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The triangle trilemma is one tool for categorising a blockchain network. According to the trilemma, a blockchain may have any two of these features but not all three.
For example, Bitcoin prioritises security and decentralisation over scalability. XRP prioritises stability and scalability over decentralisation. Other blockchains operate everywhere on the spectrum, with each network needing to decide which features are most important to it.
Solana, a network that claims to have solved the trilemma, enters the picture. Solana bills itself as a decentralised, stable, and scalable cryptocurrency. If real, this will be a significant advancement in blockchain technology.
In this post, we will look at Solana’s claim to have solved the scaling problem, as well as what Solana does well, a short explanation of the consensus process, and an analysis of the SOL token.
The Solana Blockchain
The first thing to know about Solana is that it’s a technically complex blockchain. Anyone who wants to do the deep dive on the network should check out the Solana documentation, as well as this explanation of the consensus mechanism.
Solana, like Ethereum and Tezos, supports smart contracts. This implies that developers will create decentralised apps on top of Solana, such as a decentralised exchange. Solana is distinguished from other smart contract systems by its ability to scale to hundreds of thousands of transactions per second.
Solana makes many network-capability statements, including a transaction throughput of 50,000 to 65,000 TPS (Transactions Per Second). This transfers can be submitted for a nominal fee of about $0.00001 per transaction, a cost so low that you’d have to send thousands of transactions to pay even $1 in total fees.
The secret sauce which makes all of this possible is what Solana calls, Proof of History (PoH). Proof of history is a clock used before consensus that solves the time problem in decentralized systems. What if instead of trusting the timestamp you could prove that the message occurred sometime before and after an event? When you take a photograph with the cover of New York Times, you are creating a proof that your photograph was taken after that newspaper was published, or you have some way to influence what New York Times publishes. With Proof of History, you can create a historical record that proves that an event has occurred at a specific moment in time.
On most blockchains the transactions are grouped together in a block, and the block is written to the blockchain. With this architecture it’s possible to tell that one group of transactions came before or after another, but it’s not possible to discern which transactions came first or last within that block.
It’s not that this is a bad system; however, certain applications require ordered transactions. For example, decentralized exchanges can offer better services when there is a clear order of transactions, versus all transactions in one block being grouped together. For those who really want to dig deep into the technicals, this article provides a great explanation of POH.
Why Solana is so Fast
The key to being able to clear tens of thousands of transactions per second is that there is a “leader” on the Solana network. The leader (who changes regularly) orders and writes transactions to the network as fast as possible. The only limitation is the speed of the leader’s hardware. This introduces a unique feature: the faster hardware becomes, the more transactions per second are possible on the Solana network.
You might think that with a single leader recording the transactions, Solana would be centralized. However, this is not necessarily the case. One step below the leader are the verifiers. These are proof of stake nodes and their function is to ensure that the leader is only writing valid transactions to the blockchain.
Suppose two-thirds or more of the verifiers come to the consensus that the leader is acting maliciously. In that case, the leader is ousted and replaced by another one of the verifiers (verifiers take turns being the leader).
As mentioned, these verifiers are proof of stake nodes. That means that users are staking their Solana in order to become a verifier and earn a staking reward.
- A single leader (with fast hardware) writes transactions to the blockchain as fast as possible
- Verifier nodes check that the transactions are legal and correct (no double spends)
- If two-thirds of verifier nodes dispute a leader, the leader is kicked out and replaced by a different verifier
Solana is fast because it’s set up in such a way that the network believes that all transactions are legal, unless proven otherwise.
What Solana Does Well
Solana will support a wide range of projects due to its pace. Decentralized exchanges perform admirably on Solana. A Solana-powered DEX could process tens of thousands of trades per second, with an average exchange costing just $0.00001. That would allow for a genuinely huge exchange, much larger than anything seen in crypto before.
Solana will also make an excellent payment network. The cryptocurrency group often points out that the Visa network will scale to 10,000 TPS or more at peak demand.
Solana, on the other hand, could clear all Visa, Mastercard, and PayPal transactions…. Solana is so scalable that you could create virtually any kind of payment network on top of it.
USDC has now migrated to Solana, with over 50 million USDC-SPL now minted on Solana and Tether. These are two of the most important stablecoins in the cryptocurrency community, and it will be fascinating to see how they do on the Solana network.
Though we mentioned 50,000 TPS at the start of this post, the Solana team claims that the blockchain could scale to 710,000 TPS.
Of course, the cryptocurrency environment is rife with lofty promises about “theoretical” results, and many of these assertions never pan out. However, even though Solana is limited to “only” 250,000 TPS, there is still enough scalability to accommodate massive amounts of traffic.
Solana Coin: SOL
The SOL token functions similarly to ETH on Ethereum or XTZ on the Tezos network on Solana. SOL can be used to run a verifier node in order to gain a staking incentive. There is no minimum threshold to begin staking, but the more SOL you stake, the more often you will be chosen as the leader on a regular basis.
SOL is used to relay value on the Solana network in addition to staking. SOL has a maximum supply of 489 million.
Solana is an intriguing project because it seems to have overcome the scaling issue while staying decentralised. The system exists; the only question is whether or not people can begin to use it. If there is one lesson we have learned from crypto, it is that the right technology does not necessarily prevail. And if it can only clear around 7 TPS, Bitcoin is the undisputed king of crypto.