Author: ZHU Wei Sha https://chainless.hk
Email: zws200712@yahoo.com; briancui2018@gmail.com
Word Count: 2560
Satoshi Nakamoto opened Pandora’s Box and released both hope and the devil. What is hope? What is the devil? Graham said, “In the short run, the stock market is a voting machine, but in the long run, it is a weighing machine.” In the fourteen years since the birth of Bitcoin, the top projects in the cryptocurrency industry have withstood the test of time, and their coin prices can certainly reflect the value of the projects. Analyzing the gains and losses of these projects can be enlightening for newcomers who are still on the road.
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7. Solana, a potentially underestimated project
Anatoly Yakovenko, a Ukrainian-American and former Qualcomm engineer, released the Solana whitepaper titled “Solana: A New Architecture for High-Performance Blockchain” in November 2017. In early 2018, Anatoly teamed up with his old friend Raj Gokal to found Solana. It is positioned against Ethereum and was launched in 2020. Initially, it did not attract much attention and hype from the market, as the cryptocurrency market was no longer in its early stages, and successful projects in the early stages became towering obstacles for newcomers.
Solana’s characteristic is its focus on technological innovation. The technology is not understood by users, investors, or even people in the cryptocurrency industry. They do not have a shining cryptocurrency background like Charles Hoskinson’s ADA, ranked 8th in terms of market capitalization, or Gavin Wood’s DOT, ranked 13th, both of which have Ethereum lineage and are naturally sought after. Solana was founded by a group of greasy Silicon Valley veterans, and people in the cryptocurrency industry see them as outsiders, so no one wants to take this risk.
Who has this foresight? Those who have an eye for them are definitely not ordinary people. Sam Bankman-Fried, the founder of FTX Exchange (Futures Exchange), saw the potential in Solana. Regardless of Sam’s current situation, you have to admire his vision and courage. Sam made the market notice Solana’s advantages, such as transaction speed. With Sam’s full support, Solana reached a coin price of $243.1 on November 4, 2021. However, after the radical FTX system announced bankruptcy, Solana, which was fully supported by it, suffered a heavy blow. The price of its token SOL plummeted, reaching $9.75 on December 29, 2022. The total locked value (TVL) on the chain dropped by nearly 98% from its historical high. Well-known NFT projects like DeGods and y00ts left them. Solana, once a rising star and the most promising “Ethereum killer,” found itself in a very difficult situation. On September 9, 2023, it ranked 9th on the Coinmarketcap website with a market capitalization of $8 billion. Fortunately, it survived, without any major issues.
The price of Solana reflects market panic
In general, negative news can cause an overreaction in the market. The fundamentals of Solana have not changed, and all its flaws have been fully exposed. It should be considered safe instead. In the eyes of Vitalik Buterin, the founder of Ethereum, Solana is a “good project”. In late June 2023, when responding to a question about “views on US cryptocurrency policy” from Matt Huang, the co-founder of Paradigm, Vitalik said, “I feel sorry for Solana and other projects being hit like this. It shouldn’t be like this. If Ethereum eventually “wins” by being kicked off all other blockchains on the trading platform, it is not a glorious victory and may not be a victory in the long run. Because the real competition is not with other chains, but with the rapidly expanding centralized world that is putting pressure on us as we speak. I wish all good projects can achieve fair results.” At that time, Vitalik was only 29 years old, and he showed no signs of schadenfreude. His magnanimity and broad-mindedness were extraordinary.
The price of Solana also reflects the market sentiment generated by regulations. Compared with Cardano ADA, another public chain that is also affected by regulations, Solana is undervalued. Figure 1 shows the historical price trend of Solana (Sol), and Figure 2 shows the price trend of Cardano ADA. The two trends are very similar. Comparing the small peaks before the rise in 2021 on the left, ADA is now above the small peak, while Sol is below it. In order to reach ADA’s position, Sol needs to at least double to 40 yuan. Although Sol has some debt and obligations with FTX, it does not have a significant impact on the operation of Solana.
Figure 1: Solana price trend chart; Figure 2: Cardano ADA price trend
From the data, Solana is more than twice as good as Cardano. Readers can compare for themselves. In other words, either Solana is undervalued or Cardano is overvalued. For more information about Cardano, you can refer to the fifth article in this series, “ADA is a Zombie Chain Sustained by Hype” (chainless.hk).
Solana has tested the maximum capacity of blockchain structure
The biggest problem with Solana is downtime. In 2022, it experienced 11 major network interruptions and 3 minor network interruptions, and there was another one in February 2023. The main reason for downtime can be traced back to the design of Proof of Stake (POS). As a design of a blockchain system, Bitcoin is based on peer-to-peer technology, which can be simply understood as equal status for each node. However, the POS method introduces leader nodes, which means that there will be temporary inequality in the status of nodes. In order to achieve high speed, Solana puts all the pressure on the leader node. When the capacity of the leader node is exceeded, downtime occurs. It has high requirements for the performance of node machines, and different machine models have different capacities to bear the burden of traffic pressure, so downtime is unpredictable. After Ethereum launched POS, a similar incident occurred, where blocks could not be confirmed, but it did not result in downtime. Ethereum has a traffic pool design, which has buffering capacity. If confirmation cannot be made at that time, it can be skipped. However, Solana does not have a traffic pool design, which leads to a lot of pressure on the leader node. The biggest problem is that most of the traffic is communication overhead. As @DBCrypt0 commented, communication messages from validators account for 90%-95% of the total overhead, “so when Solana mentions that they have achieved 4000 TPS (transactions per second), less than 10% of it is actual transactions on the network”.
I strongly agree with the viewpoint expressed in the article “Solana Scaling Mechanism Analysis: Sacrificing Availability for Efficient Extreme Attempts” published by “Catcher Venture Research”: “To some extent, Solana’s transaction processing capacity of 500~1000 transactions per second has reached the peak of public chains. Under the three premises of a large number of nodes, no sharding, and support for smart contracts, it is 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 consensus, or it degrades to a centralized server. As long as there are many nodes participating in consensus, it is difficult to achieve a higher confirmable TPS than Solana.” (https://new.qq.com/rain/a/20220609A05EUK00). Here, availability refers to security, so as long as it is a blockchain-based project, Solana’s speed is an insurmountable mountain.
Their views are similar to mine. I believe that there are not many major innovations in public chain innovation. Most of the second-layer projects grafted onto Ethereum are centralized. How to create projects that comply with the principles of cryptocurrencies on a centralized basis is the issue that the next cryptocurrency project needs to consider. Solana has passed this stage, and this issue is not among Solana’s considerations. It needs to consider how to integrate with commercial applications.
Solana’s Attempt
Despite the issue of downtime, Solana is difficult to congest because all payment applications are real transactions. It can match the speed of Visa credit cards. If Visa were to be built on the underlying layer of Solana, it would lower the cost for Visa, speed up settlement, and greatly simplify Visa’s management. At the same time, users can control their assets themselves. In the future, Visa may face a crisis. A small card with too little content cannot withstand the competition from Alipay-like products. PayPal, along with stablecoins, reflects this competitive trend. Payments are a huge market, and all commercial transactions require payment. We see Solana payments being integrated into e-commerce platforms like Shopify, which is a very good start. They have emerged from centralized companies and understand modern marketing better than people in the cryptocurrency industry. In terms of the operation of similar projects in the cryptocurrency industry, they not only have technical advantages but also have advantages in marketing concepts.
The issue of downtime is not difficult to solve. In addition, they do not understand incentives and economic models very well. With a slight adjustment, it will be a completely different world.
Starting from payments is the advantage of cryptocurrencies and also the advantage of Solana. Breaking free from the cryptocurrency industry will open up a broader sky.
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