The Crypto Series Part II: Solana

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One of the biggest traits (and pitfalls) of us humans is that we’re never quite satisfied. No matter how good a product or service you have created, you can guarantee that there is someone out there who is trying to do something even better. We see this playing out in art, sports, business, and politics – so why shouldn’t this be true for the crypto world?

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 round of crypto, we saw how the blockchain technology behind the network allows it to host things beyond cryptocurrency exchanges like NFTs, smart contracts, and DeFi applications.

The only problem with Ethereum? It has become too popular for its own good. The Ethereum network has become heavily congested with digital traffic, resulting in slower transaction times, higher transaction fees, and a larger carbon footprint.

Solana took the basic idea behind the Ethereum network and changed it. Today we’ll end our second round of crypto with a discussion to see how Solana’s unique spin on the decentralized blockchain model has created a faster, cheaper, and more efficient competitor for Ethereum.

Solana’s story

Like any good crypto project, the idea for Solana was born through a white paper. In 2017, former Qualcomm (QUAL) engineer Anatoly Yakovenko presented his plan to build on and improve existing decentralized blockchains with the Solana white paper.

Solana’s white paper is a bit more technical and less idealistic than Shiba Inu’s “Woofpaper” (SHIB). In other words, you can say it was written by an engineer. The article offers a detailed overview of the mechanisms behind the Solana blockchain and explains the ‘proof of history’ method to validate transactions and record them in the general ledger (more on this later).

Yakovenko, along with his colleagues Greg Fitzgerald and Eric Williams, launched Solana Labs in San Francisco shortly after the publication of the white paper. The project became reality in March 2020 when the SOL token (the native currency of the Solana network) was made public as part of an initial coin offering that raised more than $ 25.6 million.

Solana has since become one of the fastest growing projects in the DeFi space, with Solana Labs raising $ 314 million for further network development in June of this year.

How is Solana different?

To understand Solana, we need to understand how it differs from its competitors. In the abstract of its white paper, Solana sets itself apart from other blockchains that rely 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 rewarded with a predetermined amount of the native cryptocurrency. of the blockchain. Through the mining process, transactions on the blockchain are validated and recorded, leading to network security.

On the other hand, proof-of-stake blockchains like Cardano are powered by users who “stake” their own crypto for the ability 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 of the Solana blockchain must wager their SOL tokens in order to validate transactions and earn more SOL. But with the proof of history method, the timing of these transactions is also validated and recorded on the general ledger automatically.

How is Solana doing better?

Solana’s story proof method gives it a speed and efficiency advantage over other blockchains. On the Bitcoin and Ethereum networks, miners are responsible for time stamping transactions. These time stamps must then be confirmed by the entire network of computers every ten minutes, which increases the computing power and the energy consumption of the network.

Solana avoids this process of periodically confirming the schedule of transactions across the entire network thanks to its proof of history method. This dramatically reduces transaction processing times and costs for network users. It also helps reduce network 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 to be able to increase it to 700,000 TPS as the network grows. To put this in perspective, Ethereum only processes 15-45 TPS, while Visa’s (V) payment system processes around 24,000 TPS.

Solana’s transaction speed, combined with its ability to host a multitude of DeFi applications, has resulted in an explosion in its user base and the price of its native currency SOL. This explosion in popularity was mirrored in this year’s NFT craze. Many NFT enthusiasts have flocked to Solana recently because it offers a faster and cheaper way to strike and trade NFT than Ethereum.

Year-to-date SOL has grown over 8,000%, peaking at around $ 256 in late November. This rally was fueled in part by a migration of NFT projects from the Ethereum network to Solana.

Why is this important

Much like many cryptocurrencies, the value of Solana coins is derived from the utility of the blockchain network on which they are traded. As we have seen, the Solana network presents architectural differences which give it advantages in terms of speed, cost and energy efficiency compared to some of its competitors. As long as Solana offers a faster, cheaper, and more efficient platform for crypto, NFTs, smart contracts, and other DeFi applications, it should have a bright future.

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