7. Solana may be underestimated

Anatoly Yakovenko, a Ukrainian-American and former Qualcomm engineer, released the Solana white paper – “Solana: A new architecture for a high performance blockchain” in November 2017. Anatoly called up his old friend Raj Gokal in early 2018 and founded Solana together. It targets Ethereum and launched in 2020. At first, it did not receive much attention and popularity from the market because cryptocurrency is no longer in the early stage of the market, and successful projects in the early stages are the mountains that stand in the way of follow-up people.

Solana is characterized by technological innovation. For technology, users don’t understand it, investors don’t understand it, and people in the crypto circle don’t understand it anymore. They don’t have a shiny cryptocurrency background, such as Charles Hoskinson. ) ‘s ADA coin ranks 8th, and Gavin Wood’s Polkadot (DOT) ranks 13th in market value. They are both of Ethereum origin, and it is natural for them to be sought after. Greasy uncles from prominent Silicon Valley companies founded Solana. People in the crypto community regard them as unconventional, so no one is willing to take this risk.

Who has this insight? The people who fall in love with them are not ordinary people. Sam Bankman-Fried, the founder of FTX Exchange (Futures Exchange), took a fancy to them. No matter what happens to Sam today, you must admire Sam’s vision and courage. Sam brought the market’s attention to Solana’s trading speed and other advantages. With Sam’s full support, Solana created a currency price of $243.1 on November 4, 2021. Sonala was successful because of Sam, but also brought bad luck because of him. After the radical FTX system declared bankruptcy, the Solana public chain, which was fully supported by it, suffered a heavy blow. The price of its token SOL plummeted, falling to US$9.75 on December 29, 2022; the total value locked (TVL) on the chain fell nearly 98% from the historical high; well-known NFT projects DeGods and y00ts left Solana, which was once famous and most expected to become the “Ethereum killer,” fell into a challenging situation. On the Coinmarketcap website on September 9, 2023, it ranked 9th, with a market value of US$8 billion. Fortunately, it is not dead, has no significant problems, and has survived.

Solana’s price reflects market panic

Generally speaking, bad news will cause the market to overreact. Solana’s fundamentals have not changed. All its flaws have been fully exposed, and it should be safe. In the eyes of Ethereum’s Vitalik, Solana is a “good project.” At the end of June 2023, when he responded to Paradigm co-founder Matt Huang’s question, “What are your thoughts on U.S. cryptocurrency policy?” he said: “I am disappointed that Solana and other projects have been hit like this. Feel sad. It’s not supposed to be this way. If Ethereum ends up “winning” by having all other blockchains kicked off trading platforms, that’s not a glorious way to win and may not even be a win in the long run. Because there’s real competition Not other chains, but the rapidly expanding centralized world is pressuring us as we speak. I wish all good projects a fair outcome.” When he said this, Vitalik was only 29 years old, without any gloating, and his mind and magnanimity were extraordinary.

The price of Solana also reflects the market sentiment caused by regulation, and Solana is also undervalued compared to the public chain Cardano ADA, which is also affected by regulation. Figure 1 is the historical price trend of Solana Sol coin, and Figure 2 is the price trend of Cardano ADA. The two trends are very similar. Comparing the small peak before the 2021 rise on the left, ADA is now above the small peak, while Sol is below the small peak. To reach the position of ADA, Sol will at least double to $40. Although Sol and FTX have some claims and liabilities, they have no significant impact on Solana’s operations.

Figure 1: Solana price trend chart;
Figure 2: Cardano ADA price trend

From the data point of view, Solana is more than twice as good as Cardano. Readers can make their comparisons. In other words, either Solana is undervalued, or Cardano is overvalued. For information on Cardano, please refer to Part 5 of this series, “ADA is a zombie chain maintained by bragging” (chainless.hk).

Solana tests the maximum capabilities of blockchain architecture

Solana’s biggest problem is downtime. In 2022 alone, it experienced 11 major network outages and 3 minor network outages, and there was another in February 2023. The main reason for the outage can be traced back to the design of proof-of-stake POS. As a blockchain system design, Bitcoin is based on peer-to-peer network technology, which can be understood as the equal status of each node. However, in the POS mode, a leader node appears. The leader node means that there will be temporary inequality in the position of the nodes. In order to be fast, Solana puts all the pressure on the leader node. When the capacity of the leader node is exceeded, downtime will occur. It has high performance requirements for node machines. Different machines of the no same model have different abilities to bear the burden of traffic pressure, so downtime is unpredictable. After Ethereum launched POS, a similar accident occurred; the block could not be finally confirmed, but it was not downtime. Ethereum has a traffic pool design with buffering capabilities. If it cannot be confirmed at the time, just skip it. However, Solana does not have a traffic pool design, which puts much pressure on the leader node. The biggest problem is that most of the traffic is communication overhead; @DBCrypt0 commented that validator communication messages account for 90%-95% of the total overhead, “So when Solana mentioned that they reached 4000TPS (transactions per second) At that time, less than 10% were actual transactions on the Internet.”

The author strongly agrees with the view of “Analysis of Solana Expansion Mechanism: An Extreme Attempt to Sacrifice Availability for High Efficiency” published in the article “Catcher VC Research”: “To a certain extent, Solana’s 500 to 1,000 transactions per second Transaction processing capabilities have reached the peak of public chains. Under the three prerequisites of a large number of nodes, no sharding, and support for smart contracts, it is basically difficult for new public chains to surpass Solana’s TPS (transactions per second) level unless Only a small number of nodes are allowed to participate in the consensus, or they degenerate into centralized servers. As long as the number of nodes participating in the consensus is large, obtaining a higher provable TPS will be difficult than Solana” (https://new.qq.com/rain/a/ 20220609A05EUK00). Availability here refers to security, so as long as it is a project with a blockchain structure, Solana’s speed is an insurmountable mountain.

Their views are similar to the author’s. The author believes there are few big innovation points in public chain innovation. Nowadays, most of the second-tier projects grafted on Ethereum are centralized. How to make centralized projects that comply with the principles of cryptocurrency is the next step in cryptography. Solana has passed this stage. This issue is not among Solana’s considerations. What it has to consider is how to integrate it with commercial applications.

Solana’s attempt

Although Solana has problems with downtime, since the payment applications are actual transactions, it isn’t easy to be congested. It can rival the speed of a Visa. If it is used as the underlying layer for Visa credit cards, Visa will have lower costs, faster liquidation, and greatly simplify Visa’s management. At the same time, users can control their assets. There will be a crisis for Visa in the future. A small card with too little content will not be able to withstand the competition from Alipay. The addition of PayPal and stablecoins reflects this competitive trend. Payment is a big market, and all business transactions require payment. Solana payment is being integrated into Shopify, which is a good start. They came from centralized companies, and some people in the Bitcoin circle understand modern marketing. In the operation of similar projects in the currency circle, in addition to their technical advantages, they also have advantages in marketing concepts.

The downtime problem is not difficult to solve. In addition, Solana doesn’t know much about incentives and economic models. If they make slight changes, it will be a completely different world.

Starting from payment is the advantage of cryptocurrency, and it is also the advantage of Solana. If people jump out of the currency circle, they will have a brighter future.

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