What is Solana: The Blockchain Aiming to Become the “Visa” of Crypto
Key Questions Answered
- Solana is one of the biggest Layer-1 blockchains competing against Ethereum to provide faster, lower cost transaction processing capabilities.
- By combining software with hardware innovation, as well as using a novel Proof-of-History consensus mechanism, it offers some of the blockchain industry’s fastest rate of transaction processing time at 65,000 TPS, at a cost of $0.00025 per transaction.
- However, Solana has also suffered multiple outages, attracting criticisms of centralization.
The rise of decentralized applications (DApps) has meant increased adoption of blockchain technology, meaning more congestion, and consequently slower transaction times and higher gas fees. This increased adoption, although a good thing for the industry, has brought the question of scalability to the forefront of developers’ minds.
These drawbacks, especially noticeable on traditional networks, such as Ethereum (ETH), have sparked questions about whether blockchains can scale with continuous DApp development. This scaling problem is a make-or-break issue for the DeFi space can only gain widespread adoption with high transaction speeds and low gas fees.
One blockchain is taking a unique approach to tackling this problem of scalability – Solana.
What is Solana?
Launched in March 2020, Solana (SOL) is an open-source blockchain that enables transactions to be carried out so fast and so cheap–$0.00025 per transaction–that Bank of America has said it can possibly become the “Visa” of crypto.
Solana takes a unique approach to solve the problem of scalability. While most blockchain projects on the same mission make use of sharding or layer-2 solutions, Solana combines software algorithms with continuously improving hardware performance, based on Moore’s Law which states that with technological progress, the speed and capability of computers can be expected to double every two years.
With this added element of hardware innovation, software issues that create performance bottleneck can be removed, allowing transaction throughput to scale proportionally with network bandwidth–as hardware gets faster, so does the network.
This is not surprising considering that the founder of Solana, Anatoly Yakovenko, formerly worked at the semicon and wireless tech giant Qualcomm.
Solana claims that its network can support up to 65,000 transactions per second (TPS) at 400 ms block times on a single global state. In contrast, Bitcoin can only do 5 TPS, Ethereum 15 TPS, Fantom (a close competitor) can do 25,000. Visa’s, the world’s largest payment processor, can handle 24,000 TPS.
By combining software and hardware, Solana’s architecture aims to meet all three requirements of an ideal blockchain–scalable, secure and decentralize
In addition, Solana runs on a hybrid protocol of proof-of-stake (PoS) and a concept which it has termed proof-of-history (PoH), which allows for greater scalability of the protocol, which in turn boosts usability.
Another reason Solana is so fast is that it was one of the first blockchains written entirely in Rust–widely considered the fastest network programming language aside from C.
What is Solana’s Proof-of-History?
The key technology behind the Solana blockchain is proof-of-history (PoH), which functions as a decentralized timestamp that keeps track of the order of events. This allows Solana to maintain speed and security at high throughput, unlike more traditional blockchains that are often bottlenecked by consensus mechanisms.
In addition to proof-of-history, Solana also claims a variety of other key innovations:
- Tower BFT: A unique variant of Practical Byzantine Fault Tolerance, which optimizes speeds by taking advantage of the PoH-synchronized clock.
- Turbine: A protocol that optimizes the transmission of blockchain nodes by breaking them into small packets, in a manner similar to torrenting software.
- Gulf Stream: A transaction forwarding protocol that reduces validator memory requirements and block confirmation times, and enables the execution of transactions ahead of time.
- Sealevel: A transaction processing engine designed to scale across GPUs and SSDs. Unlike other blockchains, which run on single threads, Solana supports the parallel execution of transactions in a single shard.
- Pipeline: A mechanism that provides rapid validation and replication of transaction data across all nodes in the network. Pipeline achieves this by delegating input data across a variety of hardware layers.
- Cloudbreak: An accounts database that supports the horizontal scaling of memory. Cloudbreak can deliver many more transactions per second than conventional blockchain database engines such as LevelDB.
- Archivers: A network of nodes that handle data storage in place of validators. Archivers do not participate in consensus, and may occasionally be required to prove data is being stored correctly. This system is called proof of replication and is heavily based on Filecoin (FIL).
Solana NFT marketplaces
In tandem with its high throughput and low fees, Solana has also attracted developers to build NFT marketplaces on its blockchain. The largest of these is Magic Eden, trading over $10 million in daily volume.
With a transaction fee of $0.00025, Solana offers cost-friendly alternatives to the likes of Ethereum–when Bored Ape minted its NFTs, gas fee surged to $3,300.
Solana’s NFT ecosystem achieved a milestone in September 2021, when one of its NFTs, a Degenerate Ape, sold for $1.1 million, becoming the first million-dollar NFT sale on the Solana network.
Source: Degenerate Ape collection on the NFT marketplace Solanart
Adoption of Solana and successful partnerships
Solana’s rapid processing times and commitment to low and stable fees have attracted developers looking to build DApps and other projects requiring highly scalable infrastructure. Specifically, Solana has seen interest from fast-developing sectors, such as DeFi and Web3 applications.
According to blockchain analytics firm DappRadar, Solana ranked fifth in terms of total amount of incoming value for the past year ($128.4 million).
Top blockchains by incoming DApp volume (Source: DappRadar)
Serum: making DeFi truly DeFi
One of the most successful DApps to run on the Solana ecosystem is Serum, a non-custodial decentralized exchange (DEX). Developed by FTX and Alameda Research, this Solana DEX provides cross-chain asset swaps, decentralized access to stablecoins, and a variety of wrapped tokens, all of which is enabled by Solana infrastructure—with fast transaction times and low and stable fees.
Serum claims to remove the need for centralized services, and consequently their vulnerabilities, from DeFi—all while retaining a trustless and permissionless structure. Despite being built on the Solana network, Serum provides full interoperability with both Ethereum and Bitcoin–a major advantage over other DEXs such as UniSwap.
The Serum DEX on Solana also features an on-chain central limit orderbook that updates at Solana speeds and gas fees. Serum aims to entice professional traders into DeFi by serving as more than just a yield farming platform. Instead, it aims to offer a complete Solana DEX ecosystem designed to “decentralize the entire DeFi stack” from the ground up.
The Serum ecosystem runs multiple services of its own. One such service is MetaMarket, a Solana NFT market which integrates non-fungible token (NFT) minting, listing, and interoperability incentives. Another is Raydium, an automated market maker (AMM) that leverages Serum’s central order book to provide ecosystem-wide liquidity.
Oxygen: taking Wall Street to the streets
Another application built on the Solana blockchain is Oxygen. This DeFi prime brokerage protocol aims to “democratize borrowing, lending, and trading with leverage.” Moreover, it aims to enable users to make the most of their capital by delivering services that, up until now, have been traditionally limited to investment banks and hedge funds. According to Oxygen, its service is permissionless, cheap, and scalable to hundreds of millions of users.
Source: Oxygen.org Website
Oxygen allows digital asset holders to use the same collateral multiple times, meaning that users can generate yield by lending their assets while simultaneously borrowing other assets. Oxygen’s support for cross-collateralization combined with Serum’s order book also lowers liquidation risks and improves borrowing and lending rates. The Oxygen protocol has attracted significant attention from institutions, raising over $40 million in an investment round led by Alameda Research in February 2021.
Who is behind Solana?
Solana originated from a whitepaper on Proof-of-History published by tech veteran and former Qualcomm employee, Anatoly Yakovenko. He was later joined by his Qualcomm colleague, Greg Fitzgerald, who began prototyping in early 2018. Shortly after the prototype’s first release in February 2018, Stephen Akridge, another Qualcomm employee, joined the team. The Solana team has since recruited many other veterans, not only from Qualcomm but also from other tech industry giants.
The Solana project has attracted a number of institutional investors — in July 2019 it raised $20 million in a Series A funding round led by Multicoin Capital. Other investors include Slow Ventures, Foundation Capital, 500 Startups, and Abstract Ventures. On March 25, 2021, Cointelegraph reported that the Solana ecosystem as a whole has attracted over $40 million in strategic investments from several major exchanges.
SOL crypto uses
Its SOL token is the utility token native to the Solana blockchain. It is an SPL token, which is the Solana blockchain’s token standard—in the same way that ERC-20 tokens are the token standard for Ethereum. SOL tokens have two primary functions:
- Staking: SOL tokens can be staked by users as part of the Proof-of-Stake (PoS) consensus protocol, a validation system which offers rewards for good validation behavior and penalties for dishonest behavior. To learn how to stake Solana and where to stake Solana, token holders can check out Solana’s official website.
- Gas fees: SOL tokens are also used to pay the gas fees required when using the Solana network or its smart contracts. These gas fees must be paid each time a transaction is carried out.
As with all cryptocurrencies, SOL tokens also function as a type of Solana stock, since many investors will purchase SOL with a view to make a profit from the company’s success. SOL tokens can be stored in compatible Solana wallets or more advanced command line wallets—as to which is the best Solana wallet, that depends on individual needs.
At the time of writing, SOL is trading at $33.57 per token with a circulating supply of 345 million, for a total market cap of $11.6 billion.
Solana (SOL) price history
In 2021, SOL had an impressive run, breaking its all-time high several times. The token went from only $3.29 in January to $28.04 in April—an approximate rise of 660% over 3 months. This turned out to be just the beginning for SOL, which charted a new peak at $260 in November 2021, the same time Bitcoin hit a new all-time-high of over $67,000.
Solana price chart, April 2020 to March 2022. (Source: CoinMarketCap.com)
2022, however, was a different story, as crypto began a downtrend that saw Bitcoin plunging down to $20,000, losing 70% of its peak value. It has been a difficult year for markets generally, and crypto has been no exception.
At the same time, the Solana network has been plagued by repeated outages–over 10 within the first six months of 2022. This has put a dampener on its price performance, and attracted criticism about how the blockchain is actually more centralized than it claims.
Despite this, the Solana market cap remains healthy at $28.3 billion, and ranks #8 in the market. Additionally, the Solana max supply of 511.6 million tokens is far from finished, so there is still plenty of room for growth and change.
Solana was one of the fastest growing cryptocurrencies throughout the crypto bull runs of 2020 and 2021. However, it is still holding strong, rankin #8 in market cap. Despite its relative youth, Solana has managed to back a suite of promising technologies with a clear set of applications, including the successful cross-trading platform Mango Markets.
In addition, it has established strong partnerships and secured substantial institutional backing. The Solana x Serum DeFi Hackathon also received over a hundred project submissions, indicating developer interest in the network.
Nevertheless, it should be noted that Solana has been facing performance issues with its multiple outages. Moreover, competition is fierce. There are plenty of coins out there that offer a solution to crypto’s “scalability problem,” meaning that Solana will have to fight hard to maintain its influence. While the Solana team has differentiated the token through its shardless nature, only time will tell if its unique approach will keep it at the top.