Solana, one of the most well-funded and fastest blockchains, has been having recent issues related to outages and censorship. At one point, it seemed inevitable that Solana would be the next big smart contract blockchain next to Ethereum, but that future is no longer certain. Let’s take a look at what went wrong and what the future may hold for Solana.
Solana was created in 2017 at the height of the ICO bubble. Its goal was to create a scalable and usable blockchain without relying on sharding or Layer 2 scaling solutions. It accomplishes this through the use of Proof of History, an addendum to Solana’s proof of stake consensus mechanism that timestamps each transaction using a cryptographic block built into the Solana blockchain. This allows the blockchain to know when each transaction was made and allows for quick ordering as opposed to other chains, which waste time and energy ordering transactions.
Solana and its capability to handle a massive 40,000 transactions per second at near-instant speeds made it immediately popular. Its rise to the top was also fueled by FTX, one of the world’s largest cryptocurrency exchanges, choosing Solana as the blockchain of choice to build their DEX, Serum, on. Additionally, it raised around $300 million in a funding round led by Andreessen Horowitz, giving them a massive war chest with which they can incentivize developers, market, and generally grow the Solana ecosystem.
All of the excitement surrounding Solana led it to reach a massive market capitalization of nearly $80 billion. However, since then, the price has seen a massive decrease of over 50% to $26 billion and a price of $80 per coin.
There are several reasons for Solana’s recent decline. The most prominent is the blockchain’s instability and frequent outages. In total, there have been seven outages of the Solana network in the past five months, mostly due to issues with nodes reaching consensus, spam transactions, or bugs. These outages, which can last for several hours, prevent anyone from transacting on the blockchain and essentially result in a freezing of funds. No company, or user for that matter, wants to put their money in a system that might make it inaccessible at any given time. This represents a massive trust issue that must be solved before Solana is used in enterprise and commercial applications. To be fair, Solana states that their mainnet is still in beta, but with billions of dollars in value this is still unacceptable behavior.
Most recently, an outage on May 1st was caused by NFT minting bots sending a massive four million transactions per second. When the blockchain recovered after 7 hours, they decided to penalize any bots using the network and offered the option of blocking NFT minting bots until the network stabilized. Many in the cryptocurrency space saw this as blatant censorship, which is blasphemous in the crypto and blockchain world. This is only exacerbated by the fact that Solana nodes are required to have high-end server equipment, with high-speed SSDs and large amounts of RAM. This is cost-prohibitive and leads to a lot fewer validators than Ethereum: 1,750 compared to over 200,000.
Finally, the prevalence of layer 2 solutions and other EVM-compatible chains has stolen some of the value and use from Solana. When Solana was rising to prominence, Ethereum was dealing with lots of congestion issues and there were not many viable alternatives. However, now that rollups like Arbitrum and Optimism exist, users can experience the security of Ethereum while still taking advantage of low fees and high throughput. This makes Solana, which requires dApps to write completely new code to port their dApps to its blockchain, a less appealing choice.
Even though Solana is dealing with a lot of issues and a decrease in total value locked, they still have a chance to redeem themselves. If they are able to solve their centralization, censorship, and outage issues there is a chance that users and companies will give them another chance. Until then, there are several other smart contract platforms vying for their spot in the top 10, and it may only be a matter of time before they take Solana’s spot.
By Lincoln Murr
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