Avalanche (AVAX) vs Ethereum (ETH) – Everything You Need to Know

Every day more investors show interest in the smart programmable blockchain sector. These networks enable developers to create immersive and unique Dapps to service the market. As such, they are incredibly popular. Both Avalanche and Ethereum are major contenders in this field. Here’s everything you need to know regarding Avalanche (AVAX) vs Ethereum (ETH).

What is Avalanche (AVAX)?

Avalanche is a fourth-generation DeFi (decentralized finance) enabled protocol. The network leverages a multi-chain approach to reduce fees and improve programmability. Avalanche was built to help alleviate many of the problems Ethereum developers encounter including scalability issues. As such, it has some specific features geared towards onboarding developers from Ethereum over to the Avalanche system.

Avalanche was created by Ava Labs. Ava Labs is led by Cornell researcher Emin Gün Sirer. The project’s mainnet officially launched in September 2020. The team behind the Avalanche project went to great lengths to ensure the protocol had far superior scalability than Ethereum and was easy for users to navigate and leverage.

What is Ethereum (ETH)?

Ethereum changed the crypto market forever as it was the first second-generation blockchain to enter the market. This protocol was revolutionary as it demonstrated the concept of smart contracts. As such, Ethereum has been a pioneering force in the market. It has helped to drive innovation with the launch of the ERC-20 token standard and more.

Today, Ethereum operates as the largest and most diverse DeFi ecosystem in the world. It’s also the largest Dapp network in use. These facts make Ethereum arguably the most important blockchain in the market. Notably, the network is in the middle of a major upgrade that will improve the scalability and functionality of the protocol.

The ETH 2.0 update is the biggest upgrade the network has ever undergone. It will take the Proof-of-Work (PoW) consensus mechanism used by the network and convert it to a Proof-of-Stake (PoS) system. This will improve the network’s usability and provide developers with far more options.

What Problems was Avalanche (AVAX) Built to Alleviate?

Avalanche was built to reduce many of the problems faced by Ethereum users. The protocol combines 3 separate blockchains to accomplish this task. As part of this strategy, the network introduces a multi-language approach to programming. Specifically, Avalanche developers can program smart contracts using multiple virtual machines.

Another problem that Avalanche helps to alleviate is Ethereum’s lack of support for compliant Dapps. Compliant Dapps are protocols that follow complex rule sets. These rule sets are usually a part of some regulatory requirement. The Avalanche network enables developers to determine how each asset is traded, shared, and hosted for the life of the project which makes it ideal for Dapps servicing highly regulated industries.

What Problems was  Ethereum (ETH) Built to Alleviate?

Ethereum was designed to fight centralization. The network was the first to support smart contract programmability and Dapp creation. As such, it has served a vital role in demonstrating how decentralized networks improve on their centralized counterparts. The system was designed to be flexible from day one. Developers can create Dapps using multiple programming languages including C++, Java, JavaScript, Python, Ruby, and more.

How Does Avalanche (AVAX) Work?

Avalanche combines three separate blockchain networks to achieve superior scalability and functionality. The protocol operates as a frictionless payment system, cryptocurrency, and DeFi ecosystem. The 3 blockchains, the X-chain, C-chain, and P-chain all serve different roles in the network. Together they empower Avalanche developers to create more robust Dapps.

X-chain

The X-chain is the network that is responsible for the issuance of new digital assets. This network supports the creation of new tokens, NFTs Non-fungible tokens, stablecoins, and more. Users can utilize AVAX to collateralize these assets.

C-chain

The C-chain is designed to improve Ethereum developer onboarding. The developers describe this network as a conversion chain. It features a bunch of protocols to help Ethereum developers seamlessly convert their Dapps to Avalanche.

P-chain

The P-chain is responsible for monitoring and validating the state of subnets. These Avalanche-powered blockchains can be set up to meet nearly any need. P-chain is also responsible for hosting many of the network’s DeFi features such as its staking protocols.

How Does Ethereum (ETH) Work?

Ethereum operates as a layer one blockchain. Notably, Ethereum isn’t a cryptocurrency as many believe. It’s actually the network that Ether (ETH), the network’s utility token, resides on. It leverages a network of participants known as nodes to compute smart contract equations and host data. For their efforts, these nodes receive rewards in the form of ETH based on their contribution level.

Avalanche (AVAX) Consensus

Avalanche integrates a Proof-of-Stake consensus mechanism. PoS systems are far more energy-efficient than PoW systems because they don’t rely on miners to remain valid. Instead, users stake their AVAX to qualify as Validator nodes. These nodes run virtual machines and add blocks of transactions to the blockchain.

Avalanche (AVAX) vs Ethereum (ETH)

PoS systems are more democratic than PoW systems because they don’t require users to purchase expensive mining equipment or compete against each other to earn rewards. In a PoS system, users simply stake their tokens in a network wallet to help ensure the system remains secure.

Ethereum (ETH) Consensus

Ethereum utilizes the Proof-of-Work (PoW) consensus algorithm. Notably, the network introduces a new version of the PoW consensus system called Ethash. The goal of the new system was to keep the network security but also prevent Bitcoin miners from entering the network using ASIC (application-specific mining rigs).  ASIC mining rigs are thousands of times faster at solving PoW algorithms and can lead to centralization.

Ethereum will become a PoS network in the coming months. The network is already in the middle of its ETH 2.0 conversion. As such, users can stake their Ethereum to become Validators. To become a validator on Ethereum, you need to stake 32 ETH. If you don’t have this much ETH, you can leverage mining pools to combine your tokens with others and split the rewards.

Scalability

In terms of scalability, Avalanche is the clear winner. The network’s multi-chain design provides excellent linear scalability. The protocol is capable of sub-second transaction times. According to company bench tests, Avalanche can support up to 6,500 transactions per second and can scale to millions.

Ethereum can handle around 15 transactions per second in its current state. It takes 35 network confirmations to finalize Ethereum transactions. Notably, the network will see a bump in performance following the completion of the ETH 2.0 upgrade. This update will enable the protocol to support thousands of transactions per second and reduce its carbon footprint.

Fees

In terms of gas fees, Avalanche wins again. The network provides developers and users with some of the lowest fees of any programmable network. Users pay minuscule fees for minting new assets and creating blockchains. These fees are then sent to a burn address. These actions help to bolster the price of AVAX as they reduce the total supply of the token in circulation which helps to drive demand up.

Ethereum is in the midst of record-high congestion which has driven fees upwards. The networks fees increase when it becomes busier due to the technical structure of the protocol. Ethereum is set up to increase fees alongside congestion as a means to reduce spam posts from the blockchain. However, the recent explosion in DeFi protocols has meant that the majority of traffic on the Ethereum blockchain isn’t spam but rather legitimate platforms. As such, this system has become counter-productive.

DeFi Features

Avalanche provides users with full DeFi functionality. The protocol supports all the latest features including peer-to-peer lending, staking, farming, and more. All DeFi rewards are paid out in AVAX, which can then be added to the primary staking balance to improve returns. In the end, you create a wealth-generation cycle using this approach.

Ethereum is the largest DeFi network in the world. Despite its technical limitations, Ethereum has managed to support every DeFi service created. The network enables users to interact within the entire ERC-20 ecosystem in a seamless manner. All ERC-20 compatible apps can leverage the growing number of DEXs, DeFi lending protocols, staking, farming pools, and more.

Avalanche (AVAX) vs Ethereum (ETH)

Tokens

AVAX is the main utility token for the Avalanche ecosystem. This flexible token can be used to pay fees, send value globally in a frictionless manner, and collateralize new assets and blockchain. Avax features superior scalability when compared to ETH. The token can also be staked to secure low-risk rewards.

ETH is the primary utility token of the Ethereum network. This token’s purpose is to pay for instances of the EVM (Ethereum Virtual Machine). ETH is one of the most popular tokens in the market. It’s listed on nearly every exchange and is among the most popular tokens in the world. You can use ETH to participate in ICOs (initial coin offerings). It’s also used to compensate miners for their support.

Updated Tech vs a Massive Community

The battle between Avalanche and Ethereum is no were close to over. Both of these networks have bright futures. You can expect to see Avalanche continue to gain ground on Ethereum until the network completes its 2.0 upgrade. At that time, you could see an influx of developers flocking back to the protocol that started it all. For now, both of these projects are a smart addition to anyone’s portfolio.

Learn More

To learn more visit our Investing in Avalanche guide or our Investing in Ethereum guide.