Solana Guide

Solana has developed a censorship-resistant, fast and cheap network. While it believes it has solved the blockchain trilemma- the tradeoff between security, scalability and decentralisation- some of its innovations have led to security and operational vulnerabilities and outages. Whether Solana successfully achieves its goal depends on which features users ultimately prioritise. 

• Launch date: November 2017 

• Maximum transactions per second: 65,000

   

By leveraging innovations such as proof of history (PoH), Solana has developed a fast blockchain with low latency and quick finality.  

Unlike other networks, Solana scales using hardware rather than software, allowing it to capitalise on Moore’s Law, which suggests the network’s speed should double every two years and running costs should halve.    

The threshold at which a bad actor could attack the network- 33% in Solana’s case- currently consists of 31 nodes, making it one of the most decentralised networks.  

Solana optimizes its proof of stake (PoS) consensus mechanism with proof of history (PoH), effectively a cryptographic clock. Having to agree on when a transaction occurs slows down validation in proof of work and traditional PoS mechanisms. PoH skips this step by timestamping transactions, creating a chronological order which means validators don’t have to wait on each other to complete the verification process. As a result, Solana’s throughput is higher than rival networks- it can handle 65,000 transactions per second (as of 25th February 2023), compared with bitcoin’s 3,168 (as of 25th February 2023).

The key participants in the Solana network are leaders and validators. A leader produces blocks during an assigned time slot and sends them to validators to confirm the validity of the transactions. Leaders and validators earn staking rewards of just over 6% APY, although the annual inflation rate was originally 8% which decreases the rewards by 15% per year.  

Solana launched as Loom in December 2017, inspired by its goal to weave all the world’s transactions together on a single blockchain. It rebranded as Solana (the name of the founders’ local beach when they worked for Qualcomm) in February 2018 to avoid confusion with the Loom Network. 

• November 2017- Founder Anatoly Yakovenko published a whitepaper outlining the PoH innovation  

• April 2018 to July 2019- Raised $20 million in private token sales 

• March 2020- Launched its beta mainnet 

• March 2021- Minted its first non-fungible token (NFT) project, Kreechures 

• January 2022- Launched its payment product, Solana Pay 

• November 2022- Google Cloud became a Solana validator 

Details about Solana’s next upgrade, 1.17 (due at the start of 2024) are scant, but it’s expected to introduce further zero-knowledge proof support. 

Solana’s innovative design may help to attract a significant share of the DeFi market. However, it has also left the network vulnerable to outages, which have damaged its reputation.  

Strengths

• Solana boosts censorship resistance by maximizing the number of validators required to reach the 33% threshold which would allow bad actors to collude 

• By focusing on hardware, Solana can take advantage of Moore’s Law, which suggests that the speed of hardware doubles every two years and costs halve  

Weaknesses 

• Solana’s focus on speed, cost and censorship resistance leaves the network vulnerable to cyber-attacks and lack of capacity, causing disruption for 22 hours in 2023

The combination of PoH and Turbine, Solana’s block propagation mechanism, encourages deterministic block creation which bad actors can use to predict and attack new blocks

   Opportunities 

• The way liquidity is spread across different Ethereum Layer Two protocols could make Solana, where all transactions are processed on a single chain, more attractive 

• Solana’s speed and cost advantages and outage prevention measures present an opportunity to secure market share in DeFi, NFTs, gaming and social media

Threats 

• If users prioritise decentralisation and security over speed, Solana could lose market share

• If Ethereum Layer Two scaling solutions prove effective, Solana loses its USP