In his seminal article titled Why Sharding is Great, Ethereum co-founder Vitalik Buterin was first to propose the Blockchain Scalability Trilemma. Essentially, Buterin outlined the three core attributes that a blockchain should strive to achieve, being decentralization, scalability, and security. He argued that technological and practical limitations allow permissionless blockchains to have only two of these three traits at any given time. In most cases, present-day permissionless blockchains such as Ethereum and Bitcoin have opted for decentralization and security at the expense of scalability. Rejecting the need for these trade-offs, the Solana protocol is venturing to achieve all three traits at once.
This article will attempt to provide a broad primer on Solana. In particular, the following subjects will be covered:
History of the Solana Blockchain
One of the core limitations to blockchain scalability has historically been the inability to determine transaction ordering. To address this bottleneck inherent to the design of distributed systems, Solana Labs co-founder Anatoly Yakovenko developed a timekeeping mechanism he called Proof-of-History (PoH). Debuted through a whitepaper published in November 2017, PoH promised to reform the naïve transaction ordering systems used by other layer-1 solutions to enable faster transaction throughput and greater reliability on permissionless blockchains as the backbones of global payment systems.
With the help of former Qualcomm colleagues including Greg Fitzgerald and Stephen Akridge, Yakovenko authored the first implementation of the blockchain, leveraging both his novel PoH timekeeping system as well as the energy-efficient Proof-of-Stake consensus protocol. Thanks to Akridge’s insight, early implementations would take another leap in the direction of scalability by offloading signature verification, a central step in transaction handling, to graphics processors. Pilots of the earliest iterations showed great promise relative to existing blockchains, processing over 10,000 transactions in just 0.5 seconds. A more refined iteration, released under the version name ‘0.10 Pillbox’ in December of 2018, averaged an incomparable 200,000 transactions per second (TPS) running on a testnet of 150 validator nodes.
The Solana team continued to drive growth in the community and maturity in the protocol throughout 2019. The year saw several incremental releases, with one of the most notable being Jaws v0.19.0 wherein the testnet was supported by 25 independent nodes as opposed to the centralized cloud-computing providers relied upon for prior releases. This was also the year of the inaugural SOLCon in Osaka, Japan as well as the San Francisco Blockchain Week, both of which served as forums for the Solana team to share their progress and evangelize the project. Finally, 2019 was the founding year of the Solana Foundation, a Zug-based non-profit established to guide the direction of the Solana protocol.
2020 was most notable for the launch of the mainnet beta network in March, which by year-end touted over 350 validator nodes and had processed in excess of 8.3B transactions. The year also played host to the Tour de SOL event, which rewarded developers for stress-testing the network and identifying attack vectors to help the development team focus their efforts in anticipation of the mainnet launch. Additionally, the v1.3.0 release was headlined by the Solana Program Library, which featured standards for fungible and non-fungible tokens to rival the ERCs in the Ethereum ecosystem. This year also marked the announcement of crypto trading platform FTX’s intentions to build a decentralized exchange (DEX) by the name of Serum atop Solana. The announcement was especially notable as it represented a vote of confidence from the renowned Sam Bankman-Fried for the Solana protocol.
The 2021 year has been markedly one of community-building within the Solana ecosystem. The development team announced and held the Solana Season hackathon, distributing USD$1M in prizes and funding. July was notable for the launch of a USD$5M Creator Fund in partnership with two ecosystem projects, meant to support artists and creators using Solana-based dApps to distribute and monetize their work. The non-profit Solana Foundation also announced Breakpoint, a sort of spiritual successor to 2019’s SOLCon which is set to take place in November of 2021.
Solana has been the beneficiary of over USD$300M in growth-stage funding, raising USD$20M in a Series A round led by Multicoin Capital on July 30, 2019, as well as a recent USD$314M token sale co-led by Andreessen Horowitz and Polychain Capital on June 9, 2021.
Solana’s Technological Moats
Solana’s competitive advantages with respect to speed and scalability are unparalleled in the blockchain world. The Solana protocol’s differentiated and markedly faster infrastructure can be attributed to a collection of innovative technologies, the individual scale advantages of which converge to enable the most performant L1 solution on the market. At a high-level, the Solana protocol is comprised of the following features and architectures:
Proof of History (PoH)
Blockchains fundamentally must be capable of keeping track of time such that they can correctly order transactions as they are submitted to the network and order blocks before they are added to the chain. The PoH system serves as a globally-available source of time for the network, which is to say that each validator node maintains its own clock that is synchronized with the clocks of other nodes. The result is that Solana validators do not need to communicate with other nodes to synchronize ordering.
By eliminating the need for constant correspondence between nodes, the PoH timekeeping system enables a more streamlined process to appending blocks. In essence, selection of leaders (i.e., validators randomly chosen to be responsible for adding the next block) can be determined in advance, and the network can continue to operate without any nodes directly communicating with one another.
Solana implements a rendition of Practical Byzantine Fault Tolerance (pBFT) that is designed to take full advantage of the PoH system’s streamlined timekeeping. At a high-level, pBFT is a consensus mechanism which enables a decentralized network to continue operating in spite of the presence of malicious actors or inoperative nodes. Solana’s Tower consensus augments pBFT by synergizing with the PoH system to reduce the level of processing power needed to maintain network security.
The benefit of this consensus algorithm is that it reduces messaging overhead and network latency, allowing for vast performance gains.
A BitTorrent-inspired block propagation system, this innovation involves sharing shreds of transactions within and between multiple layers of node neighborhoods, or sub-clusters of close-proximity nodes. For instance, nodes in layer 0 will share their assigned transaction shreds among one another. Then, each node will share the data with a subset of nodes in the layer 1 neighborhoods, and so on until all nodes in all neighborhoods have received the data. The effects of this are that each node needs only to communicate with a small set of all nodes in the network, and block times of 400ms can be achieved.
This approach to block propagation is clearly beneficial in its ability to minimize network latency and transaction-processing times.
Mempools, which represent the set of transactions sent but waiting to be processed by a blockchain network, can significantly clog up the network when a large volume of transactions accumulates in a short period of time. Solana’s solution to the problem involves forwarding transactions to the next expected leader in advance, allowing for ahead-of-time execution and a non-stagnant mempool.
By minimizing the size of the mempool, both the efficiency as well as the responsiveness and functionality of the blockchain are vastly improved.
Relative to the single-threaded runtime of other general-purpose blockchains such as Ethereum, Solana’s smart contract runtime is multi-threaded. This means that the Solana blockchain can execute multiple operations from disparate smart contracts concurrently, limited only by the cores available across the network, as opposed to doing them in sequential fashion. Naturally, to avoid data race problems, the blockchain only allows for non-overlapping write transactions to occur concurrently.
The benefit of this parallel processing approach is self-evident. By enabling the simultaneous execution of multiple smart contracts, the network is capable of processing more transactions in a window of time than an otherwise equivalent single-threaded approach, thereby increasing transaction throughput.
To ensure that large blocks of transactions can be validated and replicated quickly, the Solana blockchain uses a pipelining system to ensure that simultaneous progress can be made in each stage of a sequential process. Solana’s pipelining mechanism, known as the Transaction Processing Unit, is comprised of the Data Fetching, Signature Verification, Banking, and Writing stages, in that order. In much the same way that one load of laundry can be moved to the dryer as another load is placed in the washer – such that both drying and washing can occur simultaneously – Solana’s TPU ensures that different transactions can be concurrently handled at several stages of processing.
By implementing this pipelining technique, the Solana network is capable of making progress on processing up to 50,000 transactions simultaneously. The upshot is that idle time in the network is kept to a minimum while resource-utilization and efficiency are maximized.
While bolstering transaction processing speed is critical, there still exists a bottleneck with respect to tracking as well as reading and writing to accounts. Naïve solutions to store the global state of accounts would involve leveraging RAM or SSDs. However, dealing with the randomness and lack of locality in cryptographic public keys requires a more creative response. Through the use of memory-mapped files and sequential operations, Cloudbreak allows for far more efficient maintenance of the account database and by extension much faster concurrent reads and writes to individual accounts.
The Solana team’s horizontal scaling approach to account database maintenance ensures that the increased computation provided by their other innovations is not hindered by a slow and cumbersome process for reading and writing to account states.
Solana opens network membership to a wider audience by allowing some nodes to store only a fraction of the blockchain data, not unlike the light nodes in the Bitcoin and Ethereum networks. Similar to those blockchains’ light nodes, Solana’s Archivers do not participate in the consensus process and cannot themselves be responsible for adding new blocks to the chain. Their involvement in the network is achieved using Proof-of-Replication (PoRep), a protocol whereby Archiver nodes will store replicated data from the chain based on their capacity and provide prove to the network that they are in fact storing replicas of that information.
The benefit of Archivers is that they lower the hardware-related barriers to entry and ensure the network is not centralized around a few node operators with the computational and storage capacity to process the 4 petabytes of annual data produced by the Solana blockchain.
Notable NFT Projects Building on Solana
In addition to forming the L1 foundation for a new generation of high-performance decentralized exchanges, wallets, stablecoins, and DeFi primitives, the Solana blockchain has also become home for several popular and burgeoning NFT projects. From collectibles to games to marketplaces, Solana’s NFT ecosystem has carved out its own distinctive niche within the wider market.
SOL Token Performance
Examining the performance of the Solana network’s native currency reveals some key trends with and implications for the blockchain’s future. Key tailwinds for the Solana ecosystem which fueled the price gains of August 2021 include the recent USD$70M crowdfund for Solana-powered decentralized exchange Mango Markets, the recent launch of Wormhole – which serves as a bridge between Solana and other protocols such as Ethereum to pave the way for an interoperable, cross-chain future – as well as the frenzy which accompanied the initial drop of the Degenerate Ape Academy project.
Comparing Solana to the two non-stablecoins with the closest market capitalizations, being Uniswap (UNI) and Polkadot (DOT) indicates clear signals of SOL’s recent outperformance. The token’s price trajectory has exhibited a much steeper incline than both UNI and DOT in the month of August, a parabolic growth which has contributed to SOL ‘flipping’ UNI – that is, overtaking it in terms of market capitalization – with an eye for potentially flipping DOT and in the process claiming the 8th spot on the list of largest cryptocurrencies by market capitalization.
Examining SOL’s price returns and capitalization growths over multiple time horizons further solidifies this notion that Solana has enjoyed incomparable performance over the past year, much of it fueled by the recent August rally. With a YTD price return and market capitalization growth that dwarfs that of both UNI and DOT, Solana appears poised to continue expanding and climbing into the upper ranks of blue-chip cryptocurrencies.
Solana as a Platform for NFT Commerce
The above discussion should leave the reader with no impression other than that Solana’s upside potential as a L1 blockchain and a platform for NFT-issuance is virtually limitless. It may, however, be worthwhile to distill Solana as-presently-constructed down to its foremost benefits and explicitly define the implications of this highly-performant blockchain on the NFT ecosystem.
The Performance to Power High-Volume Trading
The first and most easily-observable effect that Solana could have on the NFT landscape naturally pertains to its unmatched speed and cost-efficiency. As discussed previously, the minds behind Solana have developed a series of distributed-systems innovations that enable the network to achieve performance that was previously unheard of and comes as close as any blockchain to solving Vitalik Buterin’s infamous scalability trilemma. Everything from the PoH timekeeping system to the Turbine block propagation technique to the Sealevel parallel execution runtime converge to make Solana an alluring alternative for the minting and secondary trading of NFTs.
Of course, some may argue that transaction costs and speed are trivial when speaking of multi-million-dollar NFT trades, and that the more important factor for such high-value commerce is the blockchain’s ability to resist censorship and maintain proper attribution of a token to its rightful owner. This is unquestionably a valid argument, and one that will be addressed later. However, the reality is that only a small subset of NFT transactions is in this realm of multi-million-dollar valuations, and the proportion that are is likely to decrease as the mania surrounding this asset class eventually subsides. Thus, for the vast majority of participants in the NFT market dealing in lower-value tokens, the advent of cheaper and faster transactions may warrant a transition to a more performant blockchain such as Solana.
A Budding First-Class Creator Ecosystem
With respect to blockchain developers, it would be a bad faith argument to paint Solana’s current ecosystem as being anywhere near as rich or active as that of Ethereum. However, it would also be a bad faith argument to write-off Solana’s developer ecosystem simply due to its nascence. The Solana team has made great strides to attract developers, hosting a number of hackathons with up to USD$1M in prizes for blockchain engineers willing to give the network a test-run. These hackathons have seen increasing interest, with 2021’s Solana Season event attracting 13,000 registrations as well as 350 submissions. The team also provides resources meant to help Solana developers scale their ventures, including frameworks from the Solana Program Library and project financing from Solana Capital.
There is also the fact that developing for Solana relies primarily on the Rust programming language, knowledge of which is transferable to a wide array of non-blockchain paradigms. Rust has generally been thought to be a language reserved for more experienced developers, with barriers to entry inherent in the language’s architecture that make it more difficult to grasp. That said, it has also been crowned the ‘most loved’ programming language for 5 consecutive years and Rust developers are now among the most handsomely-paid in the industry. Thus, it can be reasonably surmised that developers who build on Solana – and thus have expertise in Rust – will come from the upper echelons of engineers.
The Solana team has also proven their commitment to building out a community beyond just developers. The July 2020 launch of the USD$5M Creator Fund – meant to support digital artists, musicians, video producers, and gamers seeking to deploy their works and build their fanbases through Solana-based dApps – provides irrefutable evidence of this commitment. By fostering a robust developer ecosystem to build NFT infrastructure such as marketplaces and staking platforms, and a bubbling creator community to produce and issue NFT-based art, Solana is primed to secure new entrants into the NFT market and convert existing participants currently relying on Ethereum.
Consensus that Breeds Decentralization
As mentioned previously, the most critical facet of a blockchain for owners of high-value NFTs is arguably the blockchain’s ability to resist censorship of transactions and withstand takeover attacks by malicious actors in the network. Blockchains capable of doing so provide assurance to NFT owners that their claim over a particular token will not be in jeopardy on account of a network attack. Generally, a network’s censorship-resistance can be measured via the Nakamoto Coefficient, a metric coined by entrepreneur and crypto thought leader Balaji Srinivasan. In his essay titled ‘Quantifying Decentralization’, Srinivasan defines the Nakamoto Coefficient as:
“…the minimum number of entities in a given subsystem required to get to 51% of the total capacity.”
In the case of a Proof-of-Work blockchain such as Ethereum 1.0, sharing of computing resources among the largest mining pools necessarily means that fewer factions are needed to mount a takeover of the network. The Nakamoto Coefficient for Ethereum is roughly 4, which means the 4 largest mining pools command more than half of the network’s hashrate and could theoretically collude to unilaterally dictate the blockchain’s future state.
In contrast, Solana’s delegated Proof-of-Stake approach has enabled a much less objectionable Nakamoto Coefficient of 19. This means far more of the highest-power validator nodes would need to collude to halt the network, let alone to produce arbitrary transactions. Additionally, as the network grows more concentrated, it is in the best interest of all network participants to delegate their stakes to less powerful validators so as to avoid further concentration. The implication of this is that owners of Solana-based NFTs can rest assured that the network is far less susceptible to attack, and thus their rights to high-value tokens which they own are at far less risk of being violated.
With the warp-speed pace of innovation in the blockchain and cryptocurrency spheres, success for an emerging protocol is never guaranteed. Despite all of its comparative advantages, even Solana may fail to live up to all of the benchmarks expected of the most performant permissionless blockchain network in the world. The bull case for Solana as a platform for NFT commerce becomes even more fragile in the face of Ethereum’s fast-approaching transition to PoS, an evolution which promises to make the already-established blockchain even more performant than Solana. That being said, in a world brimming with so-called ‘Ethereum killers’, visions of a cross-chain future have begun to gain more prominence. Where networks truly become interoperable and multiple general-purpose blockchains can co-exist without widespread tribalism, there is little doubt that Solana and its key innovations will have a vital role to fill in this future world.