One of the greatest traits (and pitfalls) of us humans is that we’re never quite satisfied. No matter how good of a product or service you’ve created, you can guarantee there’s someone out there trying to make something that’s even better. We see this play out in art, sports, business, and politics — so why wouldn’t it hold true for the world of crypto?
This is more or less the idea behind the Solana project, the decentralized and programmable blockchain that rivals the Ethereum network. When we covered Ethereum in our first crypto series, we saw how the blockchain technology behind the network enables it to host things beyond cryptocurrency exchanges like NFTs, smart contracts, and DeFi applications.
Ethereum’s only problem? It became too popular for its own good. The Ethereum network has become heavily congested with digital traffic that has led to slower transaction times, higher transaction fees, and a larger carbon footprint.
Solana has taken the fundamental idea behind the Ethereum network and tweaked it. Today we’ll be wrapping up our second crypto series with a discussion to see how Solana’s unique spin on the decentralized blockchain model has created a faster, cheaper, and more efficient competitor to Ethereum.
History of Solana
Like any good crypto project, the idea of Solana was born through a whitepaper. In 2017, former Qualcomm (QUAL) engineer Anatoly Yakovenko laid out his plan to build on and improve existing decentralized blockchains with the Solana Whitepaper.
The Solana Whitepaper is a little more technical and less idealistic than Shiba Inu’s (SHIB) “Woofpaper”. In other words, you can tell it was written by an engineer. The paper offers an in-depth outline of the mechanics behind the Solana blockchain and explains the “proof of history” method for validating transactions and recording them on the ledger (more on that later).
Yakovenko, along with colleagues Greg Fitzgerald and Eric Williams, launched Solana Labs in San Francisco shortly after the releasing the whitepaper. The project became real in March of 2020 when the SOL token (the native currency of the Solana network) was released to the public in an initial coin offering that raised over $25.6m.
Solana has since become one of the fastest growing projects in the DeFi space, with Solana Labs having raised $314m for further development of the network back in June of this year.
How is Solana different?
To understand Solana, we must understand how it differs from competitors. In the abstract of its whitepaper, Solana is distinguished from other blockchains that are based on “proof of work” and “proof of stake”.
Proof-of-work blockchains like Bitcoin and Ethereum are powered by a network of computers racing to solve mathematical puzzles in a process called “mining”, with the winner being rewarded with a predetermined amount of the blockchain’s native cryptocurrency. Through the process of mining, transactions on the blockchain are validated and recorded, leading to the security of the network.
On the other hand, proof-of-stake blockchains like Cardano are powered by users “staking” their own crypto to get the chance to validate transactions. Users who validate transactions by staking their own crypto are rewarded with more crypto.
Solana combines the proof of stake method with a new method called “proof of history”. Like the Cardano blockchain, users on the Solana blockchain must stake their SOL tokens in order to validate transactions and win more SOL. But with the proof of history method, the timing of these transactions is also validated and recorded on the ledger automatically.
How is Solana better?
Solana’s proof of history method gives it an advantage of speed and efficiency over other blockchains. On the Bitcoin and Ethereum networks, miners are tasked with timestamping transactions. These timestamps must then be confirmed by the entire network of computers every ten minutes, adding to the computing power and energy consumption of the network.
Solana sidesteps this process of periodically confirming the timing of transactions across the whole network with its proof of history method. This dramatically reduces transaction processing times and costs for users on the network. It also reduces the network’s energy consumption.
The speed and efficiency of blockchain networks are measured in “transactions per second”, or TPS. Currently, Solana can process around 50,000 TPS and claims it can increase this to 700,000 TPS as the network grows. To put this in perspective, Ethereum only processes 15 to 45 TPS, while Visa’s (V) payments system processes around 24,000 TPS.
Solana’s transaction speed, combined with its ability to host a multitude of DeFi applications, has led to an explosion in its user base and the price of its native currency SOL. This explosion in popularity has been mirrored by this year’s NFT craze. Many NFT enthusiasts have recently flocked to Solana because it offers a faster and cheaper way to mint and exchange NFTs than Ethereum.
Year to date, SOL has rallied more than 8,000%, peaking in late November at around $256. This rally has been driven in part by a migration of NFT projects from the Ethereum network to Solana.
why it matters
Just like many cryptocurrencies, the value of Solana coins is derived from the utility of the blockchain network it is exchanged on. As we’ve discussed, the Solana network has architectural differences that give it advantages in speed, cost, and energy efficiency over some of its rivals. As long as Solana offers a quicker, cheaper, and more efficient platform for crypto, NFTs, smart contracts, and other DeFi applications, it should have a bright future.