Solana (SOL) Review: The Scalable Blockchain Clock
There are over 7200 cryptocurrencies at the time of writing. Almost every single one of them claims to bring something unique to the table – something which no other cryptocurrency project has done before. Many of you will know that most cryptocurrency projects have either failed to deliver on their promises or never really had anything all that special about them to begin with.
Solana does not fall into this category. It is a cryptocurrency project with a radically different approach to how blockchains work. It focuses on an element which is so devilishly simple that it makes you wonder why you did not think of it: time. As it turns out, introducing a decentralized clock to a cryptocurrency blockchain makes it more efficient than anyone could have possibly imagined.
A brief history of Solana
The story of Solana begins with a sunny California beach of the same name. Solana beach is located just 30 minutes north of San Diego, where (cryptocurrency project) Solana’s founder and CEO Anatoly Yakovenko has spent most of his life working in telecommunications. This is a bit of an understatement given that Yankovenko was instrumental in developing the technology found in all our smartphones during his 12 years at Qualcomm.
Yakovenko was initially not that interested in Bitcoin and Ethereum only slightly piqued his interests. He did however briefly mine Bitcoin while he was developing a deep learning computer network. During a self-described “caffeine induced fever dream at 4am” in 2017, he realized that Bitcoin’s hash function, SHA256, could be used to create a decentralized clock on a cryptocurrency blockchain.
Yakovenko theorized that timestamping transactions would exponentially increase the scalability of a cryptocurrency blockchain without sacrificing its security or decentralization. He knew it was possible to build since Google and Intel had both implemented similar technologies in their own databases, albeit in a centralized manner. Solana’s revolutionary whitepaper was quietly published in November 2017.
What is Solana?
Solana is a high-performance cryptocurrency blockchain which supports smart contracts and decentralized applications. It uses a proof of stake consensus mechanism with a low barrier to entry along with timestamped transactions to maximize efficiency.
This allows Solana to process 50-65 000 transactions per second with a theoretical limit of over 700 00 transactions per second (compared to Bitcoin’s 7 TPS and Ethereum’s 15 TPS). In contrast to other similar projects such as Polkadot and Ethereum 2.0 (once it is released), Solana is a single blockchain (layer 1) and does not delegate operations to other attached chains (layer 2).
The team at Solana has designed their blockchain with a long-term vision in mind. This comes from founder Anatoly Yakovenko’s own experience watching telecommunications technologies almost double in capability every year during his time at Qualcomm.
Solana is developed by a company of the same name which is based in San Diego, California. The Solana team consists of former Qualcomm, Google, Apple, Microsoft, and Dropbox employees. In addition to being based on similar database technologies used by Google and Microsoft, Solana’s architecture is also inspired by Filecoin, a decentralized data storage cryptocurrency project.
How does Solana Work?
Disclaimer: Solana is incredibly complex. Let us start with a term you may have heard if you have looked at the project before: Proof of History (PoH). PoH is not a consensus mechanism. Rather, it is a component in Solana’s Proof of Stake consensus.
PoH involves timestamping transactions when they are added to a Solana block. A new block on Solana is generated every 400ms (compared to Ethereum’s roughly 15 seconds and Bitcoin’s 10 minutes).Without getting into too much detail, the decentralized clock which is used as reference for the timestamps is the SHA256 hash function. SHA256 may sound familiar because it is used in Bitcoin’s Proof of Work consensus mechanism.
However, instead of working to “solve” the hash functions to produce a new block, Solana instead uses SHA256’s repetitive outputs as reference – timestamps. This produces a sort of “clock tick” where each clock tick is 400ms (instead of one second like a regular clock).
Next, let us clear up a few misconceptions about Solana. Many sources label Solana’s consensus as Delegated Proof of Stake DPoS. This is not accurate, and the Solana team has noted this many times. It is an easy mistake to make because there are various roles on the Solana blockchain (leaders, validators, archivers, etc.).
Whereas DPoS cryptocurrencies will essentially delegate these roles among network participants, Solana does not. Simply put, all nodes on Solana play a part in fulfilling all network roles.
For example, Leaders on Solana are tasked with producing new blocks. Leaders rotate every 4 blocks (1.6 seconds). While a node occupies a Leader position, they basically cram as many transactions as they can into the four blocks they are producing and show these blocks containing the transactions to the relevant groups of nodes, called Solana Clusters. These nodes validate the transactions using digital timestamps as reference and then rapidly pass on the records to other relevant nodes on the network.
In contrast to other PoS cryptocurrencies, there is no minimum stake required to be a node on the Solana blockchain. Naturally, the amount of block rewards you get is proportional to the amount of SOL tokens you have staked on the network. While Leader selection is pseudorandom, the amount of SOL you stake also influences your likelihood of becoming a Leader which actually produces blocks. Misbehaving nodes see their stakes slashed and the slashed funds are added to block generation rewards.
There are in fact 8 core features which make up Solana. One of them has already been covered (Proof of History). Of the remaining 7, only 2 are worth noting for the purpose of this article. These are Sealevel and Gulf Stream.
Sealevel makes it possible to quickly identify all non-overlapping transactions and process them at the same time. Gulf Stream makes it possible to know a small number of upcoming Leaders so that they can already begin accumulating transactions before they begin producing blocks.
If you are scratching your head, let us go through a simple example that should help you understand how Solana works.
Envision a small company with 180 employees (which is roughly the number of nodes/validators Solana has now). Even though there are different departments at this company (e.g. accounting, shipping and receiving, customer service), every employee knows how to do the job of every other department. Furthermore, each employee gets pseudo randomly picked to be the boss (Leader) for 1.6 hours at a time, during which they must sign incoming paperwork from the various departments.
Although which employee is picked to be the boss is partially random, every employee has a little window on their computer screen that shows them the next 10 people who will be temporarily filling the boss role. This allows them to give their paperwork to that employee before they become the boss so that they can do the work faster (Gulf Stream).
Whenever the boss signs some paperwork, it is timestamped and sent back to the appropriate department(s) (Solana node clusters) to be double checked, and if approved is added to the company database. Each department can do its own paperwork at the same time since it does not overlap (Sealevel).
Every employee has some role in storing this paperwork, in checking this paperwork, and in making sure that the boss is really doing his job and not slacking off. This is basically how Solana works.
The key takeaway about Solana is that it allocates different tasks to different nodes on the network as needed to optimize speed, and all transactions are timestamped to ensure they are correct. This means that a cluster of nodes (Solana Cluster) could be responsible for hosting a DeFi platform such as Uniswap, and another Solana Cluster could be responsible for processing microtransactions made in Decentraland’s virtual world. This makes Solana decentralized, scalable, and secure without compromise.
SOL is a cryptocurrency native to the Solana blockchain. It is burned to pay for fees on the Solana network. SOL can also be staked to become a blockchain node.
In the future, SOL will be used to vote on changes to Solana. At the time of writing it is unclear whether SOL is inflationary or deflationary due to conflicting documentation, though it appears to be deflationary.
Solana Token ICO
Solana has had 5 funding rounds in total, with the public ICO being the most recent. Solana raised over 25 million USD in funding across these five rounds, and even provided a buy-back price guarantee of just under 20 cents to those which registered and staked their tokens during the first 3 months after the March ICO.
The first private funding round took place in March of 2018 and saw just under 80 million SOL sold for 3.17 million USD (0.040$USD per SOL). The second private funding round took place in June of 2018 and saw just over 63 million SOL sold for 12.63 million USD (0.20$USD per SOL).
The third private funding round took place in July 2019 and saw just over 25 million SOL sold for 2.13 million USD (0.22$USD per SOL). The final private funding round took place in February of this year and saw just over 9 million SOL sold for 2.29 million USD (0.25$USD per SOL).
The Solana ICO took place in March of this year via CoinList. It saw 8 million SOL sold for 1.76 million USD (0.22$USD per SOL). This is only 1.6% of Solana’s total supply.
SOL cryptocurrency has a total supply of 500 million. Of this total supply, 36.2 percent (roughly 160 million SOL) was sold to private investors in the four aforementioned sales. 12.8 percent (roughly 65 million SOL) has been allocated to the Solana team.
10.4% (roughly 52 million SOL) has been allocated to the Solana Foundation, a non-profit institution which focuses on blockchain education and adoption. The remaining 39 percent (roughly 195 million SOL) has been allocated to the Solana community (validator node rewards).
It is important to note that the vesting schedule for Solana is quite aggressive. While Team funds will be slowly released over the course of two years, between January 1st and January 7th 2021, all other SOL tokens will be in circulation.
SOL Price Analysis
Solana debuted on the cryptocurrency market in April this year at a price of roughly 1$USD per SOL. Although trading for SOL launched on Binance shortly afterwards, it seems to have not affected the price as the token drifted down to around 60 cents USD and remained in that range until early July of this year.
In late July, it was revealed that popular cryptocurrency derivatives exchange FTX would be launching Serum, their decentralized exchange, on the Solana blockchain. This sent the price of Solana up to nearly 5$USD over the course of the following month.
Although the price has settled around 3$USD since then, SOL remains in a visible uptrend. It is unclear how long this will last given the flood of supply which may come in January 2021. With a current circulating supply of just 40 million SOL, a sudden flood of supply could have a negative impact on the price of Solana.
Where to get Solana
If you are looking to get your hands on some sunny SOL cryptocurrency you only really have one choice: Binance. The trading volume on other exchanges is quite low and the reputability of most of the other exchanges is not very good (not naming names!).
Solana’s 24-hour volume is likewise quite low given its market cap and appears to be declining gradually. This could be a recipe for some serious volatility, so trade carefully!
SOL cryptocurrency wallets
Unfortunately, there are not very many Solana cryptocurrency wallets out there at the moment. As far as software wallets go, you are limited to Binance’s Trust Wallet. The only hardware wallet which currently supports SOL cryptocurrency is the Ledger Nano S.
Interestingly enough, there is a Solana web wallet available named SolFlare, which is non-custodial and developed by the Solana community.
Solana does not currently have a clearly defined roadmap. The last roadmap they provided reveals that they missed just about every single milestone by a longshot. This is not without reason, however. Anatoly Yakovenko noted in March this year that just about everything that could have gone wrong with Solana’s development did. Solana’s main net is consequently still in beta.
Despite some development hurdles, Solana has managed to secure some serious partnerships. Their collaboration with FTX’s Serum DEX was particularly significant, primarily the team at FTX had reportedly looked at dozens of alternative chains over the course of a year before choosing Solana. Unfortunately, the collapse of FTX has undone much of the growth Solana enjoyed in 2021.
The second major partnership is with Chainlink, with whom Solana is building a super-fast oracle. This oracle will be cheaper to use and will be able to update price data every Solana block (400ms). Just recently, Solana secured another major partnership with Tether to bring USDT to Solana’s ecosystem.
Yakovenko highlighted the endgame for Solana in a recent interview. Most of these focus around ensuring Solana can effectively handle hundreds of millions of users and hundreds of thousands of decentralized applications.
On a more technical level, the Solana team wants to reduce block generation time down to just 80ms. They also hope to make it possible to execute cryptocurrency trades on a 1ms timeframe in decentralized exchanges built on Solana’s blockchain. For context, Binance’s smallest trading timeframe is 1 minute.
There are no specific milestones for the project going forward. Although there has been some discussion around introducing community governance over the network to all SOL token holders, a detailed governance plan and release date have not yet been outlined by the Solana team
Our take on Solana
There is something Solana’s creator noted in an interview which everyone should think about: what happens when decentralized exchanges become more efficient than centralized ones? The answer of course is that centralized cryptocurrency exchanges will switch to using the decentralized blockchain which is providing this higher efficiency. Solana is dead set on becoming that blockchain and it has a fighting chance of clinching that title.
The only apparent problem with Solana is the emission schedule of SOL. The visual representation of that emission may be one of the most terrifying images in cryptocurrency. The number of available tokens will go from around 15% of the total supply to 95% in a single week! It is very hard to see how this will not have a negative effect on price (at least in the short term).
It is also questionable whether Solana will outperform other competitors such as Ethereum 2.0 and Polkadot. Although it prides itself in not using layer 2 blockchains like they do, the fact of the matter is that average user of a decentralized application is not going to care what the underlying infrastructure looks like as long as it works well. This sort of narrowminded ethos could be Solana’s undoing if it is not careful.
All in all, Solana is a very promising project with many heavyweights backing and placing their faith in the network. First, the team is rock solid and forward thinking. Second, even though Solana is still in beta, it is proving to be more than a slick interface with over 3.5 billion transactions confirmed so far. Third, the company has a humble beginning – it was not propped up by hundreds of millions of dollars of venture capital investors who want to turn a quick profit. Taken together, these facts point to one thing: results.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.