PYMNTS Blockchain Series: What Is Solana? – PYMNTS.com

Over the course of this series of articles, we are going to look at the top blockchains in cryptocurrency, with a goal of helping you make sense of the alphabet soup of so-called “altcoins” that exists beyond that of bitcoin’s BTC and Ethereum’s ETH.
We will look at what they are, how they work, what they do, and what their pros and cons are.
You’ll come out of this series not only with a better sense of what cryptocurrency is all about; you’ll understand why the way a token works — the way its blockchain processes transactions — is key to its success or failure as a digital asset.
So, what is Solana?
Solana, exchange symbol SOL, is the current leader in the race to replace Ethereum with a better, faster and cheaper blockchain. From the perspective of investors, it is the leading “Ethereum killer.”
Bank of America Digital Asset Strategist Alkesh Shah wrote in a client note Thursday (Jan. 13) that Solana could become the “Visa of the digital asset ecosystem.”
The reason, he said, is that its “ability to provide high throughput, low cost and ease of use creates a blockchain optimized for consumer use cases like micropayments, [decentralized finance (DeFi)], [nonfungible tokens (NFTs)], decentralized networks (Web3) and gaming.”
Let’s pause for a minute to discuss the phrase Ethereum killer. What it means is that the blockchain is a smart contract platform trying to lure developers, investors and the decentralized applications (DApps) they build away from Ethereum.
Bitcoin may be the first, best-known and richest blockchain, but Ethereum is easily the most important. Launched in 2015, Ethereum brought self-executing smart contracts to the crypto industry. The core building block of every cryptocurrency and blockchain project that seeks to be more than a bitcoin-style currency replacement, smart contracts are behind DeFi, NFTs, supply chain management tools — the works.
See also: What Is a Smart Contract?
The problem is that many of those projects — especially the successful and well-funded ones —live on Ethereum. And it’s getting crowded.
Faster and Cheaper
Let’s get back to Shah’s comments about Solana being fast, cheap and easy.
His choice of Visa as a comparison is telling. One of the best-known payment processors is in some ways the white whale of cryptocurrency blockchains. Its transactions speeds — currently about 1,700 transactions per second (TPS) with the capability of handling 24,000 TPS — is the mainstream transaction speed statistic to which blockchain developers inevitably compare their product.
Ethereum can handle about 15 TPS. Bitcoin about 6 TPS. Then there’s blockspeed — the time it takes to mint a new block and add it to the blockchain, making it permanent and unchangeable. Ethereum’s block time is about 10 seconds to 20 seconds; bitcoin’s is 10 minutes. That’s a long time to wait for a retail transaction to be completed. And transaction fees for bitcoin are averaging $2 to $5 while Ethereum miners are demanding $3 to $6.
Solana has shown it can process 50,000 TPS (Shah cited an “industry-leading” 65,000 TPS), and its developers claim it can (theoretically) be made to achieve 710,000.
Getting back to the Visa comparison, Solana is currently processing 2,376 TPS, according to Solana.com, a developers’ site. The average cost per transaction is $0.00025. Block time is 400 milliseconds. It is by far the fastest of the Ethereum killers, and its developers have no intention of being Ahabs.
SOL has also been a good investment. On New Year’s Day 2021, SOL was $1.80. At the time of writing, it’s $147.41, and at the peak of 2021’s bull market, it cracked $260.
Under the Hood
The way Solana works is by proof-of-stake (PoS), a consensus mechanism we’ve described in some depth — but not too technically — elsewhere.
Read more: What is Staking?
Suffice it to say that a “consensus mechanism” is the way that the blockchain is secured and the new transactions written onto it are verified as accurate. Bitcoin and Ethereum do this using proof-of-work (PoW), which involves a race to solve a math puzzle and win the right to create the new block, for which miners are rewarded with newly minted bitcoins and transaction fees.
The computing power miners use to do this is why the two blockchains are accused of killing the planet with pollution.
See also: Can Proof-of-Stake Solve Crypto’s ESG Problem?
Ethereum killers — and most new blockchains — use the unfortunately named PoS, which replaces miners solving a puzzle with stakers who put up amounts to a bond for good behavior in order to enter a lottery to validate the next block. Bad behavior or poor performance lead smart contracts in the blockchain “slashing” a block producer’s stake. The idea is to make it uneconomical to cheat.
But Solana does something different, or more accurately, something more. A vital part of writing a new block of transactions at the end of the blockchain is timestamping it — think holding up a newspaper to prove when you recorded a video.
A blockchain is decentralized because complete copies of it exist on every node — computer — running the blockchain app. It is immutable because each block is cryptographically tied to the blocks before and after it, but also because each node must agree on the new block, and they must do it simultaneously. Those who disagree are booted onto a new “hard fork” of the blockchain — essentially a new blockchain.
Solana uses PoS, but it also adds a second consensus mechanism called proof-of-history (PoH) to the process. PoH acts like a time stamp, adding a cryptographically verifiable date to the block. In other blockchain, all the validators’ nodes must communicate with each other to synchronize the state of the network, which takes time.
That’s how Solana is 400 milliseconds scalable.
Drop the Other Shoe
Solana prioritizes speed “while remaining relatively decentralized and secure,” Shah wrote. But there is a trade-off.
“Solana prioritizes scalability, but a relatively less decentralized and secure blockchain has trade-offs, illustrated by several network performance issues since inception,” he said.
Read also: Crypto’s Double-Spending Achilles Heel
We promise not to dive into technical details you don’t need to know about. That said, when it comes to Ethereum killers like Solana, you should understand what Ethereum creator Vitalik Buterin described as the Blockchain Trilemma. Basically, this means that blockchains try to accomplish three things: decentralization, security and scalability. But to strengthen any two, you must weaken the third. Bitcoin and Ethereum, for example, are very secure and decentralized, but not so scalable.
As DeFi and NFTs took off, Ethereum’s prioritization of decentralization and security has led to serious scalability problems. Too many transactions create a traffic jam, delaying some transactions and causing transaction fees to skyrocket, as validators prioritize the transactions offering the highest fee — just as bitcoin miners do.
Ethereum has instituted some “soft fork” fixes — basically software updates validators all (or mostly) agree on — but the longer-term solution is Ethereum 2.0. It’s a years-long process with at least a year to go, but at the end of it, Ethereum will switch to a PoS system its developers claim will be able to handle 100,000 TPS.
But with ETH transactions averaging $3 to $6 — and having spiked as high as $70 a handful of times this year — project developers aren’t waiting, and Ethereum killers are benefitting.
Bank of America’s Shah pointed out there are more than 400 successful decentralized projects on Solana’s blockchain, which only launched its genesis block in April.
But beating Ethereum is one thing. Proving itself a secure enough payments network to best Visa is quite another.
——————————
NEW PYMNTS DATA: 57% OF CONSUMERS PREFER ADVANCED ID VERIFICATION AFTER TRYING IT

About:Fifty-seven percent of consumers who’ve used advanced ID verification methods such as voice recognition when contacting customer service say they’d do it again. The Consumer Authentication Experiences report, surveyed nearly 3,800 U.S. consumers to learn how offering innovative verification experiences is helping businesses deliver superior customer service across all channels.
Money launderers “wash” more than $2 trillion in the global economy each year, despite the best efforts of financial institutions (FIs) and…
Consumers’ banking and payment preferences have swiftly become digital-first, with mobile apps and eCommerce channels quickly replacing in-person branches or retail stores…
The steady 10-month slump of Jessica Alba’s Honest Company continued Friday (March 25), after the Los Angeles-based seller of diapers and personal…
You have successfully joined our subscriber list.
© 2022 What’s Next Media and Analytics™

source