Today, in our deep dive series into L1/L2 chains, we’ll explore Solana.
What is Solana
Solana is a highly active open source project that is a permissionless, and high-speed layer-1 blockchain. Solana was created by Anatoly Yakovenko, a former executive at Qualcomm, in 2017. The project aims to scale throughput beyond what popular blockchains can typically achieve while ensuring the price remains low. Solana implements an innovative hybrid consensus model that combines a unique proof-of-history algorithm. It uses a high-speed synchronization engine, a proof-of-stake version that allows the Solana network to process over 710,000 transactions per second.
Solana’s third-generation blockchain architecture is designed to facilitate smart contracts and dApp creation. The chain can support an array of decentralized finance platforms and NFT marketplaces, allowing it to serve as a network for transactions.
Solana blockchain was produced in 2017 during the initial coin offering boom. The project’s internal testnet was released in 2018 and was followed by multiple testnet phases. After multiple testnet phases, the official launch of the leading network of Solana occurred in 2020.
Why is it Unique?
Solana’s ambitious design aims to solve the blockchain trilemma, a set of 3 significant challenges developers face when building blockchains. These three factors are decentralization, security, and scalability (measures in transactions per second).
It is widely believed that the structure of blockchains forces developers to sacrifice one of these three aspects to boost the other two because 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 decentralization in order to maximize speed. Solana’s innovative combination of PoS and PoH makes it a unique project in the blockchain.
Generally, blockchains have better scalability; depending on the number of transactions per second they can support, the more and better they scale. In decentralized blockchains, time discrepancies and higher throughput slow them down, meaning that more nodes verifying transactions and time stamps take more time. Solana’s platform solves this problem by having one leader node chosen based on the PoS mechanism that coordinates messages between nodes. This design reduces the workload that results in increased throughput without a centralized and exact time source.
Solana also creates a chain of transactions. It hashes the output of one transaction and uses it as the input of the next transaction. The history of transactions being generated gives Solana’s primary consensus mechanism its name, PoH. PoH allows for greater scalability of the protocol, boosting usability.
How Does Solana Work
The core basis of the Solana protocol is proof-of-history (PoH). PoH is a sequence of computations that provides a digital record confirming an event has occurred on the network at any time. It can give a timestamp to every transaction on the network and will be presented as a cryptographic clock. It will also be presented with a data structure that can be a simple addition.
For PoH to work, it must rely on PoS using the Tower Byzantine fault tolerance algorithm, which is an optimized version of the practical Byzantine fault tolerance protocol. The tower BFT keeps the network secure and running. BFT acts as an additional tool to validate transactions. Furthermore, PoH can be seen as a high-frequency Verifiable Delay Function (VDF). VDF is a triple function to produce unique and reliable output. It uses setup, evaluation, and verification. VDF maintains order in the network by proving that block producers have waited enough time for the network to move forward.
Solana also uses a 256-bit secure hash algorithm, a set of proprietary cryptographic functions that output a 256-bit value. The network will periodically sample the number of SHA-256 hashes, providing real-time data according to the set of hashes included in the central processing units. Solana validators can use this sequence of hashes to record information created before a specific hash index generation. The timestamp for the transaction is created after this piece of data is inserted from the validator. To achieve claimed vast numbers of transactions per second and block creation time, all nodes on the network must have cryptographic clocks to keep track of the timing of the events rather than waiting for other validators to verify transactions.
Solana vs. Ethereum
Solana has received a lot of praise for its quality, speed, and performance. Many users have cited Solana as a legitimate competitor for other crypto platforms, including industry leaders such as Ethereum.
Solana’s processing speed can challenge the Ethereum platform as it is supposedly capable of reaching a speed of over 50,000 TPS compared to Ethereum’s 15. Evidently, Solana is thousands of times faster than Ethereum. Solana is also highly cost-effective, as the platform implements new tokenomics for lower fees.
Solana’s blockchain is also more eco-friendly and sustainable due to its implementation of the variation of PoS. Ethereum uses the proof-of-work model, which requires the use of a tremendous addition of computational power.
However, with this being said, Ethereum is also working on upgrading to PoS. A new Ethereum will consist of an execution layer (previously known as Ethereum 1.0) and a consensus layer (previously known as Ethereum 2.0). Combining these layers will increase throughput, improve scalability, lower transaction fees, and stop unsustainable power consumption.
Projects Building on Solana
There has been rapid development of multiple Solana apps making Solana one of the fastest-growing blockchain projects currently. Solana platform includes dApps for social platforms, gaming, and decentralized finance.
Developers can create their own decentralized applications using frictionless development tools available with the Solana platform. Solana has several tutorials and courses to help developers learn how to deploy their own dApps properly. Solana also offers a range of software development kits and application frameworks. All projects within Solana use the same SOL token, which is used for transaction fees across platforms.
Solana has seen an increasing amount of new apps created each month. There are over 150 current dApps active on the Solana blockchain. The blockchain also hosts several other apps, including decentralized social platforms and blockchain gaming apps.
One of the most used Solana apps is project serum, with its core decentralized exchange feature, Serum DEX. Using Serum DEX, users can trade cross-chain assets from different blockchains, including stablecoins and wrapped toxins. Since Serum is an open-sourced project on Solana, DEX allows users to design their own individual financial projects. The project also uses an on-chain order book instead of the traditional automated market maker model. The on-chain order book allows users to create fully automated order matching due to the decentralized automated limit order books. This gives users more choice and control over their trades. The app benefits from being on the Solana blockchain as there are near-instant settlement times. Serum DEX is also the cheapest decentralized exchange in DeFi, with an average transaction cost of $0.00001.
Another popular Solana app and decentralized exchange are Raydium which recreates the user facilities from Serum DEX with added functionalities, including yield-earning protocols and more advanced trending tools for a more pro-level experience. Raydium is entirely non-custodial, meaning users have ownership and access to their private keys at all times. Radium user experience (UX) aims to be as seamless as a centralized exchange. It comes without centralization’s vulnerabilities, such as single point failure and censorship. Radium is a transparent, open-source Solana application that allows lightning-fast token trades with cutting-edge trade tools. It also allows users access to the liquidity of the Solana system and has very low trade fees.
Alongside blockchain revolutionizing finance, the technology is also improving centralized social media platforms. Media network, operating on the Solana blockchain, is an example of these projects that are working to improve. Media Network is a peer-to-peer content delivery network that allows users to contribute and access content anonymously. It also does not require a sign-up or knowing your customer procedure. Media Network is a novel and scalable protocol that reduces up to 99% of bandwidth costs. The user experience improves as more users join the network. It provides open-source software for media streaming, load balancing, web servicing, catching, reverse proxying, and much more.
Mango is another project created on Solana that aims to harness the deep liquidity and usability of the traditional financial world for use in DeFi. Mango is a decentralized autonomous organization using Serum decentralized exchange to offer permissionless spot, margin, and perpetual futures trading with minimal fees. Users can earn interest on deposits and use existing capital to take out an overcollateralized loan. The mango protocol risk engine allows users to withdraw burrowed capital if needed.
Another super popular DApp built on top of Solana is STEPN, an earn-to-walk game that has recently gained massive popularity. It is the first Web3 NFT game that requires users to move from place to place to gain more tokens and progress. STEPN went live on Solana, and you can use SOL to purchase any STEPN products on its marketplace, but the game uses Green Satoshi Tokens and is what users earn. One GST is worth $2.50, and one SOL is around $90. A governance token is also used in endgame content that can be earned as you level up. The coins allow you to purchase virtual sneakers that allow you to participate.
Solana has recently faced challenges as the coin encountered six outages during January. An increased number of transactions were flooded by various projects and NFT bots that caused network congestion. This led to downtime on the platform. In one case, the network was down for around 7 hours as the NFT minting project for Solana, Candy Machine, faced a large amount of traffic by bots that caused the mainnet crash consensus as nodes that belonged to the validators failed to bear the weight of the transactions.
In conclusion, Solana is a blockchain project that allows for a high tps rate and low fees. It has served as a powerful platform for creating dApps and other projects. I’m personally closely following the chain and wish the team best of luck in figuring out recent challenges and future growth!
Thanks for your time — Juanbug