DeutschSolana wants to solve the so-called scaling problem and thus eliminate one of the most important problems of blockchain technology. In general, more and more projects in the blockchain industry are reaching the limits of their maximum transaction speeds and confirmation times. Due to insufficient scalability, transaction fees increase and the transaction time increases.
In this article, we’ll explain what the Ethereum competitor Solana (SOL) is all about, what distinguishes it from other projects in the industry, and whether it can dethrone Ethereum as the largest smart contract platform.
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What is Solana?
Solana is a public blockchain network that focuses primarily on fast and high transaction throughput and aims to become the best cryptocurrency.
The ideal cryptocurrency provides the highest level of security, decentralization, and scalability. However, the so-called trilemma describes the problem that improving two of the three points mentioned comes at the expense of the third.
For example, Bitcoin offers relatively high security and is strongly decentralized. However, the Bitcoin blockchain can process relatively few transactions per second, which in turn makes them slow and expensive.
Solana plans to provide a multiple higher level of scalability without compromising security or decentralization.
The project originated in 2017 based on the whitepaper presented by Anatoly Yakovenko. Like Ethereum, Solana also provides a platform for creating dApps and smart contracts that are in direct competition with each other.
In addition to the Proof of Stake (POS) consensus mechanism used by Ethereum and many other altcoins, Solana uses the concept of so-called Proof of History (POH). This processes transactions much faster and more cost-effectively.
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The Technology behind Solana
The core task of any consensus mechanism is to record the transaction history in a correct chronological order. However, the way this is done with the individual mechanisms differs significantly.
Solana relies on the Proof of History (POH) method already mentioned in addition to Proof of Stake (POS). Each transaction is provided with a so-called hash. This is a kind of checksum, which partly results from a previous transaction.
In the next step, the transactions are transmitted to the validators, who check them and then add them to a new block of the Solana blockchain. This happens on the Solana blockchain on average every 400 milliseconds.
Due to the high speed, timestamps are used. These allow the transactions to be checked in parallel and do not have to be processed in chronological order.
A selected validator takes on the task of sorting the transactions again as the last step in each validation round. This position is also called Leader. This leader is re-determined after every four blocks created and democratically elected by the network participants.
Anyone who owns and stakes a lot of Solana (SOL) has a good chance of getting into the position of Leader and being rewarded for their work with more SOL tokens. If a leader does not take care of his task responsibly, he can be immediately voted out.
Advantages of Solana
The Proof of History consensus algorithm allows the parallel processing of transactions, which increases the transaction speed and lowers transaction costs. In addition, Solana offers a good, decentrally structured structure and a high level of security.
Another advantage is the recent integration of the ChatGPT plugin, which allows you to turn interacting with the blockchain into a dialogue. Crypto values can be traded and exchanged or moved in this way.
Use Cases
In the first place, the Solana protocol is used for smart contracts and DeFi (Decentralized Finance), as well as NFTs (Non-Fungible Tokens). The own SOL token is used for the payment of transaction fees that arise when using the network.
Solana Compared to other Blockchains
Like Solana, other blockchains are also trying to find a faster and easier solution for users. In the following, we compare Solana with its biggest competitors.
Solana vs. Ethereum
Solana and Ethereum both offer a decentralized platform for smart contracts and a blockchain that are similar in certain basic requirements. Both blockchains are decentralized and open-source organized. This means that they are operated by many independent computers and everyone has the opportunity to look into the source code.
Technically, the difference is that with Ethereum, the blockchain itself represents a limit for the processing of transactions. Only what has already been validated is in the blockchain. Only then can the next validated transaction be written to the blockchain. Transactions are therefore processed in order and can accumulate in the event of high demand.
With Solana, however, it is sufficient if the assigned hash of a transaction correctly references a previous one. This allows the Solana blockchain to work much more efficiently and leads to fewer backlogs of unprocessed transactions.
But even if Solana scores with its scalability, it remains open whether it can prevail against Ethereum. The second oldest cryptocurrency represents the largest decentralized smart contract platform, which developers have been using for significantly longer than the new emerging Solana. The first-mover advantage could speak for Ethereum here. Although the transactions remain more expensive and take a little longer in comparison, the difference is not too big so far. So far, they do not represent a reason for developers to make a large-scale change of platform.
Solana vs. Cardano
If Solana and Cardano have something in common, it is the goal of dethroning Ethereum from the smart contract throne and becoming the largest blockchain for dApps. Both projects are trying to be more decentralized, faster and cheaper than the established competitor. Both also use Proof of Stake.
A significant difference lies in the roadmap of the two projects. Cardano made its ADA token available relatively quickly after the start and gradually developed it further. Solana, on the other hand, concentrated on development for years before launching the SOL token.
Smart contracts were only integrated into Cardano long after the start, in September 2021. As a next step, the Hydra update will address the scalability problem. The goal of this is to increase the TPS (transactions per second) to 1 million. The introduction of this update can still take years.
Currently, the Cardano blockchain reaches a TPS of 250, while it can rise to up to 50,000 TPS with Solana. The cost of a transaction for SOL is $0.00025. For Cardano, however, these are between 0.16 and 0.24 ADA and thus fluctuate with the price of the cryptocurrency.
Solana vs. Aptos
Aptos, just like Ethereum and Solana, is a Layer-1 blockchain and has also been referred to as a Solana killer. Like the cryptocurrency SOL, the APT token can be used within its own blockchain for the payment of network fees, for the validation of transactions and as a governance token.
The company is aiming for an incredibly high TPS rate of 150,000 without compromising security or decentralization. This high throughput of transactions is to be ensured with the so-called Move programming language. Basically, even more transactions are processed and validated in parallel than with Solana.
However, the enormous increase in the TPS rate is so far only theory and has not yet been even remotely achieved. Aptos Labs, founded by two former Meta employees, scores primarily with its convincing narrative for the future. Now it remains to be shown that the desired TPS rate can be achieved and that the ecosystem can be enlarged as promised. Thus, Aptos remains a serious competitor for Solana, but is still in its infancy.
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Solana Token (SOL)
At the beginning, 489 million tokens were put into circulation. However, since the token is designed to be inflationary, the supply is constantly expanding. In the future, in addition to paying transaction costs in the blockchain, it can also be used for voting in the system, i.e. as a government token. You can also stake the Solana token (SOL) and thus generate a passive income.
Furthermore, it is possible for you to set yourself up as a validator, or to delegate your staking right to another validator. The more SOL a validator has available, the more transactions it can check in a shorter time. Accordingly, the reward increases, which he distributes among himself and the delegators who have chosen him.
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Solana Ecosystem and Projects
Since the launch of the mainnet in March 2020, numerous projects have been built on the Solana platform. These include DEXs (Decentrelised Exchanges), NFT collections (Non Fungiable Token) and DeFi projects (Decentralised Finance).
Due to the success of many of these projects within the Solana ecosystem, which benefit from the high scalability and low transaction costs, attention to Solana increased. With this success, the price of the SOL token rose. In addition, the Solana community grew rapidly.
Among the best-known Solana projects are:
- Serum
- Mango Markets
- Solarians
- SolFram (Tulip)
- ORCA
- Star Atlas
Challenges and Future of Solana
Solana is still a young blockchain network, which mainly gained attention in the bull market of 2021. The reason for this was the hype about the high scalability of the project. In recent years, however, scalability has come at the expense of reliability. This went so far that there were even failures of the network.
Due to its proximity to the crypto exchange FTX and its scandals, the token came under further criticism last November, which caused the price to fall sharply. In the meantime, it has been able to stabilize again at a lower level. In addition, the American supervisory authority SEC sued the crypto exchange Binance in June 2023. It is accused of illegally selling securities. Among the coins listed in the indictment, which the SEC sees as securities, is also the SOL token. The impact of this indictment on the future of Solana is currently still unclear.
The Solana network is therefore facing the challenge of regaining the trust of investors. The question remains whether the price success of 2021 can be repeated. At that time, the price per token rose to up to $260.
Conclusion
With the combination of Proof of Stake and Proof of History, Solana represents a decentralized, secure and scalable blockchain. The targeted 150,000 transactions per second would be an enormous competitive advantage in the industry. So far, however, these are only theory.
Competitor Ethereum has a good lead in the race for the largest smart contract platform. In addition, there is possibly trouble with the SEC. However, if Solana succeeds in operating the blockchain reliably in the future, ensuring a high TPS rate and favorable conditions, as well as regaining the trust of investors, it has a good chance of taking over a large market share of the blockchain industry. A renewed price increase would also be the result.
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Frequently asked questions about crypto exchanges
- What Problem Does Solana Solve?
Cryptocurrencies should be decentralized, secure, and scalable. Solana aims to solve the so-called trilemma, which states that further development of two of these properties usually comes at the expense of the third.
- Will Solana (SOL) Rise to $100?
Making an accurate statement about the price of the cryptocurrency at a future point in time is, of course, difficult. Nevertheless, trends in the development of the price can be found by analyzing the previous price history. Read our detailed article on the Solana forecast for more information.
