In the recent weeks of market volatility and bearish sentiment, one coin has been hovering relatively close to its all-time high: Solana. The blockchain, which is capable of handling over 40,000 transactions per second, has potential to be a true Ethereum killer. However, it also could be a complement to the slower, yet more secure, Ethereum, and the two may work in unison as the dominant smart contract protocols.
In the most recent market correction, almost every project, even those with the brightest futures, have gone down in value by 40% or more. However, Solana has only gone down 20% from its all-time high, and is up 20% on the week, meaning investors still think the project is undervalued at a market capitalization of $11 billion. The reasoning for this most likely has to do with their continual growth, partnerships, and funding.
Solana was created during the ICO craze of 2017, and aimed to fix the blockchain scalability problem without relying on Layer 2 solutions or sharding. It does so through a solution called Proof of History that works in conjunction with proof of stake. Proof of History makes the Solana blockchain have a cryptographic clock, and each transaction is time stamped before being confirmed in the network. Thus, the Solana blockchain is able to know exactly when each transaction was made and can order them quickly and easily compared to another blockchain like Bitcoin, which does not inherently know the order of transactions and thus must waste valuable time and computing power on figuring it out.
One of the reasons Solana has seen such explosive growth recently is due to their partnership with FTX, one of the world’s largest centralized exchanges. FTX chose Solana as the blockchain on which they are building their Serum decentralized derivatives exchange, which aims to be even faster than some centralized exchanges.
Not only does the FTX partnership bring a killer dApp to the protocol, but it also brings Solana lots of promotion and brand awareness from FTX Founder Sam Bankman-Fried. He is incredibly influential in the cryptocurrency space, and recently gave Trevor Lawrence, the first pick in the NFL draft, SOL as a signing bonus. This type of marketing will be huge for Solana in the long term, and could help introduce them to companies and people that will greatly expand Solana’s reach.
This partnership, along with those from USDC, USDT, Terra, Chainlink, and Arweave, have helped to legitimize the project, and make it a true competitor in the smart contract space.
Furthermore, Solana is continuing to raise money in order to create a massive war chest which they can use to incentivize projects to build with their ecosystem. It has recently been revealed that the Solana team is looking to raise over $300 million, which will be instrumental in ensuring that development and partnerships will continue to progress at a rapid pace.
Though all of these developments make Solana appear to be directly competing with Etheruem, there are a couple issues that make the likelihood of it being a complement to Ethereum much higher.
Much like any blockchain, high speeds typically come at the price of centralization, and the same is true for Solana. To be a validator on their mainnet, a user needs to have expensive and specialized hardware, which is a large barrier to entry. They currently have around 500–1000 validators, which is far less than Ethereum 2.0’s 60,000 validators. They have also had issues in the past with complete network outages lasting multiple hours, which is unacceptable for a permissionless and decentralized blockchain. They are actively working on solving both of these issues, but it may be a while before a solution is found.
Furthermore, Solana is not EVM-compatible, which means that any Ethereum-based dApps can not easily be ported to the Solana chain, and instead have to be completely rewritten. This barrier means that it is unlikely that we will see Aave or Uniswap on Solana anytime soon.
Due to Solana’s blockchain being fast, yet somewhat insecure, compared to Ethereum’s completely secure, yet slow, blockchain, they are not necessarily competing with one another. Due to there already being an Ethereum-Solana bridge, anyone can easily interact with Solana using Ethereum and ERC20 tokens. This means that a possible long-term scenario could see Ethereum as the main secure blockchain, similar to a savings account, and Solana as the fast blockchain used for day-to-day transactions. This system would be ideal, as it gives Solana the advantage of working with Ethereum instead of against it, and also gives the Ethereum ecosystem a way to transact without worrying about high fees and slow transactions.
In fact, this type of relationship is already happening today. Audius, the decentralized music streaming protocol, uses both Solana and Ethereum for different functions within its ecosystem. Audius uses Solana to manage common activities such as streaming, searching, and music management. However, it uses Ethereum for all activities relating to their AUDIO token, including staking and governance. This system means that Audius is able to take advantage of the scalability of Solana without sacrificing the security of the token that runs the entire project.
Whether or not the Solana-Ethereum dual blockchain model will continue to be implemented is yet to be seen. However, the fact that Solana can act as both a competitor and a complement means that it has a great chance of surviving the next cryptocurrency crash, and will likely turn into a legitimate staple of the blockchain sector.
By Lincoln Murr