For web3 to become a reality, blockchains need to cater for a wide range of activities. While fast transaction speeds are not a core requirement in every situation, it is for things such as payment networks, gaming and trading. There is a real need for blockchains that can achieve speeds similar to that of existing networks or to quote the founding team at Solana for “decentralized network of nodes to match the performance of a single node”. Solana was created with that understanding in mind and aims to achieve high transaction rates, extremely low fees while maintaining proper security, decentralization and censorship resistance in the long run.
What is Solana?
Solana is an open source, permissionless blockchain maintained by the Solana foundation. It runs on a proof of stake consensus model which has been improved upon by the proof of history concept that was pioneered by Anatoly Yakovenko, who’s one of the co-founders of Solana. The first wave of blockchain networks such as Bitcoin and Ethereum max out at around 15 transactions per second (TPS) in their current state. Proof of history is Anatoly’s solution to the blockchain trilemma, creating a highly scalable decentralized network that’s capable of rivaling the speed of traditional payment networks such as Visa.
Proof of History
Proof of history is based on the concept that having a reliable clock between computers in a network makes synchronization simple and results in high TPS. Validators being able to verify and agree on the order of blocks in a blockchain is the whole basis of a blockchain network but it’s also what makes it slower than alternative network solutions. Proof of history offers a way for validators to keep time in a trustless system. It creates a historical record of events with their timestamps, each validator is able maintain and align their own clock, which helps them to agree on the sequence of events independently. Validators are able to rely on the ledger itself for information and decide if a transaction is valid or not independently. This allows the network to make decisions without the need for validators communication with one another. Only one validator is expected to produce ledger entries at a given time and the leader is rotated amongst the validators to minimize influence of a single validator.
Staking and running a node
The current APY for staking SOL tokens on the network is ~6.8%. Holders can delegate their tokens to any one of the 1,640 validators in the network. Staked tokens will be locked in for the duration of the current epoch, which typically last for 2-3 days. The progress of the current epoch and list of validators can be tracked on Solana Beach.
There is no strict minimum SOL requirement to run a validator but there is a relatively high hardware requirement. To find out more about the hardware requirements to run a node, check out Solana’s official documentation about the topic.
Benefits of Solana?
High speed and low fees
High speed and low fees are perhaps what Solana is most known for. With the ability to hit highs of 65,000 TPS and a theoretical limit of 710,000 TPS in the future, Solana looks to achieve parity with centralized systems.
Currently the chain processes roughly 1,900% of the number of transactions Ethereum does while users only pay a fraction of the fees. At its peak, the network processed over 4,800% of the transactions on Ethereum.
Solana relies on proof of history as the key innovation to solve the blockchain trilemma instead of sharding or relying on Layer-2s. This allows the Solana blockchain to maintain a single global state even as it scales. Projects building on the chain don’t have to worry about liquidity or users being fragmented in the ecosystem, nor do they have to worry about integrating on to Layer-2 solutions.
Blockchain’s energy consumption is probably the most common Solana is extremely energy efficient, with each transaction roughly consuming less energy than 3 Google searches. The Solana foundation aims to keep the network carbon neutral and seeks to make it as environmentally friendly as possible.
The size of Solana’s ecosystem is ever growing and extremely impressive, especially since it's not an Ethereum Virtual Machine (EVM) compatible chain. This means that tooling and dApps built on Solana would have to be built from the ground up and can’t be easily migrated from Ethereum onto Solana. Most alternative L1s opt to be EVM compatible in order to bootstrap developer activity and interest in the initial stages of growth. Solana takes a different approach and hosts numerous hackathons to rapidly increase developer interest and the number of projects building on the chain. The first hackathon in November 2020 attracted over 1,000 applicants and 60+ projects. Four more hackathons have since been completed, each with an increasing number of project submissions and applicants. The fourth hackathon, IGNITION, received almost 6,000 applicants and 568 project submissions.
Beyond attracting significant developer interest, Solana has a large and active user base, clocking in 11.6M unique 30 day active addresses.
Orca is the most popular dApp by number of users with almost 640K users over the last 7 days. In terms of number of transactions, Mango Markets takes the crown with over 314M transactions over the same time period.
Does such data interest you? Check out our publicly available Solana dashboard here!
Solana’s speed and fees make it an attractive playground for developers interested in building DeFi applications. The chain ranks fifth in terms of total value locked (TVL), with ~$7.51B locked. Its speed allows for a wider range of DeFi applications to be built on top of it, from DEXs that allow for leveraged spot and perpetual trading (Mango Markets) to option yield farming vaults (Katana). Similar to Terra, Solana has launched its own real world payments solution, Solana Pay, that aims to bring blockchain technology to the masses. Payments are done using a QR code and are completed within seconds. Physical retail stores and even ecommerce platforms can integrate Solana Pay and have a direct point of contact with their customers - being able to send NFTs, reward tokens etc.
Gaming and NFTs
Fast transactions are vital for gaming. Millions of microtransactions occur daily in popular games and these transactions typically have to be cheap and instantaneous. This makes Solana a leading candidate for teams looking to build gaming related applications. Some of the most highly anticipated and popular games being built on the chain are Star Atlas, Aurory, Nyan Heroes and Mini Royale: Nations. Justin Kan, co-founder of Twitch, has chosen Solana as the first chain to build a gaming NFT marketplace on. While most games are still in development, the quality of the teams building on Solana is an indicator of the potential it has for gaming related applications.
Besides gaming, Solana has an emerging NFT ecosystem. Magic Eden and Solanart are the most popular Solana native NFT marketplaces. OpenSea, the largest NFT marketplace globally, has launched support for Solana NFTs as well. Solana Monkey Business and Degenerate Ape Academy are the most popular and iconic NFT collections on the chain.
Solana has gained traction with projects outside of the DeFi and gaming space as well. The high throughput required for streaming services and other commonly used applications on the internet today highlight a need for blockchains like Solana. Audius, a decentralized audio streaming platform, shifted its services from Ethereum to Solana due to the need for faster speeds.
What does the future hold for Solana
The hardware requirements to run a node for Solana is one of its most criticized aspects as it reduces the number of people that can participate as a validator. However, over time the requirements will come down as improvements to Solana are made. On top of that, hardware improves over time as well. What is considered a high requirement today will become easily attainable in the future.
Solana has had instances where the network faced issues, such as having degraded performance to the network being unusable. While not ideal, it’s largely due to how young the network is and how quickly it’s growing. The team constantly works to improve the network and increase its censorship resistance. It’s only a matter of time before Solana reaches the stability of older networks such as Ethereum.
The speed that Solana is able to reach allows for applications to be built and experiments to be run that simply aren’t feasible on other networks. Developers are able to focus on building the best projects possible without the fear of the network being a bottleneck for future growth. The amount of support that the Solana foundation provides for builders make it highly attractive to build on the chain. We’re already seeing multiple teams building AAA games, countless teams building new innovative DeFi protocols and teams bringing popular web2 activities over to web3. This trend likely continues and strengthens in the months and years to come.
Solana is taking its own approach to achieve scalability, focusing on achieving speeds that rival centralized systems while not giving up censorship resistance and decentralization in the long run. Its high throughput network has attracted attention from developers, investors and users alike. Hackathons have created fertile ground for developers to build on Solana and every new application built brings us one step closer to a blockchain powered world. Solana Pay aim’s to bring blockchain to the masses and provide merchants with new ways to interact with their customers. No chain is perfect and Solana has had its fair share of issues but given the amount of projects building on the chain, number of users and commitment from the team to push the boundaries of blockchain technology, it’s certainly a chain worth keeping an eye on.