Please note that I am not a financial advisor. The following article is for the sole purpose of providing educational information on the topic discussed.
Solana Network, one of the most serious competitors of Ethereum 2.0 – the next version of the second largest cryptocurrency – is already a real, tangible, and usable project at this moment.
So what makes Solana different from other blockchains? Solana stands out for offering a high-speed network, great scalability, and an insignificant cost per transaction, all within the framework of a hybrid consensus protocol, something unique in the blockchain industry.
Continuing with the series on Solana, of which you can find our past two blog posts here, Solana vs Cardano, and here, Is Solana Better Than Ethereum? In this article, I will talk in greater detail about the features that make this network one of the most promising blockchain projects, even with its flaws.
What is Solana crypto?
Solana is a highly functional open-source project developed to provide decentralized financial solutions (DeFi), as well as facilitate the creation of decentralized applications (dApps). Its main goal is to improve scalability by introducing a new consensus mechanism called Proof of History (PoH), which is combined with the underlying Proof of Stake (PoS) consensus in its blockchain.
This new hybrid mechanism approach allows for greater scalability of the overall protocol, which in turn increases usability and dramatically reduces blockchain processing times.
Due to this innovative hybrid consensus model, Solana has attracted the attention of both small and large investors, managing to place itself in an extraordinarily short time, as the fifth largest cryptocurrency with a market capitalization of $53.80B.
Brief history
The idea of Solana was born in the mind of Anatoly Yakovenko, a software developer with experience in big-name projects, including some like DropBox and Brew OS. Yakovenko developed a deep interest in blockchain technology and as of 2017, he began working on a new consensus mechanism that he called Proof of History (PoH), which is based on using timestamps to create a secure > hashing system for blockchain technology.
In 2018, Anatoly Yakovenko partnered with Greg Fitzgerald – a former co-worker – to found Solana Labs and in July of that same year, they managed to get the first beta version of Solana working, running 50 nodes and reaching 65K transactions per second (tps) – quite a milestone.
Finally, and after a series of financing rounds in which the project managed to raise more than $25M in 5 rounds, in March 2020, they announced the launch of mainnet beta with basic support for smart contracts and almost all available network functions.
Basic tokenomics
Solana has a maximum supply of 489M tokens, but currently, only 301M are in circulation. The current inflation rate is 8%, but the network also has a disinflationary system – at a rate of 13-15% per year – that will reduce the inflation rate over time.
Regarding the hold distribution, at the moment and due to the novelty of the network, only 0.01% of the holders own more than 50% of the tokens, something that many investors don’t like. However, this is expected to improve over time.
SOL crypto
SOL currently ranks very well in terms of capitalization, even above other more popular altcoins, such as Cardano or Litecoin, as well as some of the so-called meme currencies, such as Dogecoin and Shiba Inu – which have proven to be incredibly profitable, but also incredibly volatile.
In addition to this, the project has the support of investors such as Andreessen Horowitz, Polychain Capital, Alameda Research, and CoinShares.
The main advantage of SOL is that it is a useful, fast, and cheap technology, with a strong focus on allowing people to create applications on their blockchain. While currencies such as Bitcoin are now considered a store of value, SOL is being used as a currency for all functions within Solana, something that can with no doubt contribute to its long-term success – similar to Ethereum.
Proof of history protocol
Solana is based on a unique combination of two consensus mechanisms: Proof of History (PoH) and Proof of Stake (PoS).
PoH is the main component of the Solana protocol, and is responsible for most of the transaction processing, recording successful operations considering the time that has passed between them; this guarantees the trustless nature of the blockchain.
On the other hand, PoS is a kind of monitoring tool for Proof of History and validates each sequence of blocks produced by this.
In more technical terms, Solana’s data structure links messages. This provides cryptographic proof of the order and time of each message in the transaction history. In this way, the network ignores local clocks and gradually accommodates all potential network delays as the data structure is delivered and reassembled.
Thanks to this, Solana can push the limits of confirmation times to provide an experience as effective as the most robust centralized systems, without sacrificing security or decentralization.
Transactions per second
Since its inception, Solana has been rated as the fastest network in the world, breaking records in terms of the number of transactions, from the first public test in 2018, when it reached a maximum of 65K, to the most recent tests where it has reached peaks of 500K transactions – but in theory, the network could reach millions of transactions.
Additionally, Solana has block times of 400 milliseconds, and as the hardware gets faster, so does the network. All of this helps avoid congestion and delays in transactions, as well as helping the cost of operations to remain consistently below $0.01.
What is being built on Solana?
The growth of the ecosystem of any blockchain is one of the most important indicators of its future success and in this sense, Solana is surprising since in a short time it has managed to gather more than 400 dApps running on its network – Cardano, for example, took three years to launch dApps on its network.
In addition to dApps, most of the projects developed on Solana focus on the most popular categories of the moment, including NFTs, smart contracts, DeFi, etc. Among some of the most interesting projects that are currently being developed we have:
- Serum – A decentralized exchange with high speed and low fees.
- Mango – A platform for lending, borrowing, and trading that promises the lowest fees in all of Solana.
- Solarians – A collection of over 10K, 100% randomly generated NFT robots.
- Solfarm – A crypto yield aggregator that was the winner of the Solana Season Hackathon 2021.
- Star Atlas – A multiplayer exploration game whose main goal is to create a metaverse similar to games like The Sandbox or Descentraland
- Phantom Wallet – A convenient and easy-to-use non-custodial web wallet that works like a browser extension.
- Orca – A DEX where anyone can exchange tokens and enjoy super low fees or provide liquidity to a trading pool to earn additional rewards.
- Synthetify – A protocol that allows the creation and exchange of synthetic assets that allow the behavior of other assets to be closely monitored.
Pros and cons of Solana
So far, this all sounds amazing, but is the reality living up to the hype? Let’s dive into the pros and cons and take a look at where we see Solana shine and also take a look at some areas where we find improvement is needed.
Let’s start with the pros
Proof of history
The PoH protocol allows each node to independently verify the validity of transactions. This allows Solana to be much faster than other blockchains and the validation of transactions to be almost instantaneous.
Transaction cost
Solana has transaction costs of just $0.00025. This will contribute – now and in the future – to many projects considering Solana to build on as transaction costs are always a concern for users of the blockchain.
Scalability
Solana can handle more than 65K transactions per second thanks to its PoH model. This explains the high number of transactions executed in the short time that the network has been active.
Now for the cons
Development tools
One of the great barriers of the Solana ecosystem today is its development tools. For example, the tools available for Ethereum have matured a lot over time, something that still cannot be said in the case of Solana due to the novelty of the network.
Documentation
It’s difficult to find answers to many questions users have, as documentation is still insufficient. Although the community is always ready to help, developers have to be willing to do their own research and learn by trial and error.
Network shutdowns
Much of the technology used by Solana has not been extensively tested as with other blockchains such as Cardano, DASH, Litecoin, and other projects in the past, so the chances of failure are multiplied significantly.
In fact, there have already been several network outages that have raised concerns about the project. Here are links to other articles that go more in-depth on Solana’s blockchain outages and slowdowns.
- Solana goes down September 15, 2021:
Solana Goes Down, Developers ‘Successfully Restart’ Mainnet Beta
- Solana network transactions slow down to a crwal around December 9, 2021:
Solana Validators, Engineers Grapple With Blockchain Slowdown on Public Call
- Solana suffers network congestion again, December 13, 2021:
Solana Slows to a Crawl (Again)
In addition to this, Grayscale has conducted research (page 14) on the Solana blockchain and has pointed out that the PoH consensus mechanism may not work as intended and that there may be flaws in the cryptography and the functionality of the blockchain that could make the blockchain less secure and vulnerable to attacks.
Is Solana halal?
Is SOL halal? Yes, Solana is halal. Scholars who hold the opinion that cryptocurrency, in general, is halal, would also rule Solana (SOL) as halal. Scholars would more than likely compare Solana to Ethereum and not Bitcoin. They would also rule that SOL is a utility token and classify it as an asset and not a currency.
Final thoughts
There is no doubt that Solana is one of the most promising blockchain projects that we have seen in recent years, and it is possible that due to its characteristics, it will become one of the next benchmarks in the industry.
Even with the latest failures that have been presented in the network and a large amount of criticism that has rained about it, the value of SOL did not drop significantly, which is a sign of the confidence that people have in the project.
Still, when it comes to Solana, be careful and proceed with caution especially now that we have seen these recent flaws in the network shutting down. Also, I find that certain points brought up in the Grayscale report to be very concerning and it would be great to see the developers address these issues.
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