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A Complete Guide to Solana

December 06, 2021

A Complete Guide to Solana

Blockchains suffer from the so-called scalability trilemma. This term, first coined by Vitalik Buterin, the founder of Ethereum, describes the trade-off all blockchains face: you cannot have decentralization, scalability, and security at the same time. Since security is indispensable and decentralization is one of the core tenets of blockchains, most projects face the challenge of scaling without compromising too much on the former two. Solana is a blockchain that claims to have found a working solution to this. 

This article focuses on:

  • What is Solana?

  • How does Solana work?

  • Who’s behind Solana?

  • How does Solana compare to Ethereum?

What is Solana?

Solana was founded in 2017 by Anatoly Yakovenko, a former executive at Qualcomm with vast experience working with decentralized and distributed systems. At its core, Solana is a proof-of-stake blockchain that modified (and arguably improved) the proof-of-stake consensus mechanism to allow for higher transaction throughput, i.e., better scalability. 

Like most blockchains that try to improve on Ethereum’s shortcomings, and possibly replace it, Solana aims to become the main settlement layer for transactions. This is a position that Ethereum continues to hold, thanks to its first-mover advantage and a massive community of developers and backers. 

How does Solana work?

To understand how Solana’s solution differs from what existing projects offer, it’s worth exploring the core of the scalability problem a bit further.

Higher scalability translates to more transactions per second (TPS) for the user. In a decentralized system, the more nodes you have, the longer reaching consensus is going to take. Equally, the more TPS are processed, the higher the chances for small discrepancies that clog up and slow down the system. Why? Because usually, transactions are timestamped locally (by each node). Nodes need to verify timestamps to validate transactions, which takes time. The more nodes, and/or the more transactions there are, the longer this will take. Furthermore, these time discrepancies could be used as a vector of attack.  

If tiny time discrepancies are the problem, then it might be worth using a central source of time? That would indeed solve the problem, but only at the expense of sacrificing decentralization, bringing us back to the scalability trilemma. In essence, you are looking for a decentralized way to order transaction, so nodes don’t have to spend so much time and computing power on verifying timestamps.

Solana solves this by appointing one node as the node leader that sequences messages between nodes. That way, an order of transactions is established even without a centralized source of time. This reduces the workload on nodes and increases throughput. Practically, Solana does this by hashing a transaction output and using this as the input of the following transaction, thereby creating the aforementioned chain of transactions. The leader is chosen on proof-of-stake principles. The usual rules from proof-of-stake blockchains, such as slashing stakes for node misbehavior, still apply. 

Solana calls this process proof-of-history, which boils down to being a modified proof-of-stake consensus mechanism. The main upside is the increased throughput. Solana claims it can process up to 65,000 TPS, although this has not yet been tested in practice. Still, Solana can process 1,000 – 2,000 TPS at the moment, which is a massive improvement on other established blockchains. 

Who is behind Solana?

Besides founder Anatoly Yakovenko, Solana has a strong support network in the blockchain industry. Most notably, it is backed by Alameda Research, a crypto hedge fund founded by Sam Bankman-Fried, which made him a billionaire and one of the most well-connected people in the crypto space. He’s launched several projects on the Solana blockchain, such as FTX, a centralized cryptocurrency trading exchange, and Serum, its decentralized counterpart. 

Although this implies some political centralization of Solana’s leadership and advisory structure, especially since it’s unclear how many SOL tokens Alameda-affiliated wallets really hold, it also gives Solana the financial backing and blockchain expertise to challenge bigger blockchains for market leadership.  

How does Solana compare to Ethereum?

Speed

Solana is undoubtedly a lot quicker than Ethereum. Currently, it processes 1,000 – 2,000 TPS, compared to Ethereum’s 15. This could change in the future, depending on Ethereum’s scaling solutions and whether Solana can fulfill on its 65,000 TPS promise. One downside of that amount of throughput is the data generated. Solana would produce four petabytes of data at full capacity per year, which would raise barriers to participation drastically. Currently, Solana solves this by outsourcing the ledger to “archivers”, data centers that split up and store the ledger history. Nodes are only required to store the most recent history, so as to reduce barriers to participation. 

Community

While Solana has about 400 projects that have been launched on its blockchain, it’s still a far cry from the Ethereum ecosystem. Only five projects in Coinmarketcap’s top 100 are also tokens on the Solana ecosystem. In contrast to that, the ERC-20 standard by Ethereum is still the default token choice most new projects choose. Here, Ethereum’s history proves an advantage that cannot be easily overcome even with the most potent financial backers. Ethereum launched in 2015, so two years earlier than Solana, which is a long time in the blockchain industry. Whether Solana can overcome this head start remains to be seen. 

Use case

Although it’s appealing to look at both blockchains as competitors, it might be more constructive to consider them complements. Given Ethereum’s mentioned head start in terms of developer community and history, it is hard to see any blockchain actually replacing it in the short term, even more so with scaling solutions in the works. Its level of decentralization is also unparalleled by other blockchains that support smart contracts (so not Bitcoin). Since decentralization is held in high regard in the blockchain community, Ethereum will probably stay the settlement layer for future decentralized applications, particularly in the B2B sector.

Solana, however, offers a fast, cheap, and still reasonably decentralized solution that can host data-hungry applications and support microtransactions without a lot of friction. Instead of current layer-two solutions, Solana might just become the de facto layer two for Ethereum and host applications that would otherwise choose centralized solutions. So far, Binance Smart Chain is fulfilling this role, but given the architecturally sound solution Solana provides, coupled with the financial firepower by Alameda Research, it could challenge for this role. 

Conclusion

Solana is one of the most promising and technically well-worked solutions to the scalability trilemma the market currently offers. Even though it suffered a in December 2020, Solana seems to be on the right track. The main question for its future remains: will Solana challenge Ethereum as the de facto leading solution for new projects to launch on, or will the two enter a symbiotic relationship, with each blockchain carving out its own niche? 

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