What is the Solana cryptocurrency? A major Ethereum competitor
The cryptocurrency market started 2022 in the red. However, many coins continued with their popularity of 2021, and with good prospects for the new year. Such is the case of the Solana (SOL) cryptocurrency.
By 2020, it was even difficult the likelihood of having heard of this asset. However, Solana experienced exponential growth during 2021. So, now it’s one of Ethereum’s big competitors. Let’s check what this blockchain is all about and why it has become a favorite among investors.
What is Solana?
Solana Network, initially known as Loom Network, is a high-performance, permissionless (decentralized), and open-source blockchain. The mainnet was launched in 2019 by Anatoly Yakovenko and Greg Fitzgerald. It’s been designed to offer a high-speed processing network to support high-demand applications and provide advanced features for decentralized applications (Dapps). Its native cryptocurrency is Solana (SOL), categorized as a third-generation cryptocurrency.
Solana is presented as a strong competitor to Ethereum 2.0 because it offers higher speeds and fewer fees. In addition, it has a processing power for large amounts of information that would avoid large network congestion (although this has not always been the case). Its technology is based on parallel smart contracts that are executed, read, and written thanks to a new system called Sealevel.
Solana’s smart contracts are written in two popular programming languages with extensive development libraries: C and Rust. Thus, through Sealevel, Solana’s smart contracts are the fastest among networks of their kind, guaranteeing scalability over time. The better the hardware, the faster the smart contracts will run. And, therefore, the Dapps and general transactions.
The popularity of Solana cryptocurrency
Many Dapps developers have seen the benefits of Solana and have opted for this blockchain. Currently, besides the Solana cryptocurrency, Non-Fungible Tokens (NFTs) are very popular on the Solana blockchain, to the point that its marketplaces have managed to outperform the ones on Ethereum. Magic Eden and Solanart are the two largest NFT marketplaces in Solana, with volumes between $615 million and $593 million in total.
On the other hand, Solana futures are the third largest, surpassed only by Binance Coin (BNB) and Terra (Luna). Thanks to all this, Solana cryptocurrency’s growth in 2021 was around 26,000%, and it has become a good investment to consider in 2022. Currently, Solana ranks number seven by market capitalization [CoinMarketCap], with over $43.6 billion.
How does Solana work?
Solana is possible due to the Proof of History ( PoH) consensus protocol, developed by Anatoly Yakovenko in 2018. This protocol is based on Proof of Stake ( PoS) and its operation depends on the Verifiable Delay Function ( VDF). Its main difference with PoS lies in the temporal accuracy with which transactions are performed. Likewise, it doesn’t need all validators to work. So, this protocol is considered much faster than PoS.
As in PoS, a validator can run on the network if it has obtained voting power thanks to staking. However, unlike PoS, VDFs work here as an added security method that prevents transactions from being validated by a simple lottery.
VDFs allow transactions to be serviced in purely chronological order. Also, VDFs use the temporal parameters of each transaction to perform a cryptographic function that is intrinsically tied to the time at which transactions are performed, selected, and verified by the network.
Let us explain the speed of the protocol used by Solana with a practical example. Imagine that Alice wants to send a transaction to hire a maintenance service from Bob. Just at that moment, Charles sends Dany some money to buy a thing. Alice sends her funds with a specific time and date, which are included in the data sent in the transaction.
Along with Alice’s transaction, data from Charles’ transaction to Dany, and other transactions from thousands of other users, all with a specific date and time, are added to the list, pending verification. The VDFs come to action here, and the PoH system takes the transactions and sorts them chronologically, as accurately as possible.
In order for the next block to be generated, the validators apply a series of VDF functions that mark the block and prevent transactions from being altered. That includes avoiding security flaws such as double spending from occurring. The next block is then generated. But a difference of just 0.1 seconds can put Alice and Bob’s transaction before that of Charles and Dany, which was made at almost the same time.
The temporal generation of the first block and its marking are correlated with the next block. The VDFs verify the timestamps of the transactions and create a unique hash per block. Thus, hand in hand with the timestamp, a temporal ordering of the transactions in the block and of the block itself concerning others on the same blockchain is created.
The time differences between one block and another are just seconds. So, before you finish reading this explanation, Bob will already have the money sent to him by Alice. Dany will probably also have his money. To be more specific, it’s said that Solana can handle over 50k Transactions Per Second (TPS), compared to the current 30 TPS on Ethereum and the 60 on Binance Smart Chain. However, Ethereum 2.0 plans to reach at least 100k TPS, and Cardano even 2 million TPS.
Despite its innovations, PoH has two weaknesses that became apparent last year. The temporal accuracy of the protocol can create discrepanciesat the nodes and become a serious problem. On September 14, 2021, the network went offline for 8 hours.
Solana experienced a surge of transactions (due to bots) that congested the network and caused some validators to stop working. In this scenario, an unintentional network fork was caused, where validators had different data about the blocks.
After those 8 hours, the network came back online without major repercussions for the cryptocurrency price, which remained at around $170 — $140 per token [CoinMarketCap].
Although this is a very specific case, Solana already had two mechanisms in place to prevent a scenario like the one on September 14 from occurring. Solana uses Turbine, which dissects the information contained in the blocks and sends the metadata first to make verification faster (like Bitcoin’s compact blocks).
Solana also uses GulfStream, a protocol that stores transaction information (mempool), sorts them, and allows validators to prepare the ground for the next block as it’s being validated. At the same time, it synchronizes the validators’ clocks, so there are no discrepancies.
What can you do in Solana?
This is another interesting question about the topic. The answer is a lot of things. And you don’t need to be a developer for it. If we check on Solana Projects, over 100 Dapps are covering different categories, from NFT marketplaces and Decentralized Exchanges (DEXs) to gaming and Decentralized Finance (DeFi) platforms.
Currently, Solana’s leading Dapp is Raydium, a DEX with 242k users in the last 30 days and a volume of $38 billion. This one is closely followed by the NFT Marketplace Magic Eden, with over 209k users and a volume of $541 million. In third place is SolaJump, a game with NFTs that counts over 79k users and a volume of $101 million.
Now, although Solana has shown good performance in the last year, there is still a long way to go. Especially, before it proves it can take the crown against Ethereum (ETH) and Binance Smart Chain (BNB), its main competitors.
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Originally published at https://blog.alfa.cash on January 18, 2022.