Solana: the Blockchain for Scalable Dapps
Solana is a blockchain for the development of smart contracts. It is highly scalable and low-cost. The SOL cryptocurrency in 2021 alone went from $1.85 in January to a high of $260 in November. Here are the reasons for its escalation.
How did Solana come about?
The story of Solana begins right near the Californian beach of the same name, in 2017. It is here that Anatoly Yakovenko, waking up at 4am, had a feverish caffeine vision.
Thanks to this insomnia, he had a life-changing revelation: the SHA256 function, used to encrypt Bitcoin blocks, could also be exploited to speed up the execution of transactions. How, we will understand later.
Yakovenko was a senior software developer at Qualcomm, and assembled a team that also came from other companies such as Google, Microsoft and Apple. They founded Solana Labs in San Diego.
In 2019, the team began receiving substantial funding through 4 private sales of the SOL token and a public ICO on Coinlist. In 2021 alone, it raised more than $500 million.
One of Solana’s biggest promoters is Sam Bankman-Fried, CEO of Alameda Research and FTX, and one of the top crypto-billionaires. Called SBF for short, he helped Solana get off the ground early on.
How does Solana work?
Solana is a Layer-1 blockchain, i.e. an autonomous blockchain-based on its own protocol and underlying technology.
The main cryptocurrency in the network is SOL, used for:
- The payment of transaction fees and for the execution of smart contracts
- Staking, which can be done as validators or by any user delegating it to validators
- In the future, it could be used to vote in governance mechanisms
Unlike Polkadot or Ethereum, it does not base its scalability on parachains or shards, or any other second layer chain.
What makes Solana highly scalable are 8 technological elements that underpin its blockchain. For the sake of simplicity, we will only explain the first and most innovative one.
Solana’s consensus mechanism is called Tower BFT, and is a type of Delegated Proof-of-Stake.
What characterises Tower BFT is the Proof-of-History mechanism, i.e. the actual fruit of Anatoly Yakovenko’s revelation and 1 of the 8 pieces of technology mentioned above.
What is Proof-of-History?
Proof-of-History consists of giving a timestamp to each transaction cryptographically.
What is the purpose of the cryptographic timestamp?
This is a little talked about issue, but one of the problems in decentralised systems is time. As blockchain network nodes are spread all over the world, each will have its own time zone.
Deciding which time zone to adjust to is an arbitrary choice and is to the detriment of the majority of the network. Adjusting to a third party’s time, on the other hand, would mean giving them control of the network.
To circumvent this problem, public blockchains implement slow and complex systems.
Solana, on the other hand, has found a way to assign a timestamp without the need for a unique time zone and instantly.
It is a sort of cryptographic clock that runs and provides a timestamp to transactions even before consensus is reached on their validity.
This cryptographic clock is created by the SHA-256 hash function, which we know from Bitcoin.
On Solana, the SHA-256 function emits different outputs at infinite repetition (every 400 milliseconds currently). These outputs, in the form of cryptographic codes, mark time.
Proof-of-History, therefore, allows validators not to have to reach consensus on the chronological order of transactions as well, since they already receive them with a defined timestamp.
Solana pros and cons
Solana seems to have very good characteristics when compared to other similar blockchains.
- Up to 50,000 TPS
- 1300 validator nodes
- Cost per transaction <$0.01
- 48 DeFi protocols
- 400 Dapps
- 8 Stablecoins
- Carbon neutral
Consider in fact that Bitcoin has about 9000 nodes, while Ethereum has about 5400 nodes, and currently manages to process 15-45 transactions per second without experiencing congestion or a significant rise in fees.
As far as costs are concerned, only on some Ethereum layer-2 blockchains can we find similar prices, certainly not with Ethereum. On top of that, Solana requires a minimal consumption of electricity (1939 Joules), which it compensates for with emission offsetting methods nonetheless
However, Solana experienced an event that soured its performance. In September 2021, the mainnet went offline for 17 hours.
GRAPE’s Initial Dex Offering gave bots the opportunity to generate a cascade of transactions that congested the network and crashed validation processes.
Solana has since published an initial report on what happened, and will continue to investigate and develop the protocol to prevent such incidents.
The report underlines the advantage of a decentralised system, which is able to recover the functioning of the network thanks to the efforts of the community made up of the validators themselves, and does not have to rely on a central body to wait to come back online.
Solana decentralised applications
Due to its inherent characteristics, developing and using dapps on Solana is very cost-effective. Not only that, NFT and all kinds of smart contracts benefit from the same advantages.
Some DeFi apps developed on Solana are:
- Serum – a decentralised exchange that is based on an order book on blockchain, and is powered by the SRM token. The return of order books on DEXs?
- DeFi Land – a platform for gamified DeFi services, leveraging NFTs
- Orca – an easy-to-use DEX liquidity pool. Similar to Uniswap, but on Solana and based on the ORCA token.
- Solend – a decentralised lending protocol.
- Drift Protocol – a DEX for trading perpetual futures, i.e. futures without a predetermined maturity
Other interesting projects:
- Audius – a music streaming and sharing platform run by artists and the community.
- Metaplex – an application to open your own NFT shop.
Interoperability: Solana x Terra
For Solana, there are several portals that connect it to other blockchains, called bridges.
With Terra, in particular, it communicates through the Wormhole bridge, which helps the two blockchains to cooperate on different projects and pool resources.
This for example allows Terra’s algorithmic stablecoins to be used on Solana, but this is not the only project.
There are a number of DeFi dapps that intend to merge the two blockchains:
- Mercurial finance on Solana also wants to support UST (from Terra)
- Saber wants to add a liquidity pool of USTs on Solana
- Anchor, originally on Terra, will also be supported by Solana
- Stader Labs, a staking platform on Terra, won the Solana hackathon and will soon be hosted on its blockchain.
Scalability, smart contract, interoperability and convenience: Solana seems to have all the characteristics of a killer Ethereum, if only one will ever exist.