What to know about Ethereum competitor Avalanche as AVAX rallies

AVAX, the native token to smart contracts platform Avalanche, hit an all-time high on Sunday, briefly making it one of the top 10 cryptocurrencies by market value. Now ranked No. 11, AVAX is up 33% in the last seven days, according to CoinGecko, and up over 3,000% in the last year.

This surge followed an announcement by Ava Labs, a team supporting development of the Avalanche blockchain, stating it formed a partnership with consulting firm Deloitte to “improve security, speed and accuracy” of Federal Emergency Management Agency (FEMA) funding. Deloitte will use the Avalanche blockchain to “build more efficient disaster-relief platforms.

However, the market reaction was more of a case of “the right news at the right time,” Matt Hougan, chief investment officer at Bitwise Asset Management, tells CNBC Make It. “Its timing was coincident with a peak in frustration around the rising cost of using the Ethereum blockchain.”

Avalanche is often compared to Ethereum, as both have smart contract capabilities. Smart contracts, or collections of code that carry out a set of instructions on the blockchain, are crucial in running decentralized finance, or DeFi, applications and nonfungible tokens, or NFTs.

However, Avalanche aims to conduct faster transactions with lower fees than Ethereum.

Though “there is nothing specific about the Deloitte deal that is transformative to Avalanche,” Hougan says, “it is a signal that Avalanche may have the right ingredients to compete with Ethereum and other all-purpose blockchains long-term.”

Despite the hype around Avalanche, it’s important to research and understand the risks of any cryptocurrency before investing. Financial experts view cryptocurrencies as volatile, speculative investments. As quickly as one reaches a new high, it could go back down.

What’s Avalanche?

Avalanche launched in 2020 as a platform for smart contracts, the creation of decentralized applications, or dapps, and subnets, or custom blockchains.

“Subnets are powerful, reliable and secure private or public blockchains built as offshoots to the core Avalanche platform,” John Wu, president of Ava Labs, tells CNBC Make It. “Developers of these custom blockchains have complete control over the design, with the only requirement being to participate in securing the core platform.”

Wu sees subnets as a powerful use case for Avalanche going forward.

Avalanche operates on a proof of stake (PoS) model, where validators verify transactions according to how many coins they hold. Supporters of PoS say it is significantly less energy intensive than other models and has less of an environmental impact.

How does it compare to Ethereum?

What are the risks?

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