Exploring SOL's rebound: Solana's turbocharged proof-of-history

Roller coaster — that's the phrase many crypto traders would likely use to describe the fall and rise of Solana's native SOL coin. Since declining to $8 lows following the collapse of FTX in November 2022, Solana has been on a tear as of late.

Thanks to the recent excitement behind the potential approval of a Bitcoin spot ETF, we're seeing SOL rally massively. So much so, the token managed to erase all of its FTX-related losses. As SOL coin holders are setting their sights higher, there's no better time for the crypto curious to ask: what is Solana? And, how is SOL currently leading the altcoin charge?

From understanding its unique proof-of-history (PoH) innovation to exploring the vast Solana ecosystem, here's everything you need to know about Solana and its much-talked-about performance in the blockchain space.

What is Solana?

Solana is a Layer 1 blockchain platform that aims to provide high-performance, scalability, and security. It uses a unique combination of technologies, including PoH and tower byzantine fault tolerance (BFT), to achieve its impressively high throughput of up to 65,000 transactions per second (TPS).

The history of Solana

Considered by many crypto enthusiasts as a next generation blockchain that builds on the ground covered by Bitcoin and Ethereum, Solana's origins date back to 2017. Motivated by scalability issues faced in the blockchain trilemma, former Qualcomm engineer Anatoly Yakovenko published a white paper about an innovative decentralized timekeeping method.

Essentially, the timekeeping method for distributed systems would be a cryptographic clock that allows nodes to verify the order of events without relying on a central trust authority. This would go on to become the PoH that Solana is best known for, and it allows a decentralized network of nodes to match the performance of a single node.

Since teaming up with fellow former Qualcomm engineer Greg Fitzgerald and rebranding their project from Loom to Solana in early 2018, the Solana team has gone on to achieve numerous key milestones. These include the following:

  • Solana Labs secured $20,000,000 in funding in 2019 from investors including Messari and Multicoin Capital.

  • Solana launched its Mainnet Beta network in 2020.

  • At its peak in November 2021, Solana achieved a maximum total value locked of almost $10,000,000,000.

  • Solana launched Solana Pay — an open, near-zero gas fee payments framework with an approved app integration on Shopify, in 2022.

  • Visa announced a Solana partnership that allows its partners to send or receive USDC settlement payments via the Solana blockchain in late 2023.

Proof of history: the rocket-powered engine behind Solana's speed

Solana is a high-performance blockchain that offers a unique set of features, making it stand out in the crowded crypto landscape. One of these defining features of Solana is PoH — a timestamping feature that enables for lightning-fast transaction processing.

While Ethereum and Bitcoin can sometimes experience delays and high transaction fees due to network congestion, Solana's innovative PoH technology organizes transactions efficiently, leading to rapid confirmation times. Thanks to PoH, Solana can handle an impressive 65,000 TPS, making it one of the fastest blockchains in existence with such a high throughput. This is because it doesn't require nodes to communicate with each other to validate transactions and blocks.

How proof-of-history works

PoH is like an ultra-precise stopwatch for the Solana blockchain that prioritizes the correct order of actions as much as the actions themselves. It creates timestamps for every action on the blockchain, making sure everything happens in the right order, just like a stopwatch at a race.

This stopwatch-like efficiency is crucial for a blockchain to handle many transactions quickly without getting bogged down and congested. The best part is that PoH accomplishes all this without compromising blockchain security thanks to Solana's cryptographic verifiable delay function (VDF). This adds an extra layer of security and guarantees that the timing of events remains verified and trustworthy within the Solana network.

Solana vs Ethereum

To gain a better understanding of Solana's strengths, it helps to compare it to the most widely adopted smart contract platform — Ethereum.

Ethereum is renowned as the pioneer of smart contracts and decentralized applications (DApps). However, Ethereum's network often faces congestion issues, resulting in high gas fees and slower transaction times. It's these issues that led to the birth of Solana as it addresses these problems head-on with its lightning-fast transaction speeds and low fees.

To summarize, here's a brief comparison of Solana and Ethereum and how they measure up against one another.

Solana

Ethereum

Consensus mechanism

Proof of Stake

Proof of Stake

Transaction throughput

65,000 TPS

30 TPS

Transaction fees

Low

High (Low with Layer 2 solutions)

Ecosystem

Growing

Large

Solana vs Ethereum: consensus mechanisms

Ethereum's transition to PoS focuses on mitigating the environmental impact of proof-of-work (PoW) blockchain operations, offering scalability while maintaining network security. In contrast, Solana prioritizes speed and scalability from the outset, making it highly suitable for high-throughput applications. While Ethereum emphasizes sustainability, Solana aims at optimal performance and efficiency.

Ultimately, the answer to which is 'better' is subjective and depends on the goals of a particular blockchain project. The two blockchains represent different solutions to different challenges and depend on the project's unique needs and priorities. Ethereum addresses long-held environmental and throughput concerns thanks to its previous use of PoW. Meanwhile, Solana places a premium on high-speed, high-throughput applications but sometimes faces network outages and decentralization concerns.

Solana's TPS vs Ethereum's TPS

While the comparison of Solana vs Ethereum may be subjective, comparing their throughput will be more objective thanks to quantifiable metrics. Solana is well-known for its exceptionally high throughput. It can handle thousands of transactions per second and organize transactions efficiently while providing rapid confirmation. Since Solana's architecture is designed for high-speed, it naturally becomes the preferred choice for DApps that require quick and numerous transactions like decentralized exchanges and gaming platforms.

In contrast, Ethereum's throughput is more limited. It can process around 30 transactions per second on its mainnet. Ethereum has been grappling with network congestion and scalability issues, which have led to high gas fees and slower transaction times. Although Ethereum can rely on Layer 2 scaling solutions while still taking advantage of the robust decentralized security of Ethereum Layer 1, Ethereum's overall throughput still can't compete with Solana.

Solana's transaction fees vs Ethereum's transaction fees

Gas fees vary significantly between Solana and Ethereum. Solana offers a cost-effective advantage with consistently low gas fees. This affordability is attributed to its PoH innovation, making Solana an attractive choice for users seeking to minimize transaction costs and engage with blockchain applications without the burden of expensive fees. In contrast, Ethereum is notorious for high and often unpredictable gas fees, especially during periods of network congestion. This makes transactions and interactions with DApps costly in the long run for active Ethereum ecosystem users. While Ethereum is working on scalability improvements with the help of Layer 2 scaling solutions, Solana currently stands out as the more cost-efficient option for blockchain activities.

Solana vs Ethereum: ecosystem comparison

Solana and Ethereum are two prominent blockchain ecosystems, each with its unique strengths. Ethereum boasts a well-established and diverse ecosystem, serving as the pioneer for DApps, smart contracts, and NFTs. It's home to a bustling developer community and a multitude of DeFi projects, many of which DeFi enthusiasts will recognize. These include Uniswap, Rocket Pool, and Aave.

In contrast, Solana is a newer player in DeFi and is making waves among developers thanks to its lightning-fast and highly scalable blockchain. Its ecosystem is swiftly evolving, with a growing presence in DeFi, NFTs, and GameFi thanks to DApps like Marinade Finance and Magic Eden.

While Ethereum is the clear leader in the DeFi space as it offers maturity and a broad user base, Solana has been no slouch either. According to DefiLlama, Solana has been steadily gaining in Total Value Locked, with the figure almost doubling since the start of the year from $210,470,000 to $412,250,000. Since this represents the amount of value stored on the Solana blockchain, it may represent a renewed interest in the DeFi capabilities of Solana post-FTX collapse.

Why is Solana rallying in 2023?

While there may be many reasons why SOL coin's price is up more than 300% year-to-date, all reasons are likely pointing to the bullish sentiment caused by the Bitcoin spot ETF approval. In short, if traditional finance institutions like Blackrock are getting involved in cryptocurrencies and applying for spot ETFs, fund managers and institutional investors would have to buy Bitcoin to act as reserves in their ETF when meeting the demand for the Bitcoin spot ETF.

Additionally, launching a spot ETF on a traditional stock exchange would also make cryptocurrencies like Bitcoin more accessible to the masses. This is because these traditional stock exchange users will be able to bypass the complexities of interacting with a cryptocurrency exchange and instead trade Bitcoin via the spot ETF like they would with shares of a stock. In a sense, this legitimizes the case for Bitcoin and other cryptocurrencies as a digital asset to be held for the long-term.

This excitement for the legitimacy of crypto has likely played a big part in the bullish sentiment for altcoins like Solana. Additionally, Solana seems to have been gradually developing strong foundations over the past few months. From cutting deals and partnerships with Visa and Shopify to stabilizing its network and reducing network outages, Solana has had a stellar 2023 and looks to build on this momentum.

With the right developments, Solana could be a top contender among competing Layer 1 blockchains in the months to come.

Final words and next steps

From explaining the ins and outs of PoH to learning about its bullish rally in 2023, we hope our guide to what is Solana has been useful for you in understanding how Solana stands out as a Layer 1 blockchain.

2023 has been a thrilling year for Solana, marked by a remarkable resurgence in the value of SOL. Although the recent excitement surrounding a potential Bitcoin spot ETF approval has played a significant role in SOL's impressive rally and erased earlier losses linked to the FTX collapse, Solana still has a long way to go before reclaiming its 2021 all-time highs.

Through partnerships with industry giants like Visa, and sustained development efforts, many believe Solana is a Layer 1 blockchain poised for a promising future. With the right momentum and further developments, Solana is well-positioned to be a formidable contender among Layer 1 blockchains in the months ahead.

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