Cryptocurrency markets

SOL Cryptocurrency: How does the Solana blockchain work and what are its prospects?

SOL Cryptocurrency: How does the Solana blockchain work and what are its prospects?
Over 2021, the price of SOL cryptocurrency blockchain platform Solana has increased in value 45 times. And just for the last month the value of SOL increased 2.6 times, and on August 17 it reached its historical maximum of $74 per coin. As a result, Solana is now in the CoinMarketCap top 10.

Against the backdrop of this rally, we decided to look into the reasons behind the SOL token value growth and also to find out what the features of Solana are and what the development prospects of this project are.

What is the uniqueness of Solana and how is the project developing?

Solana is a high-speed open-source blockchain platform for launching decentralized applications (dApps) and smart contracts, one of the main competitors of Ethereum.

Solana's key competitive advantage is its high scalability and low fees. Tests have found network throughput between 50,000 and 191,000 transactions per second, block generation time from 400 ms, and an average fee per transaction of $0.00025. Going forward, the developers promise to achieve speeds in excess of 700,000 transactions per second. For comparison, Ethereum's throughput is 30 transactions per second, and block generation time is 12.5 seconds.

Even now, anyone can see Solana's high speed by playing a special game.

Work on Solana began in 2017. Then Anatoly Yakovenko, a former developer at Qualcomm and Dropbox, first published a white paper on Solana. In the paper, he described the Proof-of-History consensus algorithm he developed, which will be discussed below.

Soon, together with his former Qualcomm colleague Greg Fitzgerald, now Solana's Chief Technology Officer, and Eric Williams, Ph.D., he founded Solana Labs, a company that developed the project.

The project takes its name from Solana Beach near San Diego, where Jakovenko often went. The project team is based in San Francisco, California. It includes former employees of Qualcomm, Google, Apple, Microsoft and Dropbox.

In April 2018, the developers launched the first version of Solana's test network. Solana Labs made a seed round of investments at the same time, and in July 2019 it raised more than $20 million from venture capitalists in a Series A round.

Solana developers launched a beta version of a test network with basic transactional capabilities and smart contract features in March 2020. That same month, the Solana team conducted an initial coin offering (ICO) of SOL, in which it managed to raise $1.76 million.

In June 2020, a non-profit organization Solana Foundation was created to develop the project's ecosystem and popularize it, as well as to attract third-party developers.

A year later, in June 2021, Solana Labs raised another $314.15 million in a private coin round. The round was led by Andreessen Horowitz and Polychain Capital.

Today, the Solana platform is still in beta, but that doesn't hinder the fact that more than 350 projects have already launched on it. The largest of the DeFi projects are automated market maker Raydium, decentralized exchange Serum, owned by the youngest crypto-billionaire Sam Bankman-Fried, and aggregator Solfarm.

Other dApps running on Solana include crosschain aggregator O3Swap, Launchpad platform Solana projects SolStarter, decentralized data storage protocol Arweave, and brokerage protocol Oxygen.

Since March 2020, Solana has been partnering with blockchain oracle Chainlink to develop an ultra-fast and low-cost oracle. And in September, the USDT stabelcoin on Solana's blockchain was launched. In October, a crosschain bridge between Solana and Ethereum was developed, allowing the transfer of assets from one blockchain to another. At the same time, in partnership with Circle, the issuer of USDC, USDC was launched on the Solana blockchain.
SOL Cryptocurrency: How does the Solana blockchain work and what are its prospects?

SOL Cryptocurrency: How does the Solana blockchain work and what are its prospects?

How does the Solana blockchain work?

Solana's ultimate goal is to solve the scaling trilemma: to create a decentralized network that is both fast, scalable and secure.

The Solana blockchain has 8 key innovations that set it apart from other networks.

1. Proof-of-History. Solana uses a combination of two consensus algorithms: Proof-of-Stake (PoS) and Solana-specific Proof-of-History (PoH). In the latter, different nodes operate in parallel and independently of each other, but are synchronized with each other at the same time to ensure security. This allows the network to support thousands of nodes simultaneously, scaling its bandwidth proportionally. Unlike other similar projects, such as Polkadot, Solana has only a single blockchain without adding child blockchains (sidechains or parachains).

Technically, Proof-of-History is not a consensus algorithm, but a blockchain synchronization algorithm that allows nodes to coordinate the temporal order of events in a chain without exchanging data with each other.

It is worth noting that node synchronization is one of the main problems of decentralized networks. In order to validate transactions, nodes must write a block with them to the blockchain. To do this, they exchange data, verify transactions, and synchronize (reach consensus). The catch is that this takes a long time, and as a result, network bandwidth suffers. Bitcoin, for example, has a maximum speed of 7-10 transactions per second. Proof-of-History allows nodes to synchronize much faster.

At the same time, blockchains have a built-in clock that allows you to put a timestamp - a timestamp of a block record (date and time). But they don't work accurately - there is no central clock to check against. As a result, nodes can be incorrectly synchronized and a new block will appear before the previous one.

In centralized systems, the entire system uses a single internal clock. For example, in Google the databases are synchronized by the atomic clock, in Yandex - by the central NTP-server. But in Proof-of-History, time is measured in hashes.

So, while in other blockchains the consensus is reached by the agreement of miners or validators, each validator in Solana has its own clock. Proof-of-History is a decentralized clock that synchronizes time across all nodes. The use of Proof-of-History proves that a transaction occurred at a specific moment. The blockchain's nodes work on a single schedule (Leader Schedule).

This is how synchronization between nodes in Proof-of-History occurs:

- A validator becomes a leader according to the Leader Schedule. It will be the leader for a strictly specified time - 1,000 hashes (4 blocks or 1.6 seconds);
- Gulf Stream and Turbine solutions (discussed below) break transactions into parts (batch);
- Validator-leader checks and confirms transactions and transmits parts of the data (parts of transactions - batch) two random validators;
- Two validators check their parts of transactions, using digital timestamps as a benchmark, merge the transactions, and pass them to the other validators;
- Next, another validator becomes the leader. He will be the next 1,000 hashes.

This scheme reduces the block mining time to just 400ms and eliminates the risk of orphan-blocks (mined but not included blocks, for which the validator gets no reward). A similar mechanism is used in Google and Intel database solutions. But Yakovenko found a way to apply it to decentralized systems. It is expected that in the future, Proof-of-History will also be used by centralized systems.

2. Tower BFT. This is an optimized for Proof-of-History version of practical Byzantine fault tolerance (pBFT, practical Byzantine fault tolerance), a variant of consensus algorithm based on Proof-of-Stake (PoS). So formally Solana runs on PoS, but relying on a "decentralized clock" Proof-of-History. This allows consensus to be achieved without wasting time and resources calculating timestamps of previous transactions and exchanging messages between all validators.

3. Gulf Stream protocol. This is a protocol that forwards transactions to the next validator-leaders before the previous set of transactions is completed, without moving them to a mempool (a list of transactions waiting to be validated). As a result, future leaders can start collecting transactions before they start producing blocks. This increases speed and also reduces the size of the mempool and the blockchain itself.

4. Turbine protocol - breaks down transaction information into multiple parts.

5. Sealevel algorithm - allows multiple smart contracts to run in parallel.

6. Pipelining - speeds up transaction checking at the GPU kernel level. This allows fast verification of transaction information in all network nodes.

7. Cloudbreak credentials database - optimizes memory usage on validator devices, preventing data from taking up too much space.

8. Archivators - distributed storage. Validators upload data to a special network of nodes - so called Archivers. Archivers are not involved in consensus building because each archiver stores a part of the data (batch), not all of it. Periodically, the archivers have to prove that they are still storing their data. This system resembles the one used by Filecoin. Simple devices such as laptops or PCs are enough for the archivers.

Cryptocurrency SOL

SOL is the project's internal cryptocurrency. It is used to pay transaction fees for Solana's blockchain and smart contract transactions. In the future it is also planned to use SOL to vote on changes to the project.

SOL is a popular steaming coin. Unlike other PoS cryptocurrencies, you don't need to block a minimum stack to be a validator in the Solana blockchain. But the more coins in a stack, the higher the yield, and the higher the chances of becoming a validator-leader. Coins can also be given to one of the 1,342 validators - then the yield will be higher. Stakeout can be done through a native or third-party cryptocurrency wallet, such as Ledger.

Right now, the average steaking yield is about 6% p.a. The rate can be higher if steaking coins through an exchange. For example, the yield of SOL steaking on Binance depends on the period of freezing and the size of the steak and ranges from 24.5% to 43.8% per annum.

SOL trading started in April of last year. During that time, the price of the koin has risen 88 times, from $0.77 to $72. The cryptocurrency is now one of the top 10 digital assets by capitalization - $21.2 billion.

Last year, the coin was not in strong demand from investors - its price fluctuated from $0.5 to $4.8. The growth was facilitated by the news that the popular crypto derivatives exchange FTX launched a decentralized exchange Serum on the blockchain Solana.

As a result, from the beginning of the year, SOL began a rapid rally - from January to May the price of the coin rose from $1.84 to $55.9. After May 18, following the fall of bitcoin and the entire crypto market, the asset fell by half in just a few days, after which two months unsuccessfully tried to go beyond the mark of $40.

A new rally started on July 20 after it reached a local low of $23.49, which also happened along with the rise of bitcoin and the whole market. For the last month the coin grew in 2.6 times - from $25.77 to $72.74.

The reasons of the current SOL rally

The current rally started together with the general growth of the crypto market. Also, the growth of other popular cryptocurrencies slowed down to the middle of August and investors moved to the large but undervalued projects which lagged behind the leaders in growth rate. So, along with SOL, XRP, ADA and DOGE were growing nicely in recent weeks.

The SOL rally has some objective factors:

- Solana Labs sponsored the Lollapalooza music festival in late July;

- On August 4, the Star Atlas meta-universe launched the NFT Galatic Marketplace on Solana's blockchain;

- August 9 Wormhole, a decentralized protocol bridge between Solana and other leading DeFi projects, including Terra, Ethereum and Binance Smart Chain, was launched;

- On Aug. 12, Mango Markets, a Solana-based spot market, credit and perpetual futures platform, raised $70.46 million in a token sale. Mango Markets gets liquidity from its own pools and the decentralized Serum exchange, also powered by Solana;

- A new NFT project, Degenerate Ape Academy, launched Aug. 15 on the Solana blockchain. A collection of 10,000 unique images of cartoon monkeys sold out in just eight minutes on the Solanart marketplace. Right now, the monkeys are only available on secondary markets like the NFT marketplace OpenSea. The highest price for the characters is already over 100,000 SOL - over $6.8 million at current prices.

Prospects for Solana

Solana is a promising project that attracts the attention of partner companies and investors alike. Solana is suitable for resource-intensive systems and applications focused on a large number of users and transactions: exchanges, marketplaces, file storages.

The alpha-version of the network has not been launched yet, but the project is already in the top 10 in terms of capitalization - an excellent indicator.

Right now Solana does not have a clear roadmap. In March, Anatoly Yakovenko noted in an interview that almost everything that could go wrong with the development of the project has gone wrong. The project team has an ambitious goal of attracting a billion users, and is confident that Solana can handle the load.

Among the nearest technical goals - to reduce time of block generation to 80 ms and trade timeframe (time scale to display stock quotes) on DEX - to just 1 ms (for comparison, the smallest trade timeframe of Binance is 1 minute). Yakovenko also noted that when DEX become more efficient than centralized exchanges, the latter will switch to a decentralized blockchain that provides this higher efficiency.

But having the most innovative technology is not everything in the crypto sector. Solana's cloudless future is not guaranteed at all. Even with all its advantages, the project is unlikely to move Ethereum from the throne of the tokenization king. Moreover, competitors, such as Algorand, Cardano or Polkadot, are stepping on its heels and have already launched minnets.

Time will tell if Solana will be able to solve the scalability trilemma and attract the desired billion users to its ecosystem.

Author’s Posts


Download Our Mobile App