The complete guide to buying Avalanche (AVAX)
Avalanche is a blockchain that comes with the rather bold claim to be “the fastest smart contracts platform in the blockchain industry, as measured by time-to-finality”.
This is backed up by its claims that it can process transactions in one second and can also scale indefinitely. There’s no doubt that Avalanche and its AVAX token talks the talk, but does it walk the walk? Let’s find out.
What is Avalanche?
Avalanche was founded in 2019 by Dr Emin Gün Sirer with the stated ambition to be the blockchain with the fastest time to finality for transactions.
Time-to-finality is simply a way of measuring how long it takes for blockchain transactions to be considered permanent and irreversible, something that some blockchains don’t take into account when discussing their transactions per second.
Avalanche aims to be the complete DeFi platform, combining speed and scaling without sacrificing decentralization.
Blockchain developers typically have to sacrifice speed and scaling for high levels of decentralization, but Avalanche aims to change that. The way it plans to do this is by blending three three different blockchains together to form a kind of mega blockchain ready to take DeFi to a new level.
How can I buy AVAX?
AVAX has become a very popular coin in the crypto space, so it’s available from lots of places. Even though it calls itself the future of DeFi, it’s not actually available on major decentralized exchanges (DEXs), leaving you fewer options when it comes to buying AVAX tokens. Here is a rundown of where you can buy AVAX:
AVAX is available on hundreds of centralized exchanges (CEXs), including several large ones such as Binance, FTX, Kucoin, and Coinbase.
CEXs are controlled by a single entity – the organization that developed and maintains the exchange – and you will need to register with a government-approved ID before you can access the features that allow you to buy AVAX.
CEXs offer multiple different purchasing and payment options, which we will go through in the next section.
AVAX is only available at one DEX – Pangolin, a “community-driven decentralized exchange for Avalanche and Ethereum assets”. While DEXs do offer more privacy, you will need a compatible cryptocurrency already in a wallet to swap in to AVAX – you can’t buy with a bank card.
Once you have some cryptocurrency in one of the wallets compatible with Pangolin, simply connect your wallet to the exchange and initiate a swap between your crypto and AVAX. The swap will be carried out instantly, but beware that large orders may result in the swap price being less favorable due to limited supply.
Bear in mind that you may be asked to pay the transaction fee in AVAX tokens – the same ones you’re trying to buy. This may make it a non-starter for some.
The Avalanche bridge is a little like a DEX, except it is focused solely on AVAX tokens. By using the Avalanche bridge you can swap one of a huge number of cryptocurrencies for AVAX, safe in the knowledge that larger orders are more likely to be filled without issue.
Like a DEX, the Avalanche bridge is decentralized, meaning you won’t need to register your details, but you will need to have the crypto to swap in the first place
How can I pay for AVAX?
There are a number of ways you can pay for your AVAX tokens, but we’ll look at the most common ones here:
If you already hold cryptocurrencies, the easiest way to get AVAX is to swap them, either on a CEX or on the Avalanche bridge.
Most people will find the Avalanche bridge easier because you don’t need to send the coins you want to swap into the bridge first, you can just swap them right out of your wallet. With a CEX you have to send the coins to the exchange and swap them there.
However, the advantage with a CEX is that you can set a buy order at a lower price if you think the price is going to drop, allowing you to potentially pick up more for the same dollar value.
You can also very clearly see the orderbook, meaning there is no risk of your order failing or experiencing unexpected slippage. However, CEX’s are less private than using the Avalanche bridge.
Credit card/debit card
Many CEXs allow their users to buy AVAX coins with a credit card or debit card, assuming that their bank supports crypto purchases. Buying AVAX tokens this way is as easy as any standard online purchase, but be prepared to verify the purchase through your bank before it is processed.
Once you have registered/logged into your CEX of choice, simply click or tap the ‘buy’ option. This is typically located on the exchange’s home screen.
Enter the fiat value of the AVAX you want to buy and complete the payment (there will be processing fees). Once your AVAX purchase has been approved, withdraw it from the exchange to a wallet where you control the private key (optional).
Some banks don’t allow cryptocurrency purchases through their cards, but there is another way – many of the top CEXs allow you to fund your account through bank deposits which typically aren’t restricted.
This process involves sending the funds over to the exchange through a regular bank transfer and buying the coins once your account has been credited.
If you plan to use this method, it’s best to perform a test transfer of a small amount to make sure it goes through before sending the full amount you want to send.
If you sell your AVAX tokens and want to withdraw fiat from the exchange, you will be able to send it back to this account again.
How does Avalanche work?
Avalanche is able to make its bold claims about speed and throughput because of its triple-blockchain design.
Each blockchain is dedicated to a single element within the overall process, meaning that various transaction types can take place in parallel rather than taking place on a single linear blockchain. We’ll come to these in a moment.
Avalanche’s approach to scaling mirrors those seen by other newer blockchains, allowing dapps to run on their own off-chain networks and taking pressure off the main chain.
This ensures it remains free of bottlenecks. These side chains, which Avalanche calls ‘Subnets’, are a variation on the sharding technology that forms the backbone of Ethereum’s scaling plans.
These Subnets can create secondary subnets if the main network becomes full, meaning that Avalanche has unlimited scaling potential, at least in theory.
The three blockchains Avalanche employs are:
- The Exchange Chain (X-Chain) is used for creating and exchanging AVAX tokens and other cryptocurrencies. The blockchain uses the Avalanche consensus protocol and transaction fees are paid in AVAX.
- The Contract Chain (C-Chain) is the chain on which developers create smart contracts for dapps. This blockchain implements a version of the Ethereum Virtual Machine (EVM), allowing for the creation of EVM-compatible dapps. The C-Chain uses a modified version of the Avalanche Consensus protocol called ‘Snowman’.
- The Platform Chain (P-Chain), which also uses Snowman, is used to coordinate network validators, track active Subnets, and create new ones.
The presence of these three blockchains means that a great many activities of all varieties can be carried out on Avalanche without the network being clogged up.
Avalanche boasts that this technology allows it to process upwards of 4,500 transactions per second (TPS), which would be more than double that of VISA if it were verified.
However, this is currently a theoretical throughput based on a single Subnet operating in optimal conditions rather than actual use on the main chain, so until we see these kinds of figures in the wild we can’t say for sure what Avalanche can do.
A much more realistic gauge of Avalanche’s throughput can be obtained by checking its metrics site which, at the time of writing, shows the figure to be in the region of 33 TPS.
However, we must remember that TPS figures are about demand as much as they are about speed, and Avalanche is not yet in demand enough to need to go through the gears. The real test will come if and when large scale adoption happens.
Why should I buy AVAX?
AVAX is the currency used to complete all transactions on the Avalanche network and on all subnets. This means that anyone wanting to use any services on Avalanche, from playing at an online casino to taking out a DeFi loan, will pay a little AVAX as ‘gas’ to push the transaction through. This helps simplify the process across all Subnets and improves interoperability.
Another reason why it might be a good idea to buy AVAX tokens is because you can stake them to earn rewards. AVAX relies on regular people to act as validators for transactions (more on this later), but the benefit of this is that anyone who holds at least 2,000 AVAX tokens can lock them up in a wallet, or even on compliant exchanges, and earn AVAX tokens in return.
If this sounds too good to be true, it’s just an example of how some blockchains work – and your tokens aren’t doing nothing. They act as a commitment that you make to the network to help confirm transactions going through it – if you were to try and tamper with the blockchain in any way, your coins would be forfeit. Once your coins are staked you don’t need to do anything except sit back and enjoy the rewards.
What is an Avalanche wallet?
An Avalanche wallet is the place where you will store your AVAX tokens once you’ve bought them and where you can also stake them to earn rewards.
The Avalanche network has an official wallet that you can use if you want to store and stake your AVAX. This wallet is non-custodial, which means you are in complete control of all the coins in the wallet, although being a web wallet it is more of a security risk than other types.
There are other web wallets where you can store your AVAX tokens, such as the popular Metamask, or there are mobile wallet apps that offer an extra level of security and also allow staking.
There are also hardware wallets which look like USB keys and store your AVAX tokens offline for ultimate security. These wallets have also recently introduced staking options, which means you’re not missing out by using them. However, whereas web and mobile wallets are free, hardware wallets are not.
How does an Avalanche transaction work?
Avalanche’s two consensus mechanisms (Avalanche and Snowman) don’t use miners to confirm transactions as the likes of Bitcoin and Litecoin do.
The Avalanche consensus protocol implements a directed acyclic graph (DAG) consensus protocol which allows the network to process transactions in parallel. Once a transaction is submitted, validators poll a sampling of other validators to determine whether it is valid.
After a certain number of this repeated random subsampling, the blockchain reaches consensus and the transaction is processed.
This process does away with the head Validators you would find with other blockchains such as Ethreum and Cardano, meaning that all transactions are finalized immediately, making them faster to complete but still sufficiently decentralized.
Snowman is based off this principle, but orders transactions linearly. This is necessary when dealing with smart contracts and leads to the creation of blocks, unlike with the Avalanche consensus protocol.
Avalanche currently has over 1,200 validators compared to Binance Smart Chain’s 21, which already puts it in a superior position, but this pales into insignificance compared to Ethereum’s 430,000+.
Many of these validators got on board when AVAX tokens were relatively cheap, but with 2,000 AVAX tokens needed to become a validator, the appeal isn’t quite as much as it used to be now that tokens are in the double digit range.
The onset of the crypto winter has also led to many selling off their nodes in order to preserve capital – the number of validators dropped 23% in the six months following the April 2022 peak.
Are there any risks with Avalanche?
While Avalanche certainly has a lot going for it, there are a number of things to bear in mind before you pull the trigger and buy it.
Avalanche is a new project with little real world adoption, and so buying the token as a long term hold is a more risky play than holding more established coins like Bitcoin or Ethereum. This is because the blockchain itself has not been tested in real world conditions and needs to be in order to build confidence in it.
Roche Freedman Scandal
In August 2022 it was claimed via the publication of secretly recorded video footage that Avalanche founder Emin Gün Sirer had hired U.S. law firm Roche Freedman to intentionally go after Avalanche’s competitors in the hopes of pushing regulatory attention away from Avalanche and onto them.
Gün Sirer denied this, but the scandal was an uncomfortable moment for the Avalanche founder and, with a lawyer from the firm in question forced to remove himself from several other lawsuits, it may have repercussions down the line.
Becoming a validator is expensive
If you’re thinking of buying AVAX to become a validator, remember that you need 2,000 AVAX tokens in order to qualify.
This may have been viable for most people until the start of 2021, but the moment the price took off it became more and more unaffordable. At current prices, the cost of being an Avalanche validator is $34,000, which is going to be out of reach for most people.
How is Avalanche shaping the future?
Avalanche has kept quiet about its future in recent months, so it’s difficult to know exactly what it has up its sleeve. However, Gün Sirer did say in an interview in September 2022 that he was “thrilled about the bridge that we ourselves built because it’s so cheap to use for value transfers.”
Gün Sirer also talked up the value of ‘zero-knowledge proofs’, which is a proof construction where possession of certain information can be proved without revealing that information and without any interaction between the prover and verifier. This suggests Avalanche will be looking into this technology in the near future.
Aside from these nuggets we will have to wait and see what Avalanche has in store in the months and years ahead.
Is Avalanche a good investment?
Avalanche is an exciting project with lots of potential, but like so many new blockchains it hasn’t been battle tested. Its usage has been exploding in 2022, showing that there are certainly users of the blockchain, but the slow TPS shows that demand is nowhere near where it needs to be in order to say that it can cope with mass adoption.
The technology behind Avalanche is certainly interesting, and its staking feature could prove to be a nice source of passive income – if you can afford to be a validator. There’s no reason why AVAX can’t do as well as other coins in the next crypto bull run, but more evidence is needed to see if it can sustain adoption over the long run.