Solana Review: High-Speed Layer 1 Blockchain
Solana has accomplished an impressive transaction per second capacity without compromising decentralization much. It is an open-source project that is a new permissionless and high-performance blockchain. The Solana Foundation manages the open-source project, situated in Geneva, Switzerland. It is the high-speed layer one blockchain, with a max capacity of 65,000 transactions per second. It has a transaction finality of around 13 seconds.
How does Solana work?
Proof of Stake (PoS) and Proof of History (PoH) are used by Solana Network to process its transactions efficiently with high speed. PoH is a simple method for validating all the transactions without communicating with other nodes. PoS is also used for validating transactions, for this, you have to stake your token.
PoH is based on a simple method. It assigns a leader position randomly to a particular node after every new block creation. Any node which is the leader node must generate the whole proof of history statement. After being given the responsibility, the leader node coordinates with other nodes to construct a proof of history statement.
The leader node also pushes the currently executed transactions, and then it publishes the transactions with verifiers in their final nodes. Verifiers repeat the process again to verify transactions. Verifiers also make copies of transactions and make them public. There is only one leader node in each Solana network at a time. The verifier node performs intelligently and has the same capabilities as a leader node; however, the verifier node can subsequently be elected as a leader through proof of stake elections.
Compared to Bitcoin and Ethereum blockchain networks, a combination of PoH and PoS works well for Solana, allowing it to process data at a cheap cost.
Solana's high-speed blockchain is built using eight major technologies mentioned below:
Key characteristics of Solana:
Proof of History: For authorizing and restricting entries on its ledger, Bitcoin and Ethereum's blockchain networks use a Proof of Work technique (proof of work means that every node on the blockchain network must reach consensus before every new entry). Proof of Work (PoW) is a complicated method that slows down the speed of transactions.
To address the drawbacks of the PoW system, Proof of History (PoH) was developed. Proof of history simply means that a new block can be added to the blockchain network without the need for mutual consent of other nodes. Every node in Solana has its clock and makes choices without consulting the others. Proof of History improves transaction speed while simultaneously ensuring an efficient blockchain network and recording all transactions.
Tower Byzantine Fault Tolerance: The BFT system functions as a safety net for the whole Solana ecosystem. It ensures that a single node failure does not disrupt the entire operation of the system. This approach enables the nodes to work even in case of multiple failures.
Gulfstream: Gulfstream is a system that eliminates memepool requirements. Memepool can be viewed as a holding area where all unprocessed transactions await their turn. Solana's network can handle a memory pool with a capacity of 1,00,00 transactions.
Validators are present in every blockchain ecosystem (validators select transactions and add them to the blockchain network). Solana's network sends the transactions to its validators even before a new transaction is added. Validators empty the memepool region simultaneously, ensuring no 'unconfirmed transactions' in the Solana ecosystem.
Sealevel: Solana allows for the simultaneous execution of numerous smart contracts. Solana becomes a time-saving and cost-effective blockchain network as a result of this. Sea level is the technology that allows Solana to run many smart contracts simultaneously.
Cloudbreak: Solana uses a horizontal scaling method, which allows the blockchain to expand its scalability. Cloudbreak manages a database that can read and write transaction input data. It is also in charge of bridging the gap between hardware and software.
Pipeline: Most tasks in Solana's ecosystem are separated for processing transactions quickly. Solana distributes the input data throughout the various hardware components of the network. It is a procedure that quickly checks the information blocks using various devices.
Turbine: Solana splits various blockchain nodes into smaller packets. It helps in increasing the transaction speed of the network. Smaller data packets can be evaluated more quickly, which aids Solana in addressing bandwidth difficulties.
Two main ways which make Solana more valuable: Staking and MEV.
Staking
If you own SOL, you can stake SOL tokens directly to one of the validators of Solana Network using a wallet like Phantom. Validators are compensated for safeguarding the network through minor transaction fees and inflation rewards. The protocol mints SOL tokens (maximum cap is 504.2 million SOL) and rewards tokens to validators. The higher the Validator's stake, the more frequently they become a leader node, and the more money they make in the form of SOL tokens. Validators offer stakers yield to attract more stake. For example, Currently, you can stake SOL and earn at least a 5.93% yield annually.
How does staking make SOL more valuable?
There's a theory that in Proof of Stake networks, the value constructed on top of the chain must be smaller than the value staked in the network, otherwise, validators may attack the network in order to seize the value built on top. So theoretically, the more value at stake, the more secure the network is because validators are more motivated to operate benevolently. As a result, everyone in the network is motivated to ensure that the staked value is greater than the value created by dapps built on Solana.
The only thing that ensures that your protocol stays safe is if the price of SOL is high. These protocols deployed on Solana can effectively pay for security by purchasing and staking additional SOL. If the project includes a treasury, as Audius does or as Saber and Star Atlas, the DAO might state, It appears that the DAO's value will exceed the value of our staked tokens. Thus we should invest 10% of our treasury to buy and staking more tokens to make the Solana network more secure.
Staked SOL tokens will need to rise as more valuable protocols are developed on top of Solana. While this is technically correct, there is a range of possibilities. If given a chance, most validators would not act maliciously. What matters is that this concept is genuine enough that it provides a Schelling Point for everyone in the SOL ecosystem. It is simple, attract more developers, who will draw more users, and everyone will agree that staked value must rise in tandem.
MEV
MEV is another opportunity for SOL holders and market participants to gain value. Miners' ability to produce value by arranging transactions within a block is called Miner-Extractable Value (MEV). Users submit transactions, which are then placed in a global "mempool" from which miners choose which transactions should be included in the upcoming block, and miners can order any way they want within the block, frequently based on gas pricing. On Ethereum, gas is divided into the base fee and tip fee, with those that need their transactions, validated first, usually paying more tips to move up the block.
Miners can order blocks so that they can take advantage of front-running deals or extract value in other ways, while third-party bots can also grab MEV by manipulating transaction fees. Users may face increased transaction charges or more slippage due to this (the price goes up if a bot front-runs your trade). It is also quite clear that Proof of History reduces the chance of MEV on Solana. Because each transaction has its unique timestamp, validators can't reorder them arbitrarily.
Tokenomics
SOL is the Solana blockchain's native token. It relies on a delegated Proof-of-Stake consensus method, which rewards token holders for validating transactions. All transaction costs are paid in SOL and burned as part of Solana's security mechanism, lowering total supply. This deflationary supply strategy encourages more token holders to invest, resulting in greater network security.
It is used for the following purposes:
Staking: In exchange for powering and supporting the network, Solana holders who stake their tokens receive SOL tokens as a reward.
Transaction Fees: Users pay for simple transactions and smart-contract executions on the network using the SOL token.
Governance: SOL is also a governance token. Token holders can vote on governance proposals submitted by the Solana community members.
Token supply distribution
Conclusion
Solana has a theoretical throughput of 65,000 transactions a second with very low fees. It is the high-speed layer one blockchain. In comparison to other blockchains, Solana has a considerable advantage. Solana has attracted a vast number of developers. The reasons may be that it supports the Rust programming language, which is very well known to developers from the web2 world, so it is easy for them to switch to developing on Solana.
Many users have started using Solana due to its low fees and fantastic user experience. Solana has played an essential role in the growth of the web3 ecosystem. Solana is best suited for building Decentralized Exchanges and games due to its high throughput capability.