On Sunday, the native token of smart contract platform Avalanche, AVAX climbed a new high, briefly placing it among the top ten cryptocurrencies by market capitalization. AVAX, as per CoinGecko, has grown by 33 percent in the previous seven days. It also grew by over 3,000 percent in the last year.
This increase came after Ava Labs. It is a group that supports the Avalanche blockchain. It announced cooperation with consulting company Deloitte to better the security, speed, and accuracy of Federal Emergency Management Agency (FEMA) funding. Deloitte will use the Avalanche blockchain to create more effective disaster-relief solutions.
According to Matt Hougan, a chief investment officer of Bitwise Asset Management, the market reaction was more of a matter of the right news at the right moment. Its release coincided with a spike in anger about the escalating cost of utilizing the Ethereum network.
Because both have smart contract capabilities, Avalanche frequently compares to Ethereum. Decentralized financial, or DeFi, applications and nonfungible tokens, or NFTs, rely on smart contracts. Which are collections of code that carry out a set of instructions on the blockchain.
Avalanche aims for faster transactions and lower fees than Ethereum, on the other hand.
Despite the fact that the Deloitte deal does not change Avalanche in any way, Hougan believes it is a hint that Avalanche may have the appropriate ingredients to compete with Ethereum and other all-purpose blockchains in the long run.
Regardless of the excitement surrounding Avalanche, it’s critical to do your homework. It is also crucial to understand the risks associated with any cryptocurrency before investing. Financial professionals regard cryptos as volatile and speculative investments. It is possible to fall back down as rapidly as one reaches a new high.
What’s Avalanche?
The platform Avalanche was recognized for smart contracts and non-centralized applications known as dapps, and subnets known as custom blockchains in the year 2020.
According to John Wu, president of Ava Labs, subnets are stable and trustworthy. These are also secure private or public blockchains established as offshoots to the core Avalanche platform. Developers of these custom blockchains enjoy complete design control, with the only requirement that they contribute to the network’s security.
Wu added that Subnets will be a major use case for Avalanche in the future.
Avalanche uses a proof-of-stake (PoS) paradigm, in which validators validate transactions based on the number of coins they own. PoS supporters argue that it uses much less energy and has a lower environmental impact than other models.
How does it compare to Ethereum?
Other projects have developed in an attempt to compete with Ethereum, the most widely used blockchain network.
Although Ethereum is the most popular all-purpose blockchain, Hougan says that demand for Ethereum’s utility is significantly greater than the blockchain’s present capacity. As a result, a number of Ethereum competitors are gaining traction. One of them is Avalanche.
According to Hougan, Avalanche is supposed to be faster and less expensive to operate than Ethereum. It processes more transactions per second for less money. Avalanche can process over 4,500 transactions per second, according to Ava Labs. While Ethereum can only handle about 13 transactions per second.
However, Ethereum has its own benefits, including as its reputation, notoriety, and capability.
Ethereum currently uses a proof-of-work (PoW) architecture, in which miners compete to solve hard puzzles in order to validate transactions.
Supporters of Ethereum, on the other hand, claim that the blockchain will become more scalable, safe, and long-lasting following the Eth2 update in 2022. This is when the network will also switch to a PoS architecture.
What are the risks?
Due to the high dangers associated with cryptocurrencies, financial professionals generally advise only investing as much as you can afford to lose.
AVAX gained a lot of value in a short amount of time. Before investing, the potential for huge price swings should be acknowledged and recognized. Just as it should be with other cryptocurrencies.
But, most importantly, betting on one blockchain versus the rest, according to Hougan, is extremely dangerous. It’s tough to predict early winners in disruptive technology.
