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The Solana project implements a public base – layer-1 – blockchain that is eco-friendly, high-speed and permissionless. Are you ready to learn more about it?
History
Anatoly Yakovenko, a former executive at Qualcomm, created Solana in 2017 with the goal of optimizing scalability beyond typical blockchains and keeping costs low. Solana implements an innovative hybrid consensus model that combines a unique proof-of-history (PoH) algorithm with the lightning-fast synchronization engine, which is a version of proof-of-stake (PoS). Solana’s Proof-of-History (PoH) algorithm features a new timestamp system that enables automatically ordered transactions. Its Proof of Stake (PoS) consensus algorithm helps secure the network.
The Solana network can theoretically process over 710,000 transactions per second (TPS) without any scaling solutions needed. However a more realistic approach currently are 50.000 transactions per second (TPS).
Solana’s third-generation blockchain architecture is designed to facilitate smart contracts and decentralized application (DApp) creation. Developers should not be forced to design around performance bottlenecks. The project supports an array of decentralized finance (DeFi) platforms as well as nonfungible token (NFT) marketplaces.
Additional design goals include sub-second settlement times, low transaction costs, and support for the collection of modular and reusable compiler and toolchain technologies (LLVM) that are compatible with smart contract languages.
Solana blockchain was rolled out during the 2017 initial coin offering (ICO) boom.
Anatoly soon after teamed up with former Qualcomm colleague Greg Fitzgerald to build a single blockchain network in Rust that used PoH as its “internal clock.” The two released the first internal testnet (with demo) and official version of the project’s whitepaper in February 2018. Another former Qualcomm cohort, Stephen Akridge, suggested that offloading signature verification to graphics processors could further increase transaction throughput (i.e., scalability).
Anatoly recruited Greg and Stephen, and three others to found the company that would eventually become Solana Labs. The founding team included former Apple engineers in addition to the Qualcomm veterans. They initially named the project Loom but later rebranded it to Solana to avoid confusion with the Ethereum Layer-2 scaling solution, Loom Network.
Solana Labs began raising funds to build its new crypto network in Q2 2018. Between April 2018 and July 2019, the team raised a little over $20 million in various private token sales. They announced the sales as a single Series A in late-July 2019.
The fundraising effort ran parallel to Solana’s work on the protocol, which went through several permissioned testnet phases before the team announced its public incentivized testnet, called Tour de SOL, in Q3 2020. The first stage of Tour de SOL went live in February 2020.
Solana released a beta version of its main network in March 2020, which was around the same time the project raised $1.76 million in a public token auction. The Initial Coin Offering was
The project intended to operate its mainnet in a beta stage. This beta version supports basic smart contract capabilities and token transactions, but it does not feature inflation rewards for validators. Once network inflation turns on, the network wants to graduate from a beta stage to a production-ready version. This was aimed to be in 2021. However at present in November 2022 Solana still runs in beta version.
The Initial Coin Offering took place in June 2021 with investors like the private american venture capital firm Andreessen Horowitz.
Solana has suffered from several outages during the last years. For example, on September 14th 2021 when a flood of transactions resulted in a forking of the network and the validators had different views of the state of the network. The network got back on track on September 15th 2021. Several outages occured in 2022 the most recent one on September 30th when the network successful restart was six hours later on October 1st.
Since April 2022 Non-Fungible-Tokens (NFT) can be traded via the Solana-Blockchain on OpenSea. Solana’s main NFT-marketplace is MagicEden.
Who governs Solana?
The Solana Foundation was founded in April 2020 in Geneve, Switzerland, but moved to Zug, Switzerland in the same year. It is a non-profit organization that owns Solana’s IP and sets the broad development direction for the network alongside Solana Labs. Solana Foundation helps fund ongoing development and community building efforts.
Solana Labs will remain a core contributor to the protocol and help propose and support network upgrades and new features.
The code is open source, allowing community developers to contribute and provide input on proposed protocol updates.
Solana does not have plans for on-chain governance at the moment. It has a delegated proof-of-stake (DPoS) system that allows token holders to select the validator set. However, the project does not have a roadmap for a token-weighted voting system.
What makes Solana unique?
Solana’s ambitious design aims to solve the blockchain trilemma, a concept proposed by Ethereum creator Vitalik Buterin, in its unique way. This trilemma describes a set of three major challenges that developers face when building blockchains: decentralization, security and scalability.
It is widely believed that blockchains are built in such a way that forces developers to sacrifice one of the aspects in favor of the other two, as they can only provide two of the three benefits at any given time.
The Solana blockchain platform has proposed a hybrid consensus mechanism that compromises on decentralization to maximize speed. The innovative combination of PoS and PoH makes Solana a unique project in the blockchain industry.
Generally, blockchains have greater scalability, depending on the number of transactions per second they can support, the more and better they scale. In decentralized blockchains, however, time discrepancies and higher throughput slow them down, meaning that more nodes verifying transactions and timestamps take more time.
In a nutshell, Solana’s design solves this problem by having one leader node chosen based on the PoS mechanism that sequences messages between nodes. Thus, the Solana network benefits, reducing workload that results in increased throughput even without a centralized and exact time source.
Also, Solana creates a chain of transactions by hashing the output of one transaction and using it as the input of the next transaction. This history of transactions gives a name to Solana’s main consensus mechanism: PoH, a concept that allows for greater scalability of the protocol which, in turn, boosts usability.
How does Solana work?
The WhitePaper of Solana states that the core component of the Solana protocol is proof-of-history, a sequence of computations that provides a digital record that confirms that an event has occurred on the network at any point in time. It can be presented as a cryptographic clock that gives a timestamp to every transaction on the network, along with a data structure that can be a simple addition of it.
In blockchains like Bitcoin and Ethereum, one of the limitations to scalability is the time required to reach a consensus on the order of transactions. Anatoly believed his new technique could automate the transaction ordering process for blockchains, providing a key piece that would enable crypto networks to scale well-beyond their capabilities at the time.
PoH relies on PoS using the Tower Byzantine fault tolerance (BFT) algorithm, an optimized version of the practical Byzantine fault tolerance (pBFT) protocol. Solana uses it to reach a consensus. The Tower BFT keeps the network secure and running and acts as an additional tool to validate transactions.
Moreover, PoH can be considered as a high-frequency Verifiable Delay Function (VDF), a triple function (setup, evaluation, verification) to produce unique and reliable output. VDF maintains order in the network by proving that block producers have waited enough time for the network to move forward.
Solana uses a 256-bit secure hash algorithm (SHA-256), a set of proprietary cryptographic functions that output a 256-bit value. The network periodically samples the number and SHA-256 hashes, providing real-time data according to the set of hashes included on central processing units.
Solana validators can use this sequence of hashes to record a specific piece of data that was created prior to the generation of a specific hash index. The timestamp for transactions is created after this particular piece of data is inserted. To achieve claimed huge numbers of TPS and block creation time, all nodes on the network must have cryptographic clocks to keep track of events rather than waiting for other validators to verify transactions.
The Solana (SOL) token
Solana’s cryptocurrency is SOL. It is Solana’s native and utility token that provides a means of transferring value as well as blockchain security through staking. SOL was launched in March 2020 and has strived to become one of the top 10 cryptocurrencies entering the space by means of total market capitalization.
SOL token operation scheme is similar to that used in the Ethereum blockchain. Even though they function similarly, Solana token holders stake the token in order to validate transactions through the PoS consensus mechanism. Furthermore, the Solana token is used to receive rewards and pay transaction fees while also SOL enabling users to participate in governance.
There will be more than 500 million Solana coins released in circulation, with the current total supply exceeding 511 million – just over half of that total supply is in circulation currently. Around 60% of SOL tokens are controlled by Solana’s founders and the Solana Foundation, with only 38% reserved for the community.
On the CoinMarketCap-Ranking is the SOL token now on number 10 at a current rate of about 33 USD and roughly a 12.000.000.000 USD MarketCap (5th November 2022).
SOL tokens can be purchased on most exchanges. The top cryptocurrency exchanges for trading in Solana are Binance, FTX, Coinbase, KuCoin, Huobi and others.
Solana vs. Ethereum
Solana has received a lot of accolades for its speed and performance and has even been cited as a legitimate competitor of crypto industry leaders such as Ethereum with both being a Layer 1-Blockchain.
But how is Solana different from Ethereum and can it be considered as a potential Ethereum killer?
In terms of processing speed, Solana is able to challenge the dominant smart contract platform, as it is supposedly capable of reaching a speed of over 50,000 TPS. Solana uses different consensus algorithms to avoid slow transaction confirmation. This feature makes Solana one of the fastest blockchains in the industry to compete with other industries outside of the crypto space.
Compared to this enormous number, the current low scalable Ethereum proof-of-work model can only handle 15 TPS. Thus, Solana is thousands of times faster than Ethereum. Another Solana advantage is the network’s extreme cost-effectiveness, as the project implements new tokenomics for lower fees.
Also, it is worth noting that Solana’s blockchain, while implementing one of the variations of PoS, is more eco-friendly and sustainable. At least this was the case before the upgrade from Ethereum in September 2022. Ethereum was based on the Proof-of-Work (PoW) model that required the use of tremendous computational power. Now it has been upgraded to Proof-of-Stake (PoS). This new kind of Ethereum consists of an execution layer (previously known as Ethereum 1.0) and a consensus layer (previously Ethereum 2.0). The hope is that over time it can greatly increase throughput, improve scalability, lower transaction fees and stop unsustainable power consumption.
However, while Ethereum’s PoS model is more energy efficient and environmentally friendly, the upgrade hasn’t cured the current headaches for DeFi protocols and its users, like network congestion and high transaction fees, known as gas fees, yet. For instance, the first nonfungible token (NFT) to be minted post-Merge cost over $60,000 in gas fees.
The building of strong foundations over providing lower gas fees and major transaction speed is a temporary tradeoff that won’t affect the market, as Matt Weller, global head of research of City Index, told Cointelegraph:
“From a user perspective, you want something that is cheap, fast and reliable. Through the Merge and more scaling in future plans for the Ethereum Foundation, this could be a foreseeable opportunity. They have worked from a very safe place, assuring security at all cost over other tradeoffs.”
Ethereum’s choice to bet on a change for its consensus protocol has been defended as a necessary, non-negotiable step.
Skylar Weaver, devcon and devconnect lead of the Ethereum Foundation, told Cointelegraph that the Merge is a testament to the network’s “no shortcuts” approach to its development:
“No, I don’t think it is a trade-off. I see PoS as a necessary step to achieve those user-focused perks, like transaction speed and lower gas fees. Other chains achieve lower gas fees and faster transaction speeds indeed by making tradeoffs: They sacrifice decentralization to have more scalability. They take shortcuts.”
With this citation, Weaver clearly takes reference to Solana whose more centralized model is Weaver’s “shortcut” to scalability, speed and cost-effectiveness.
Ethereum use rollups through layer-2 networks that allow access to Ethereum’s benefits also for mainstream-cost-conscious-users. “Ethereum is scaling right now via L2s. Specifically rollups. Folks can use Rollups today to have transactions with a fraction of the gas cost, faster, while still inheriting the security and decentralization benefits of Ethereum. That’s how we are scaling without taking shortcuts,” Weaver said.
The downsides of Solana
Despite the visible advantages, Solana has its demerits like any existing crypto project.
First and foremost, the Solana blockchain can compete with high-end blockchain projects. Solana’s ambitious design aims to solve the blockchain trilemma. However, it still suffers from various drawbacks such as its vulnerability to centralization as there are not many blockchain validators. Anyone on the network can become a Solana validator but doing so is still difficult because it requires a lot of computing resources.
The protocol still labels itself as a beta version of the mainnet, which does not negate the possible presence of bugs and errors. Several outages of the network caused many troubles with users, investors and alike which leaves the reliability of the blockchain technology with a big question mark.
Despite these issues, Solana is still one of the biggest ecosystems in the crypto industry and seems to be on the right growth path – at least when looked at it at present in November 2022.
Sources:
CoinTelegraph
Messari
Solana WhitePaper
Solana Labs on Medium.com
Solana Foundation
Wikipedia
