What is Avalanche Cryptocurrency (AVAX) and is it Better than Ethereum?

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The launch of the Avalanche main network took place on September 21, 2020, and after only 14 months, the coin entered the top 10 cryptocurrencies in terms of capitalization according to the CoinMarketCap rating. The secret to the platform's success is in the new approach to network scaling, partially solving the problem of Ethereum, its main competitor. Initially, the developers were out to solve the problem of synchronizing various protocols for decentralized applications and offer the cryptocurrency community a product that can compete with Ethereum 2.0. Over time, the platform has turned into an ecosystem with its unique approaches to consensus algorithms and technologies. In this review, you will learn about the Avalanche ecosystem, its advantages, and its future prospects.

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What is Avalanche (AVAX)?

Avalanche is an open-source platform for developing decentralized applications, capable of processing about 4,500 transactions per second. The platform consists of two parts: the main network (Primary Network) and an unlimited number of additional subnets (Subnet).

The main network consists of three blockchains:

  • Platform Chain (P-Chain). This is a blockchain for storing metadata. Also, its function is to control validators, coordinate their actions, and control subnets.

  • Contract Chain (C-Chain). This is a blockchain that allows the creation of Ethereum-compatible smart contracts. It serves to convert existing decentralized applications (dApps) on Ethereum to the Avalanche blockchain.

  • Exchange Chain (E-Chain). This blockchain comprises tools for exchanging information between subnets and creating NFTs.

Avalanche subnets are similar to level 2 solutions. Second-level solutions are add-ons to applications that are on top of the main blockchain, and they solve the scaling problem. Any user who pays a fee of 0.01 AVAX can create a subnet. In other words, subnets are additional blockchains for independent decentralized applications that users can insert their individualized conditions. For example, requirements for validators or obligatory compliance with the KYC policy.

History of Avalanche

The platform was first mentioned in May 2018. At that time, the startup existed as a formed idea and a shell that had to be filled with technologies. In 2019, the first version of Snowflake to Avalanche, their own consensus algorithm, appeared on the platform website. The first placement of private coins took place at the beginning of 2020 when it raised 12 million US dollars. A later public offering brought developers $42 million. The full launch of the network occurred in September 2020.

Avalanche vs Ethereum

Avalanche is one of Ethereum's main competitors and yet another attempt to offer a solution to the blockchain trilemma. The essence of the trilemma is that of the three pillars of the blockchain which are scalability, decentralization, and security. The network developer has to sacrifice one of them. Avalanche introduced an idea similar to L2, which are sidechains and parachains, that Ethereum does not have.

Сomparison of Avalanche vs Ethereum based on several criteria:

  • Transaction processing speed. The standard processing speed is 4,500/sec with the possibility of overclocking up to 20 thousand/sec for Avalanche, and up to 15/sec for Ethereum. Although this parameter is key for dApp developers, Ethereum continues to hold its leading position. The investors’ confidence in Vitalik Buterin’s platform makes a substantial difference.

  • Security. Ethereum has more than 280 thousand validators; Avalanche has only about 1,000. On the one hand, reducing the number of key network participants involved in transaction confirmation speeds up decision-making, but it negatively impacts safety. Capturing one Avalanche validator means gaining 0.1% control over the network.

  • Volatility. At the time of the market fall in the same areas, the drawdown of Avalanche can reach 75% or more, while Ethereum loses 50%-60% in price. This is to say that investors are more confident in Ethereum and do not hurry to withdraw money from it.

Comparison of Avalance with other cryptocurrencies

Comparison of Avalance with other cryptocurrencies

Avalanche is ahead of Ethereum in terms of theoretical parameters but is behind in practical ones. Superior network performance is unilaterally declared by the developers and has not yet been tested in practice. Ethereum as an older platform, on the contrary, is slowly but surely moving forward, convincing users with practical results.

Avalanche profile

Ticket AVAX

Max supply

720 000 000

Circulation supply

280 826 983

Total supply

404 229 626

1-year price low

USD 10.27

1-year price high

USD 134.53

Biggest markets

Binance, Coinbase

How does Avalanche (AVAX) work?

The platform is based on its consensus algorithm, which includes three mechanisms which are Avalanche, Snowman, and Frosty. The Snowman mechanism has already been launched on the P-Chain and C-Chain blockchains, and Avalanche is on the X-Chain network. Frosty is still being developed.

The principle of the Avalanche algorithm is to process transactions in parallel. Validator requests are sent to each other on a selective basis without additional confirmations. Blocks are not formed, the algorithm works with basic transactions called "vertices". This allows validators to form groups of transactions for voting, which takes place in several stages.

One of the sources provides an illustrative example showing the principle of confirming or rejecting transactions. The goal is a collective choice by nodes (nodes are represented by computers connected to the network) of yellow or blue. The nodes choose a color at their discretion, after which they ask each other's opinion. If the decision of the node differs from the opinion of the majority, the node changes the decision. For example, a node chooses yellow and sends a request to five other random nodes. Since most of them are blue, the node determines the correct solution as blue.

Such interaction occurs until all nodes make a single decision. There are time limits for making a decision. This weeds out slow nodes and speeds up the decision-making process.

Snowman is a consensus algorithm built on top of the Avalanche algorithm. The difference is that instead of parallel transaction processing, a linear mechanism with block formation is used. This increases network bandwidth capability.

How is AVAX created?

The platform technology provides for a maximum emission of 720 million coins, but so far the developers have brought 404 million coins into circulation to maintain the network. Of these, about 280 million are in free circulation. Avalanche has its own unique consensus algorithm that does not provide for mining but supports staking.

Where is AVAX trading going?

Since the launch of the main network in September 2020, the coin was immediately added by the Binance exchange to its listing. Huobi, Coinbase, Bitfinex later joined. To date, the AVAX cryptocurrency can be bought on more than 100 exchanges, which opens up the possibility of using an arbitrage strategy, which includes earning on the difference in quotes of a single coin on different exchanges.

The largest part of the trading turnover is due to the Binance exchange which is 26-29%. The coin can be bought here for stablecoins USDT, BUSD, Bitcoin, BNB, and fiat currencies such as USD, GBP, EUR, AUD, BRL, etc. Coinbase ranks second in terms of trading volume at 7-10%. AVAX can be bought using USD, EUR, USDT, and BTC.

The largest exchanges by turnover AVAX

The largest exchanges by turnover AVAX

You can also buy the coin through wallets that support it such as an Avalanche Wallet or the Metamask browser-based software wallet.

AVAX performance

From the early days of the platform to its main launch, the price of the Avalanche cryptocurrency remained practically unchanged and was at its historical minimum. The developers didn’t speed to announce mass sales, so the coin was almost not sold during the presale. At the time of the network launch, the interest of investors was influenced by AVAX being included in the Binance listing over the next 1.5 months. Accordingly, the coin rose in price by 10 times, after which there was a correction.

Later on, the price repeatedly set historical highs and then fell. Factors influencing the quotes were affiliates' investments and exchange listings. The creation of the Valkurie Avalanche Trust (VAVAX) in early January 2023 raised the price of the coin by 15%. That said, the growth was local and the coin fell in price under the general pressure of the market. There is almost no information about price increases due to technological developments.

AVAX staking

The Avalanche consensus algorithm does not include mining. Maintaining the health of the network and confirming transactions occurs with the help of staking. Staking is the blocking by an investor of his coins in the network, which is used in the consensus and in the liquidity maintenance mechanism. For blocking coins, the user receives a reward at the end of the blocking period.

An investor can participate in staking in the following roles:

Validator. A validator is a large investor who stores his clients’ coins, checks incoming transactions, and attaches blocks in the network. To become a validator, you need to own AVAX 2000, have internet with a bandwidth capability of at least 30 Mbps, hardware that includes 8 core CPU >= 2 GHz; RAM: 16 GB; and 200 GB of free disk space.

Private user. An investor who adds his coins to the general pool of validators.

Staking for private investors is available through AVAX-enabled wallets or through cryptocurrency exchanges. For example, staking supports the native wallet of the Avalanche Wallet platform. You need to download it from the official website of the platform, install it, transfer the AVAX cryptocurrency to it and use the coin blocking function. A prerequisite is that the tokens must be in P-Chain. From other network blockchains, they can be transferred to P-Chain by internal transfer.

The second option is staking on a cryptocurrency exchange. You need to register on a staking-enabled exchange, verify, and buy AVAX. For example, the purchasing options available on Binance are bank payment, bank cards, buying directly from individuals on the P2P platform, and affiliate payment methods. After purchase, go to the Earn/Staking menu and activate the coin blocking feature.

The blocking period is 30-120 days. Profitability is 29.75% per annum.

Solutions by Avalanche (AVAX)

Avalanche addresses three issues—scalability, transaction fees, and compatibility. With high-speed transactions per second (TPS), the platform has relatively low commissions. Also, the advantage of the platform is a solution with subnets and customizable blockchains, combining security, speed, and compatibility.

Ethereum solutions did not always meet the users’ needs. Avalanche has several blockchain compatibility options from which users may choose. As a consequence, there has been a change in decentralized applications from Ethereum and other networks to the more flexible and customizable Avalanche network. AVAX plays the role of a native token within the platform and serves for internal settlements between subnets and payment of commissions. In other words, AVAX is used in all applications introduced on Avalanche.

Investors can use the coin for long-term investment, staking, or short-term speculative transactions.

AVAX criticism

Like many other similar projects, the Avalanche network is far from complete. One gets the impression that Ethereum competitors are competing for “who is better” in the theoretical part. The specified transaction processing speeds of neither Avalanche nor Solana, its closest competitor, are factually accurate. Many elements of the Avalanche ecosystem are under development and nobody knows how they will behave after launch. A comparison with the Solana platform is also relevant here, which goes offline now and again for several hours due to internal failures and bugs. Although this has not yet been observed for Avalanche, it is not known what will happen after its launch featuring full functionality.

On cryptocurrency investor forums, there is a belief that Avalanche is a complex project. Ethereum is “a powerful platform, but clumsy”, some said. Avalanche suffered a technical failure at the start, which gave investors reason to doubt its ability to compete with Ethereum and Polkadot, which is another segment leader.

The disadvantage of the platform is the strong competition in the segment. An attempt to create something new that could solve the problems with scalability has not been crowned with success so far. And this confirms that there are many platform competitors in the top 20 in terms of capitalization. It remains to be seen if the developers have the strength to support the platform. But in the worst case, the network risks falling into oblivion after the once-popular NEO and EOS.

Should you buy AVAX?

Avalanche benefits from its unique technology for building blockchains and achieving consensus within networks. Interest in the project is confirmed by the following facts:

About 13 billion USD belonging to decentralized applications of the DEX, DeFi, etc., sectors are blocked on the platform. The most famous among them are Aave and Trader Joe.

In January 2023, the Avalanche Foundation company, related to the ecosystem, raised $230 million in third-party investment.

In January 2023, investment funds Polychain Capital, Three Arrows Capital, Dragonfly Capital, and CMS Holdings invested 200 million USD.

On November 16, an agreement was signed between representatives of the ecosystem and Deloitte, a Big Four auditor.

At the end of 2021, 21Shares launched a new Avalanche-based ETF fund whose securities are traded on the SIX Swiss Exchange.

The willingness of investors to invest directly in the development of the platform speaks of the prospects of the ecosystem. But Avalanche has a few risks. The first is the transition to Ethereum 2.0 and the emergence of competitors with no less unique technologies. The dApps platform segment remains popular amid the explosive growth in the number of applications in the GameFi, DeFi, and NFT sectors that developers are fighting for. And whether Avalanche can withstand tough competition is an issue. The second risk is the stagnation of the entire market, which is automatically followed by AVAX. For this reason, a coin can lose 50-75% of its value.

A few tips:

Make a diversified investment portfolio by adding coins from several segments to it. Add AVAX, DOT, UNI to basic BTC and ETH. Second-tier coins have more volatility than BTC and they have a higher growth rate, but they also get cheaper in the same way.

Stay tuned for updates from the developers. For example, in social networks. If the project is supported by the developers, it is in progress.

Do not risk betting on long-term investments. Avalanche crypto has many vulnerabilities to competitors.

The coin is promising and worth investing in, but be careful!

Best crypto exchanges to buy Avalanche (AVAX)

The best exchanges to buy AVAX are Binance and Coinbase. This confirms that these platforms account for the largest trade turnover.

Binance

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The largest cryptocurrency exchange in the world, one of the few operating in the legal field of many countries, including the USA, Singapore, and several European countries. Exchange advantages:

Listing. Here you can instantly sell/buy more than 600 cryptocurrencies. Almost none of the competitors have such a broad selection.

Fees. Due to the trading volume, they are low, and in some cases, they are completely nonexistent. For example, with internal transactions.

P2P platform. Designed for exchange between users, the Binance exchange acts as an arbitration intermediary. There are more than 100 payment methods linked to users' geolocation.

Additional products. It has everything from staking and deposits to NFTs.

For instant exchange for fiat and cryptocurrencies, Binance is the best exchange.

Coinbase

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One of the oldest cryptocurrency exchanges founded in the USA. The coverage of the exchange is more than 89 million users from about 100 countries. The advantages of the exchange are its versatility, large selection of cryptocurrencies, and high transaction speed. Although the platform operates under US law and there is no talk of anonymity, the exchange guarantees the security of transactions and compensation in case of hacking.

How to buy Avalanche (AVAX) in 3 steps

The first step is to define a goal. For a long-term strategy, there is only one thing to do, which is to wait for the bottom and invest in a price reversal with a 1-year horizon. If you cannot determine the bottom, you can use averaging which includes buying in equal parts after a fixed time. For short-term trading, you can use any strategy. The coin can be bought through a wallet or on exchanges.

Market analysis

1

Technical analysis. Evaluate the general trend of the market and open a trade in its direction, taking into account the timeframe. For intraday trading, evaluate the price action for the last 7 days, and build a trend line, resistance, and support levels.

AVAX/USD Chart

AVAX/USD Chart

For example, in this case, a downward trend and attempts to correct after a strong drawdown are visible. Considering that such recovery after a fall is not uncommon in the last month, we can consider buying with the prospect of growth to USD 25.5-26.0.

2

Fundamental analysis. Evaluate the news that can affect the entire market as a whole. For example, a sharp drawdown on the chart is explained by the news about the beginning of the SEC investigation into Binance. Also, try to follow the publications of developers on social networks.

Funding account

Register on the exchange and pass verification. Verification involves identity confirmation and includes providing a scan of documents, confirmation of jurisdiction, live contact on a camera, and synchronization of the account with the mobile application. The second option is to download and install the wallet from the Avalanche official website.

 Avalanche Wallet

Avalanche Wallet

Buying AVAX

Buy cryptocurrency in any convenient way. For example, on the Binance exchange, after passing the verification, you can generate a wallet address under AVAX, buy USDT, and exchange coins on the P2P platform. Or use bank payment methods.

How to buy AVAX

How to buy AVAX

Summary

Avalanche is a promising startup, provided that its team continues to develop the unique technology of the ecosystem. Its advantage is a non-standard approach to the Avalanche consensus algorithm and marketing policy. The fact that the platform was able to attract large investors and interest dozens of decentralized application developers speak of trust. But the Avalanche network was designed as a competitor to Ethereum 2.0. And while the transition of Ethereum to the PoS algorithm has not taken place, the network looks more attractive. But everything can change with the appearance of ETH 2.0. Whether Avalanche can maintain competitive advantages, we will find out soon.

FAQs

What are the prospects for the Avalanche ecosystem?

A lot depends on the developers and the competitors’ actions. Avalanche offers a unique consensus algorithm and blockchain subsystems with different technologies that are customizable for different application needs. But at the moment, the platform does not operate perfectly and has fewer significant advantages in comparison with its main competitors. The task will become more difficult after the launch of Ethereum 2.0. So far, AVAX quotes are moving along with the market and responding to the intake of investment capital. The project is interesting to investors and is considered promising, but there is no guarantee whether interest will be preserved in the future.

How can one earn with AVAX?

Staking, investment, long-term investment by storing coins in wallets, short-term speculation on cryptocurrency exchanges (DEX, CEX), and airdrop if it is held by platform developers.

What are the risks of investing in AVAX?

There are project shutdown risks due to competition. Market risks include the fall of the entire market. Protection against the first risk can be achieved by diversification. Market risk protection comprises short-term trading with a constant withdrawal of money as is often done during intraday scalping and swing trading.

Are there alternatives to AVAX for the private investor?

Yes. Among the coins of the same segment, TRON, Polkadot, and Polygon may be of interest. With the transition of Ethereum to the PoS consensus algorithm, AVAX will have an even stronger competitor. The best way out for Avalanche is to find its niche in the segment of convenient platforms that are compatible with Ethereum. So far, the startup is promising, but its competitiveness will be determined with time.

Team that worked on the article

Andrey Mastykin
Author, Financial Expert at Traders Union

Knows about
Trading strategies, technical analysis, Forex, stock market, long-term investing

Andrey Mastykin is an experienced author, editor, and content strategist who has been with Traders Union since 2020. As an editor, he is meticulous about fact-checking and ensuring the accuracy of all information published on the Traders Union platform. Andrey focuses on educating readers about the potential rewards and risks involved in trading financial markets.

He firmly believes that passive investing is a more suitable strategy for most individuals. Andrey's conservative approach and focus on risk management resonate with many readers, making him a trusted source of financial information.

Experience
Andrey's passion for finance began in 2009, and he has since accumulated extensive experience in trading and investing across various asset classes, including stocks, Forex, and cryptocurrencies.

He has spent over 15 years managing his own capital and working with financial portals, financial institutions, and IT companies, as a financial writer and analyst, further refining his investment expertise.

He is the author of several training courses on investing and trading in financial markets. Led multiple FX/Stocks/Crypto webinar educational presentations. Authored hundreds of articles on the global economy, stock, cryptocurrency, and Forex markets, along with trading strategies. He has also penned hundreds of professional reviews of financial firms.

Throughout his journey, Andrey has been heavily influenced by the works of renowned authors and investors like Benjamin Graham, Ray Dalio, Robert Shiller, and Nassim Taleb.

Olga Shendetskaya
Author and editor at Traders Union

Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.

Olga has extensive experience in writing and editing articles about the specifics of working in the Forex market, cryptocurrency market, stock exchanges and also in the segment of financial investment in general. This level of expertise allows Olga to create unique and comprehensive articles, describing complex investment mechanisms in a simple and accessible way for traders of any level.

Olga’s motto: Do well and you’ll be well!