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Will Solana Become a Blockchain of the Future?

The problem of blockchain scalability is old, but nevertheless burning. Ethereum has been claiming for years that it could solve it with sharding, and it sort of has, but with some side effects. Meanwhile, other blockchains use side-chain or off-chain computing as a way to reduce the load on the network and these methods lead to improvements in the traditional linear blockchain structure, however the greater complexity leads to imminent technical problems. In addition, there is often a need to reconcile different branches, leading to reduced involvement of the entire network and therefore – jeopardizing decentralization.

Solana is a (relatively) new blockchain platform that aims to solve the scalability problem using several unique innovations. The blockchain, which name refers to a sunny beach in California, where its creator Anatoly Yakovenko used to spend his time before releasing the whitepaper in 2017, celebrated its mainnet beta one year anniversary in March 2021. And while the latest fundraising round led by Andreessen Horowitz and Polychain Capital brought Solana additional $314,159,265, which in turn the team promised to spend mostly on the expansion of the blockchain, most recently, the assistant to all marketers, California-based Neon Labs launched Ethereum Virtual Machine on Solana, thus inviting the diverse range of Ethereum-native projects to the network.

The Solana team has introduced the Proof of History consensus and Tower BFT to the world. In this article we will focus on these two novelties that allegedly help the network grow and still be quick, secure and decentralized.

Proof of History Consensus

When considering the problem of scalability, Solana also brings up the issue of the time that nodes focus on when reaching consensus, which can be rather complicated in the decentralized blockchain network.

Different blockchains have different approaches to capturing time to reach consensus. For example, calculating the average time from nodes on the network, or from block miners providing a timestamp and the network confirming that it has not been significantly manipulated. However, the existing consensus techniques are based on a heavy load of messaging across the network, which in turn slows down transaction processing time.

The Solana team has developed a unique protocol whereby the blockchain structure encodes the passage of time in the form of the data. The protocol is called “Proof of History”. It uses VDF or Verifiable Delay Function to establish a single undeniable truth about the time when a particular event occurred.

The Verifiable Delay Function (VDF) is a function that requires a certain period to compute. Even if the processor tries to use parallel computation, it can only be executed on a single processor core. The function produces a unique result that can be quickly and easily verified by network members. Unlike the VDF computation, the result check can be performed concurrently.

In the Solana ecosystem, each block contains a hash of its predecessor’s VDF result. Thus, any member of the network can check the time that has elapsed between any two operations. By eliminating the load on the network associated with consensus time-setting, Proof of History (PoH) achieved transaction rates of more than 190,000 per second at its peak load on testnet.

Tower BFT

Part of the Solana consensus consists of Tower Byzantine Fault Tolerance (TBFT), which is a variation of PBFT. Because Solana has a reliable clock, thanks to the PoH protocol, PBFT timeouts are encoded in the registry itself.

The Tower BFT element works hand in hand with the Proof of Stake (PoS). Its main purpose is to ensure that all participants act in the best interest of the network’s well-being. Participants bid with tokens to vote on the validity of a PoH hash, which can be compared to a block in other blockchains.

When the Validator votes for a block, he/she cannot vote for another fork at the same time. Instead they must wait for the next block for VDF PoH to verify that time has actually passed. If any Validator votes for an unaccepted fork, part of their bet is “reduced” as a penalty. Once two-thirds of the Validators have voted on any PoH hash, that PoH hash cannot be cancelled.

Thus, while Proof of History is the clock of the network, it allows Validators to reconcile time with VDF, and Tower BFT is the gatekeeper of the network, assuring Validators that there is a mechanism for punishing anyone who tries to cheat PoH. Finally, PoS defines the general rules for validators’ participation in Tower BFT.

SOL Staking 

SOL is Solana’s native currency.

Technically, anyone can participate in Solana’s Proof of Stake and become a validator. However, like in any blockchain, it takes hardware to run a full node – 256GB RAM, in Solana’s case. The Solana network allows actors who can delegate their tokens to a validator to participate in generating blocks and receive a percentage of their blockchain rewards.

PoS operates on a cyclical leaderboard, where the validator is determined according to their share of the entire betting pool. Thus, the more participants delegate their bid to a particular validator, the more blocks they will create. Validators and delegating participants receive their rewards from a combination of transaction fees and inflation. As of July 23, there are 808 validators on the Solana network.

The maximum circulating supply of SOL is 489 million, of which over 272 million SOL are already in circulation.

There are 16 different explorers to help navigate the Solana blockchain: Solana Explorer, Solscan.io or Solana Beach to name a few that allow real-time scanning of the network and looking up transactions and accounts of different clusters.

Solana Ecosystem 

There’s now more than 230 projects in the Solana ecosystem, and the number is expected to grow. Solana Foundation encourages developers to create new infrastructure projects and applications through its Grants Program.

Solana is rising its ecosystem slowly, but steadily. First, there was a connection to FTX exchange to allow deposits and withdrawal from the Solana network. A year ago Serum was created on Solana by FTX and Alameda Research. This new high-speed, non-custodial DEX operates on an on-chain central limit order book on Solana mainnet, and it became crucial for Solana network. Serum is set to decentralize the whole DeFi stack with support for cross-chain asset swaps, decentralized stablecoins, decentralized oracles, and non-custodial wrapped BTC, BCH, BSV, LTC, ZEC, ETH, and ERC-20 tokens.

Raydium, an automated market maker (AMM) and liquidity provider for Solana, was built exclusively for Serum. Raydium operates with a first-mover advantage as an AMM within Serum, providing on-chain liquidity to a central limit orderbook. In future the protocol will act as a bridge for new tokens to expand to Solana and Serum, issuing RAY tokens in the process.

Thanks to a partnership with Circle, Solana received USDC on its mainnet in October 2020. At that time Solana already had Terra stablecoins on its network. Tether announced its integration with Solana in September 2020, but it took half a year until USDT was brought live on Solana in spring 2021. Now there are 8 stablecoins in total on Solana.

Phantom, a digital wallet built on Solana blockchain, just recently raised $9 million to expand on other blockchains. The project was backed by Andreessen Horowitz (a16z) and Ethereum Foundation among others and as of July 2020 is promising to add Ethereum to its wallet soon. 

Some dApps are somewhat extravagant, like SolDate, the first of its kind decentralised online dating platform, or Solanaroll, a simple dice game with 1% interest. And there’s Soldex, an innovative DEX for traders merging blockchain and Artificial Intelligence (AI) technologies, and there’s Arweave, a blockchain storage solution based on perpetual endowments, which lets users store their data forever.

And while Solana itself cannot yet compete with Ethereum in terms of expanse, some blockchains are already choosing it over. So did a decentralised music streaming platform Audius, originally launched on Ethereum-based POA network, and migrated to Solana in autumn 2020. Audius works as a community-owned streaming platform built for musicians to earn its native tokens AUDIO in return for free music to anyone. 

The exodus to Solana continued in December 2020 when Kin Foundation decided to shut down its own blockchain and move its DeFi ecosystem on Solana. Such as recent news of Power Ledger, an Australian-based blockchain known for its environmental-friendly policy, to migrate from Ethereum to Solana, explaining it is much faster and able to support higher transaction throughput.

RoadMap

The latest fundraising round for Solana was held on June 9 as a private token sale and brought Solana $314,159,265. The sale was led by Andreessen Horowitz and Polychain Capital with participation from 1kx, Alameda Research, Blockchange Ventures, CMS Holdings, Coinfund, CoinShares, Collab Currency, MGNR (Memetic Capital), Multicoin Capital, ParaFi Capital, Sino Global Capital, Jump Trading, and select individual investors like Boys Noize.

The future of Solana currently hugely depends on its ecosystem. So news of Solana’s plans to hire engineers and other support staff to help its developers’ community to grow, come of no surprise. The blockchain also plans to launch an incubation studio to develop new dApps and platforms on Solana. According to the statement, Solana also has plans to create a venture investing arm and trading desk dedicated to the ecosystem.

Speaking for COO Raj Gokal said the company plans to reach 1 billion users through elements like decentralized finance, non-fungible tokens, entertainment, gaming, licensing and more.

Solana Vs Ethereum

Solana is sometimes called an Ethereum killer, but could it become one or no – we have yet to discover. The main thing is the blockchain transaction speed: while Ethereum can process only 15 transactions, Solana easily performs 50,000. The average cost for an Ethereum transaction is currently about $4, while for Solana it is about $.00001. So from the technical point of view, Solana has surpassed Ethereum at least for a year, until it expands to its 2.0 version in 2022. 

Solana’s co-founder Anatoly Yakovenko admits he doesn’t want to compete with Ethereum and other cryptocurrencies, mostly opposing Wall Street and the global markets. But Solana for sure is doing a lot to attract Ethereum users. In July 2021 Neon Labs launched Ethereum Virtual Machine, which allows to run smart contracts directly on Solana blockchain, thus inviting to its speedy platform the diverse range of Ethereum-native projects.

Solana Vs Avalanche

Avalanche also relies on a proof-of-stake system and claims to be better than Solana by allowing its users to issue multiple subnets, with higher throughput and faster finality. Avalanche can process 4500 tps per subnet, which can get the user an impressive 10,000 tps on a high spec hardware.

Avalanche compares favorably to Solana in that it is more decentralized as it uses leaderless consensus when Solana’s validators take turns to be block producers. Also Emin Gün Sirer’s network makes it possible to scale that consensus without running massive and expensive hardware, as it does on Solana, where you’ll need a 256GB RAM machine to run a node.

Solana Vs Cardano

Cardano is yet another blockchain on Proof of Stake (PoS) with the in-house consensus algorithm Ouroboros. It can process over 1000 transactions per second on a base layer, and by using its second layer this number may be transformed into 1,000,000,000 transactions – for now, only in simulations. So Cardano might be a competitor to Solana’s famous 50,000 tps, when speed is in question. 

Cardano markets itself as an eco-friendly blockchain, claiming it consumes only 0.5479 kWh per transaction. Though there’s no clear data on Solana’s energy consumption, the rough guess from the community determines it to be around a modest 1,200 kWh per year. Still, Cardano is developing at a slow pace, and still has no support for Ethereum’s smart contracts. A long-awaited Alonzo upgrade is promised to be released later this year.

Yet, as of time of writing Cardano sits at the fifth place on CoinGecko with market capitalization of over $37 billion, while Solana is 14th, with just $7 billion. And both blockchains are still very far from killing Ethereum, a second best network with a market cap of  $223,7 billion.

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