What Is Avalanche (AVAX), Its Pros, Cons, and Risks?

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9 Apr 2024

What Is Avalanche (AVAX)?

Avalanche (AVAX) is a cryptocurrency and blockchain platform that rivals Ethereum. AVAX is the native token of the Avalanche blockchain, which—like Ethereum—uses smart contracts to support various blockchain projects.
Launched in 2020, Avalanche aims to be fast, versatile, secure, affordable, and accessible.1
In addition, Avalanche is an open-source project, meaning anyone can view and contribute to the platform's code.
The Avalanche blockchain reportedly can provide very quick transaction finality. AVAX is used to pay transaction processing fees, secure the Avalanche network, and act as a basic unit of account among blockchains in the Avalanche network.

KEY TAKEAWAYS

Avalanche is a blockchain platform with the native currency AVAX.
Avalanche is a competitor to Ethereum that prioritizes scalability and transaction processing speed.
AVAX is used to secure the Avalanche blockchain and pay transaction fees across the network.
Transaction fees and the rate of AVAX coin creation are determined using a governance model.

Understanding Avalanche (AVAX)

Avalanche's smart contracts platform supports both decentralized applications (dApps) and autonomous blockchains. Here are some of the features that make Avalanche unique:2
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Coin creation rate: The maximum supply of AVAX is capped at 720 million tokens, but AVAX users govern how fast new coins are minted. AVAX holders can control the rate of new coin creation by voting to adjust the amount of AVAX paid as a reward for adding a new block to the Avalanche blockchain.
Transaction fee structure: Transaction processing costs vary depending on the type of transaction and Avalanche's network congestion. All fees are burned—removed from circulation—to enable AVAX to become scarcer over time. Avalanche users vote to decide the Avalanche transaction fee, making AVAX fees subject to change.
Consensus mechanism: Transactions on the Avalanche blockchain are confirmed using a unique method requiring many small, random subsets of network participants to confirm transactions before the transactions are finalized.
Participation incentives: High uptime and fast response times can boost the amount of AVAX rewards a network participant can earn for processing AVAX transactions.

Avalanche is generally governed by the proof-of-stake mechanism. AVAX holders are required to stake—agree not to trade or sell—AVAX in exchange for the right to validate AVAX transactions. AVAX holders with the most staked and actively participating as validators are the most likely to be chosen for Avalanche blocks. Additionally, holding AVAX tokens is also required to vote on Avalanche governance proposals.1

Advantages and Disadvantages of Avalanche

Let's dig into what's to like and dislike about Avalanche:4
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Pros

Fast transaction processing times
Reward structure incentivizes participation
Capable of supporting many blockchain-based projects

Cons

Stiff competition from platforms like Ethereum
Avalanche validators must stake 2,000 AVAX tokens
Malicious or careless validators are never penalized by losing their AVAX

Avalanche vs. Ethereum

You may be wondering how Avalanche differs from Ethereum. Originally, Avalanche claimed a much faster transaction processing time—4,500 transactions per second vs. Ethereum's limit of about 12.5
But the network has yet to demonstrate that speed. For example, the Avalanche blockchain network averaged 12.89 transactions per second on Dec. 4, 2023.6
For the week of Nov. 26, 2023, to Dec. 2, 2023, the network averaged more than 6.84 million transactions (less than one million per day), averaging 11.33 transactions per second.7
Even on its fastest day, Avalanche only reached about 75 tps—but still much more than the Ethereum network manages.
The parallel nature of Avalanche's consensus protocol is what is claimed to enable the Avalanche network to theoretically validate transactions significantly faster than Ethereum.
Ethereum's Merge upgrade in September 2022 set the foundation for the blockchain and network to greatly increase transaction speeds. When sharding is implemented, Ethereum will reportedly be able to conduct more than 100,000 transactions per second.8
While Ethereum currently operates at a much larger scale, supporting many more projects and transactions, Avalanche's superior ability to scale may give the Avalanche platform a long-term advantage over Ethereum—at least until Ethereum delivers on its speed and scaling promises.
Avalanche and Ethereum also have different fee structures. All processing fees for Avalanche transactions are burned, while the Ethereum network burns only a percentage of transaction processing fees. Fees on both the Avalanche and Ethereum platforms vary based on the congestion or busyness of the network. The fee structure for the Avalanche platform is entirely controlled by user governance.9
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How Can I Buy AVAX?

The easiest way to buy AVAX tokens is through a major cryptocurrency exchange like Coinbase or Kraken. The Avalanche platform also supports decentralized, peer-to-peer trading between AVAX and Ethereum-based tokens.10

Is the Avalanche Blockchain Safe?

Avalanche can be considered secure because of the randomized nature of its consensus mechanism. Avalanche claims its platform supports stronger safety measures that make the blockchain less vulnerable to 51% attacks than other blockchains.3
However, blockchains with fewer network participants are more susceptible to attacks than ones with a larger number.

Is Investing in AVAX Risky?

AVAX is a cryptocurrency, a risky asset class. You can choose to invest in AVAX, but make sure to first understand the risks and limitations. With that said, it's wise not to invest more than you can afford to lose.

The Bottom Line

Avalanche (AVAX) is a cryptocurrency and blockchain platform that rivals Ethereum and is known for its speed and scalability. Avalanche's smart contracts platform supports both decentralized applications and autonomous blockchains.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.
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