Tracking the world of decentralized finance

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The crypto world is synonymous with experiments and projects are often filled with promises of extreme scaling and super-fast transactions. However, experiments form the bedrock of innovation. Despite blatant claims made by the majority of crypto projects, only a handful have come close to solving problems that blockchains like Ethereum are currently facing. Among key players, taking factors like security, decentralization and performance into account, Avalanche (AVAX) is right there at the top.

In today’s article, let’s understand the problem of scaling and what Avalanche does differently from other chains to tackle the same.

Problem of scaling

Basically, there are two ways to scale a blockchain. One is through vertical scaling (faster chains) and other is through horizontal scaling (more chains). For vertical scaling, transactions have to be processed faster. The bottleneck arises from storing smart contract call data. Each new block updates internal transaction data and requires several updates causing more congestion to the network. There is a limit to how much one can scale vertically.

With horizontal scaling, scaling is theoretically unlimited. Let’s assume a blockchain that can do 100 transactions per second (tps). Run five of them in parallel and the system supports 500 tps. The only catch is that for chains to exist parallely, they need to be independent, in other words, self-contained ecosystems. 

Avalanche has taken the horizontal scaling route and has launched a feature called Subnets that lets developers create interoperable and customized blockchains. 

The promise of Avalanche 

Achieving speed (along with latency), security and decentralization at the same time is extremely difficult. It is a well known problem in the crypto community and the majority of proposed blockchains make tradeoffs depending on their vision and objectives. Avalanche was one of the first to propose a new consensus mechanism that has managed to fulfill all three major features. 

Among the networks available, Optimism takes 1 week for a transaction to be finalized. Bitcoin takes 60 min while chains like Ethereum and Cardano take about 5-6 min. Solana, which is highly centralized and with high tps, takes about 13 sec. Avalanche (AVAX) takes an impressive less than 1 sec for transactions to be finalized because it has made crypto transactions comparable to global banking. 

Due to its comparably minimal requirements for becoming a validator, Avalanche now has more than 1,300 validators (as of April 2022) responsible for maintaining the blockchain making it decentralized. The most significant difference Avalanche boasts (from other chains) is through its novel consensus mechanism which is proven to be lightweight and sustainable. 

World of Subnets

Before talking about subnets, let’s do a quick overview of Avalanche. Avalanche features three built-in blockchains namely Exchange Chain (X-Chain), Platform Chain (P-Chain), and Contract Chain (C-Chain). All 3 blockchains are validated and secured by the Primary Network. The Primary Network is a special subnet, and all members of all custom subnets must also be a member of the Primary Network by staking at least 2,000 AVAX. 

Source: support.avax.network 

C-chain: Ethereum virtual machine (EVM) chain for smart contracts (To do DeFi)

X-chain: Chain for payments (To send and receive funds) 

P-chain: Chain for platform governance and validator set up (To stake AVAX and most importantly, to create a subnet) 

Subnets, also known as subnetwork, can be thought of as a bottom layer of a stack with many blockchains on top of a single subnet or there can be many chains for a single subnet too. In theory, Avalanche allows for infinite subnets to be created, which is the network’s secret recipe to scaling. Each subnet can be private (permissioned) or public (permissionless). Basically, it represents a set of validators who achieve consensus on the state of the network.

Advantages of subnets  

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  Network congestion is avoided making it less expensive in terms of gas fees for users to use applications. 
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  Subnets allow customization of gas tokens. One can either use AVAX or even their own game token as gas and find the right tradeoff for gas optimisation. 
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  Different blockchain-based applications may require validators to have certain properties. Suppose there is an application that requires large amounts of RAM or CPU power. A subnet could require that validators meet certain hardware requirements so that the application doesn’t suffer from low performance due to slow validators.
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  Similarly, blockchain applications have to comply with local regulations and they differ from place-to-place. Subnets have the ability to tweak membership details of validators accordingly.  
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  Existing blockchain can port their state over to Avalanche and use its consensus mechanism for faster performance, finality, and increased security. So blockchain such as Bitcoin Cash, Ethereum classic could each have their own subnet and utilize POS, using their own token as stake. There is already an Avalanche version of Zcash on a subnet.

These are some of the exciting features that subnets bring to the crypto ecosystem and have already caught the attention of crypto gaming projects (like DeFi Kingdom, Crabada etc) and even major corporations (like Mastercard, Deloitte etc). While subnets are still at a nascent stage, they have shown some success in few play-to-earn games. Whether it can handle billions of transactions and more than 10,000 subnets at the same time working seamlessly, all one can do is to be patient to let innovation happen.

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.