What Is the Difference Between Avalanche (AVAX) and Bitcoin (BTC)?

Avalanche and Bitcoin are two popular blockchains in the crypto market with high-ranking cryptocurrencies. Currently, while BTC continues to hold the first position, AVAX ranks as the 14th top digital asset by market capitalisation.

But what is the difference between Avalanche and Bitcoin? In this article, we will explore a short introduction of each network, which will be followed by a detailed comparison of the two blockchains based on factors like consensus mechanisms, scalability, decentralisation, use cases, and more.

What Is Bitcoin (BTC)?

Launched in 2009 by the pseudonymous Satoshi Nakamoto, Bitcoin (BTC) is the blockchain network with the longest-standing history. BTC is also the world's first and leading decentralised cryptocurrency (by market capitalisation).

Initially created to function as a peer-to-peer (P2P) electronic cash system, the Bitcoin network facilitates P2P transfers between users without intermediaries or geographical restrictions.

As a public and permissionless blockchain, anyone can inspect transactions on the distributed ledger or become a validator. It also maintains high security and decentralisation at the cost of scalability with the Proof-of-Work (PoW) consensus mechanism.

What Is Avalanche (AVAX)?

Launched in September 2020, Avalanche (AVAX) is a high-performance Layer 1 (L1) blockchain that aims to provide an effective solution to the blockchain trilemma. With the unique Avalanche Consensus mechanism and Subnets, it can achieve high scalability without negatively impacting network security or decentralisation.

The project's history dates back to May 2018. This was when the Team Rocket pseudonymous developer group shared Avalanche's fundamentals on the InterPlanetary File System (IPFS). Later on, researchers led by Emin Gün Sirer founded Ava Labs to build and develop the blockchain.

Avalanche is a heterogeneous network of blockchains where separate chains for different applications can be created. In addition to several sovereign networks called Subnets, the Primary Network, consisting of the Contract Chain (C-Chain), the Platform Chain (P-Chain), and the Exchange Chain (X-Chain) form the Avalanche Mainnet.

Avalanche vs. Bitcoin: What Is the Difference?

In what follows, we will compare Avalanche and Bitcoin, exploring the key differences between the two blockchains based on factors ranging from tokenomics and price history to consensus mechanism, utility, and governance.

Key Difference	Avalanche (AVAX)	Bitcoin (BTC)
Consensus Mechanism	Avalanche Consensus (Proof-of-Stake)	Proof-of-Work
Energy Efficiency	Energy-efficient (equivalent to 46 US households)	Energy-intensive (comparable to Poland's usage)
Speed & Scalability	357 TPS, 2-second block time	7 TPS, 10-minute block time
Governance	On-chain governance planned, Ava Labs governs	Off-chain governance
Decentralization	1,471 validators, moderate decentralization	Highly decentralized, 58,241 nodes
Tokenomics	715.75M max supply, deflationary gas fee burning	21M max supply, deflationary halving mechanism
Use Cases	Staking, transaction fees, governance (future)	Store of value, payments, miner fees
Price History (up to 2024)	Launched in 2020, 400% increase, -39% YTD ROI	Launched in 2009, 980,000% all-time ROI, 35% YTD

Consensus Mechanism

Bitcoin uses the Proof-of-Work (PoW) algorithm to reach consensus in the network. Here, miners leverage the computing power of their application-specific integrated circuit (ASIC) mining equipment to validate blocks. It is an energy-intensive process that sacrifices scalability, yet it ensures a high level of decentralisation and security for the ecosystem.

On the other hand, Avalanche uses the Avalanche Consensus mechanism, which is based on the Proof-of-Stake (PoS) algorithm. Instead of mining, validators stake AVAX to produce new blocks, which consumes significantly less energy. Moreover, Avalanche Consensus is designed to provide fast finality, high throughput and scalability, and the parallel processing of transactions without sacrificing network decentralisation or security.

Energy Efficiency

Bitcoin's PoW mechanism is energy-intensive, as it requires miners to operate physical equipment to validate blocks. According to the Cambridge Bitcoin Electricity Consumption Index, the BTC network consumes nearly as much power in a year as the population of Poland.

In contrast, Avalanche's energy-efficient Avalanche Consensus mechanism consumes the same amount of power as 46 US households.

Speed and Scalability

Bitcoin is optimised for security and decentralisation but not scalability or speed. Consequently, the BTC network can only process up to 7 transactions per second (TPS). At the same time, since block time is 10 minutes, transaction finality is around 60 minutes.

Avalanche Consensus provides the network with a fine balance between scalability, decentralisation, and security. As a result, Avalanche has a max theoretical TPS of 357. It is also a speedy blockchain with a 2-second block time and transaction finality.

Governance

Despite the network's high decentralisation, Bitcoin has an off-chain governance mechanism where key stakeholders, including miners, the core development team and other developers, users, and researchers, meet to shape the future of the network. This is mainly due to BTC lacking governance functionality, as holding the native cryptocurrency in your wallet doesn't grant you any governance rights.

While AVAX was designed to have governance functionality, on-chain governance hasn't been integrated into the Avalanche network yet. Until then, Ava Labs continues to govern the project.

Security

Since Bitcoin is a Proof-of-Work (PoW) blockchain, its security is ensured by its hashrate. The higher the hash power, the harder it is for a malicious party to (temporarily) take over the network in a 51% attack. Currently, Bitcoin's hashrate stands at around 613 EH/s, which is the highest among all PoW chains.

For a successful 51% attack, the attacker should have a hashrate of around 625 EH/s. Suppose he purchases Bitmain's Antminer S21 XP Hydro 473TH as the equipment. Based on the S21 XP Hydro's specifications, the attacker has to purchase 1.321 million rigs for approximately $10,000 each, costing a whopping $1.321 billion in initial costs and nearly $10.8 million per day in electricity fees to operate them.

We didn't even take into account important factors like installation and rental fees, as well as employee salaries. Moreover, it is not likely that one actor can acquire such massive amounts of mining equipment in a short period of time due to the limited supply at manufacturers.

So, it is safe to conclude that Bitcoin is a highly resilient and secure network that would be too expensive for hackers to take over, even for brief periods of time.

Avalanche's consensus mechanism is based on PoS, where validators secure the blockchain through staking AVAX. For an attacker to take over 51% of the network, he has to own 51% of the staked cryptocurrencies.

According to Staking Rewards, a little more than 230 million AVAX is being staked, representing nearly 57% of the circulating supply. At the current $23.52 price, that would require the attacker to purchase around 235 million AVAX for a total of $5.5 billion without accounting for the positive price impact of the sudden supply shock.

Despite the high costs of the attack, the community can simply agree to roll out a hard fork to delete the deposits of the malicious validator. Moreover, the slashing mechanism is also in place to punish misbehaving validators by taking a part or all of their AVAX stakes. This makes Avalanche a highly secure blockchain.

Decentralisation

To assess the decentralisation of the Bitcoin network, we should take a look at the number of nodes within the ecosystem and the distribution of the hashrate.

Regarding hashrate distribution, solo mining is no longer viable in the Bitcoin network due to the high competition. So, miners team up, concentrating their computing power in mining pools to increase their chances of mining the next block.

Source: Blockchain.com

Currently, the two largest mining pools, Foundry USA and AntPool, account for over 51% of the network's hash power. At first glance, one may conclude that the Bitcoin blockchain is centralised. However, we should remember that several thousands of individual miners and mining organisations are represented by these two mining pools.

Also, miners are not the only key stakeholders in the Bitcoin network. Nodes, which work together with miners to validate transactions and secure the blockchain, play a similarly important role. However, unlike mining pools, they are not nearly as concentrated.

Currently, there are an estimated 58,241 nodes in the Bitcoin network, which are spread in 139 countries. Such a high number of nodes can even prevent an "evil miner scenario," in which malicious miners attempt to take over the ecosystem. This makes Bitcoin a highly decentralised blockchain ecosystem.

On the other hand, there are currently 1,471 validators in the Avalanche network. This is higher than at many other high-throughput blockchains but lower than Bitcoin's node count. However, as validators can stake a maximum of 3 million AVAX, voting power is not concentrated in the hands of a small group of validators. That said, Avalanche is expected to become more decentralised once it implements an on-chain governance mechanism.

Token Utility

BTC is utilised as a medium of exchange within the network, facilitating transfers between users, payments via the Layer 2 Lightning Network, and other transactions. It is also used to cover miners' fees for transacting Bitcoin.

Besides payments, BTC is increasingly used as a store of value due to its deflationary properties (more on this later in the tokenomics section). Thus, many investors buy Bitcoin in anticipation of long-term gains (check out this article on VALR's blog to learn whether it is too late to purchase BTC).

Similarly to BTC, AVAX can also be used to cover transaction fees. Besides that, users can stake the cryptocurrency to contribute to the network's security and earn yield in exchange. Moreover, once the on-chain governance mechanism is implemented, holders will be able to utilise it to participate in community governance.

Tokenomics

Bitcoin has a max supply cap of 21 million coins. Currently, around 19.75 million coins are in circulation, with the rest being released to the market until 2140.

In terms of BTC, it is important to mention its deflationary halving mechanism. Approximately every four years, block rewards are reduced by 50%, which effectively cuts Bitcoin's inflation in half, providing the cryptocurrency with positive supply-demand dynamics.

Except for around 1 million BTC that was reportedly pre-mined by Satoshi Nakamoto, all the remaining Bitcoin has been allocated to miners, who earn them as block rewards for securing the network.

AVAX's maximum supply is also capped at 715.75 million tokens. To provide the coin deflationary properties, Avalanche automatically burns all gas fees that would otherwise be paid to validators.

As of September 11, 2024, a little more than 405 million AVAX is circulating in the crypto market. In contrast, 360 million coins were minted at genesis.

Source: CryptoRank

Most of the AVAX (50%) is allocated as staking rewards, 10% to the team, 9.26% to the Foundation, 7% to community and development, 5% to strategic partners, and the rest divided between the participants of an airdrop, multiple public sale rounds, a private sale, a seed round, and a testnet incentive program.

Price History

Source: CoinMarketCap

Since its launch in September 2020, AVAX's value has risen by 400%. Currently trading at $23.52, the cryptocurrency's YTD ROI for 2024 stands at -39%.

Buy BTC and AVAX on VALR

Bitcoin and Avalanche are both prominent blockchains with top cryptocurrencies. While Avalanche aims to strike a balance between decentralisation, security, and scalability, the BTC network sacrifices throughput for resilience and decentralisation.

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Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.