Avalanche Is One of the Fastest Blockchains in Crypto -- Is It Worth Buying?

Many crypto investors assume that if a blockchain can settle transactions in a blink, its native token must be worth something. For instance, the Avalanche (CRYPTO: AVAX) chain produces its blocks in under a second, and finalizes its transactions in about two seconds. But it's still down 94% from its all-time high set in November 2021, so there's clearly some kind of disconnect between what the network is capable of and what investors think the coin is worth.

The most obvious challenge for the network is its biggest competitor, Solana (CRYPTO: SOL), which prioritizes speed and throughput as core tenets. Given that Solana is larger and faster, is Avalanche worth buying, as it's still faster than almost any other chain in the sector?

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Speed refers to more than one thing

To start, let's talk speed and throughput.

On Avalanche's C-Chain, its main venue for processing smart contracts, transactions are finalized in under two seconds at most. In terms of its throughput, the C-Chain averaged about 32 transactions per second (TPS) under the fairly normal conditions it experienced on May 20, but in theory, it's capable of processing around 1,190 TPS.

In contrast, Solana handled over 1,400 TPS on May 20 and is theoretically capable of processing up to 65,000 TPS, while finalizing transactions in just under 13 seconds at peak. And while Solana's transaction finality is indeed slower than Avalanche's under worst-case conditions, in practice, the finalization time isn't what makes users think a chain is fast or slow; it's the block time, because users see their transactions confirmed within a single block, well before the network reaches true finality.

On block time, Solana's blocks are produced about every 400 milliseconds, whereas Avalanche's blocks take a full second. So transfers and swaps tend to be palpably snappier and more responsive on Solana, even though its transaction finalization time is much longer and it carries a far greater transaction load. That's a big part of why Avalanche's ecosystem isn't as big, as users typically prefer lower-friction experiences.

Avalanche's decentralized finance (DeFi) ecosystem has $630 million in value locked, whereas Solana's has just over $6 billion, with more projects, better developer tooling, and also a lot more attention from institutional as well as retail participants.

There's not much reason to invest

For anyone evaluating whether a particular cryptocurrency is a worthwhile investment, it's worth knowing that a chain's ecosystem depth usually predicts its long-term value a lot better than any single set of performance stats such as speed or throughput. After all, many networks report stellar speed and throughput metrics because it's fairly easy to handle very small amounts of traffic efficiently.

For now, Avalanche is closer to that end of the pool than Solana is. That doesn't mean it'll always be there. But it probably means you should let go of the idea of buying it (and having it perform well) on the basis of its speed alone.

Alex Carchidi has positions in Solana. The Motley Fool has positions in and recommends Avalanche and Solana. The Motley Fool has a disclosure policy.