What Are the Top 3 Things People Get Wrong About AVAX?

What is AVAX?

Avalanche (AVAX) is a smart contract compatible, open-source cryptocurrency. Developed by a pseudonymous group of programmers calling themselves “Team Rocket” in 2018, it was launched in 2020 by AVA Labs. The aim of the project was/is to create a democratic, proof-of-stake (PoS) network that would be more efficient than the well known proof-of-work (PoW) networks such as Bitcoin, but perform a similar function. In short, AVAX is trying to mimic POW but on a more efficient scale, which would reduce energy consumption, and thus be more environmentally friendly. A part of this goal is acting as a “platform of platforms” with the aim of supporting developers of many kinds.

So what is AVAX not? Well, it’s not quite a sequel to Ethereum (or its anticipated major update, ETH 2.0), it’s not technically one chain, and like other PoS promises, it’s not as decentralized as it claims to be.

Misconception #1: AVAX Is not Ethereum 2

While AVAX island ETH are both smart contract platforms that can exchange with each other, as we’ll explain later, this does not mean that AVAX is a sequel to Ethereum. Perhaps the most notable difference is in gas fees. ETH’s gas fees are very high, while AVAX’s are low, so how does one smart contract platform differ from the other?

Currently, ETH is still using a PoW system which is expected to switch to a PoS system later this year. AVAX is currently on a PoS system, which makes the network consume less energy and operate more efficiently. However, when ETH changes to PoS, that will not make AVAX a redundant piece of software.

Part of AVAX’s mission is to mimic a PoW system without being hampered by the energy consumption of a traditional PoW system such as Bitcoin. AVAX also targets the scalability problem and is built with that in mind. That is one of the many advantages to developing a new generation of blockchain tech, it provides opportunities to learn from previous generations.

Misconception #2: It’s Just One Chain

Beneath the surface, Avalanche is made up of three smart chains. These chains are called the X-chain, the C-chain, and the P-chain. The X-chain is for transactions and it creates and exchanges native tokens on the platform like the AVAX token. Native tokens can be created through a process, similar to Cardano.

The C-chain handles the smart contracts programmed by users which is fully compatible with ETH smart contracts since they both use the same base structure for code, Solidity. Finally, the P-chain is where users can create their own stand-alone chains for their specific purposes, whatever that might be.

The advantage that these three chains offer is high flexibility. Not only does AVAX compete with Ethereum, but it is fully compatible with it so users can switch off of ETH and onto AVAX easily. This dispels some of the FUD associated with long positions.

So long as AVAX is connected to ETH, then the two stand to be around for the foreseeable future. If for whatever reason one wanted to exit their ETH position, they could very easily switch to an AVAX position because of these three smart chains they have working alongside each other to create a highly versatile platform.

Misconception #3: It is Decentralized

This is a common myth for a few proof-of-stake networks, AVAX is one of them. AVAX is currently not widely distributed. Much of the development team and the initial venture investors hold a notable amount of current supply.

The top 30 AVAX wallets hold 30% of the circulating supply. In addition to whales having a notable influence on price, the network hasn’t been put under as much stress testing both in-field and in testing. Having only launched in 2020, AVAX is still relatively new to the crypto space and has to take the time to accumulate investment, mindshare, and other such factors that lead to better distribution.

Another, sometimes overlooked part of supporting the claim to decentralization, is the requirements to become a network validator. This is pretty limiting for smaller scale investors, as in order to become a validator one has to stake a minimum of 2000 AVAX to qualify, which is not cheap considering the value of one AVAX at this time of writing is $59.33, which would be in the ballpark of $120,000 to qualify as a network validator.

While considerable investments of cash to earn validation permissions offers a “skin in the game” mindset from investors, it is quite a high price to pay compared to other tokens, such as Solana or ETH. ETH’s validator cost is pretty high, considering the price of 32 ETH tokens at the moment, but compared to AVAX it’s still the cheaper option in the ballpark of $106,000 and you might get more bang for your buck in that position. Solana is even cheaper, but requires daily upkeep payments, rather than long periods of staking.

Of course you can always delegate your AVAX to validators to that you can earn staking rewards on small amounts of AVAX.

Conclusion: A Multi-Pronged Approach to Crypto

To wrap things up, common misunderstandings about AVAX are about it being an ETH clone, which it is not, it’s built on fairly different architecture and intends to mimic a PoW system that can scale better than historic attempts, such as ETH 1.0.

This architecture is made up of three smart chains which each have a function that relates to its value proposition, creation and exchange of tokens, smart contracts, and custom user projects.

Finally, like other PoS networks, it’s not as decentralized as it claims to be, at least at time of writing. Thirty percent of all AVAX tokens are held in just 30 wallets and at this time of writing, the amount of AVAX required to validate the network is high at 2000 AVAX tokens, or around $175,000, compared to its largest competitor, ETH, which requires just 32 ETH tokens or around $106,000 at this time of writing.

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