are, consensus will be reached in a certain desired timeframe.
Also, due to some technicalities, this consensus model is actually much harder to attack. Unlike Bitcoin, where you would need 51% of all the computers to attack the network… or Ethereum 1.0, where you would also need 51% of all the tokens to attack the network… you would need to control up to 80% of the Avalanche network to perform an attack.
Let’s get on to the important stuff though. This model allows up to 4500 transactions per second per subnet, on each network, and has a finality clock of less than 3 seconds. We’ll explain subnetting later, but right now you just need to know each subnet can process up to 4500 transactions a second, and if you have 1000 subnets, well… you can do a lot of transactions. Compare this to Bitcoin with 7 transactions a second and an hour finality. Even Ethereum pales to compare with 15 transactions a second and a 10 minute finality. Before we continue, the finality of clicking the like button is pretty much immediate, so if you’d do us a favor to support our hard work on creating these unique, high-value explainer videos, it would mean a lot to us!
So now that we know the Avalanche consensus model, let’s get into the real thing where Avalanche shines… it’s network infrastructure.
First off, Avalanche has 1 primary network. This primary network actually has 3 built-in blockchains with it. That’s right, Avalanche just isn’t 1 blockchain… it is at least 3. We’ll get to that in a second.
The first ‘blockchain’ in the network is called the X-Chain. This is the part specifically for the creation, management, and transaction of tokens on the network. In technicality, this is actually based on a DAG, which is a consensus model we mentioned in our list of consensus models video… it’s out of the scope of this video, but I thought it was interesting to add that the team is not ‘married’ to one protocol.
The C-chain is specifically for Smart Contracts. An exact copy of the Ethereum Virtual Machine, so that you can instantly copy/paste and start using Ethereum dApps on the Avalanche network. They were smart with this, allowing developers to move their projects over with little work to do so. Also uses something called the Snowman protocol, which I’ll talk about in a minute.
The P-Chain, or Platform Chain is specifically for management of the subnets, coordinating all validators, and also the staking mechanism.
What are subnets, you ask?
Well, each Subnet is a new network in the Avalanche ecosystem. That’s right, this ecosystem is scalable in so many ways. Let me explain Subnets.
Each subnet can have multiple blockchains, just like the Primary Avalanche network. Secondly, each blockchain in a subnet can have it’s own consensus model. From what I’ve heard, this means if you’re creating one, you can pick proof-of-work or proof-of-stake depending on your needs.
One last important thing, to validate your own subnet, you are also contributing to the validation of the entire network via the Primary chains.
Moving on from the infrastructure, let’s get into a specific detail about the network. So the main Primary network uses the Avalanche consensus model, but AVA Labs created an even more powerful consensus model called the Snowman Protocol. And yes, just to make sure you understand them, let’s talk about the difference between the Snowman protocol and the generalized Avalanche protocol, because the difference is small. Snowman is the linearized version of Avalanche so that it can fit the needs of the EVM, basically it has been optimized for smart contracts and high-throughput. Avalanche is the more general case where its implemented using a DAG structure, seen on the X-Chain. These were a bunch of technical terms, but you just need to know that the Avalanche developers are really smart and basically optimize things as best they can for the situations they fit.
Before we make any price predictions or let you in on some very useful information, let’s get to the tonenomics of the AVAX coin, which powers the network.
First off, there is a max cap of coins at 720 million. This immediately makes it a deflationary asset. Secondly, AVAX coins can be used as governance on the platform, meaning the more you hold and stake, the more voting rights you get to have on important decisions in the future. Here’s the bad news though, AVA Labs presold 127 million coins when they launched, and many of those coins are subject to an unlocking period.
Finally, what you have been waiting for, the good news about AVAX, why their price has spiked so much recently.
Recently, the Avalanche Foundation has announced a $180 million dollar incentive program to get people to try out the network. This means they are quite literally giving away 180 million dollars for free, as a form of advertising. This happens all the time in the DeFi world, and is not a scam.
Finally, we want to thank you guys so much for watching, we hope you enjoyed this video, we really hope you learned something, and most of all, we hope to see you in the next video!