FTX and the Alameda collapse torpedoed the price of the “Sam coin” SOL by more than 40 percent in one day.
Can SOL get back together?
It seemed like the end of one of the most famous and biggest projects in the entire blockchain universe. Because accused FTX and Alameda protagonist Sam Bankman-Fried (SBF) had his fingers and US$500 million in the game, SOL was declared dead after his fall. Crypto investors are now wondering if those who have been declared dead live longer in this case.
After Vitalik Buterin backed the project, Solana could breathe a sigh of relief, rising by around 120 percent in the last twelve days. Whether this is a long-term bullish reversal remains to be seen. In any case, the current roller coaster of emotions is attracting the attention of the crypto scene. So after this battle, it’s time to put the project through.
To examine the project for its basic functions as well as known childhood diseases, we answer 5 key questions:
1. Is the blockchain still in use?
First, let’s take a look at the users of the DeFi and NFT applications. There is neither a mass exodus of DeFi wallets nor a drop in daily active use of the NFT marketplaces.
On the contrary, Magic Eden enjoys relatively high popularity in the new year. Overall, Solana has emerged as the second largest NFT ecosystem, which could give hope for the SOL process.
And the transactions are also skyrocketing again. So the pulse appears to be intact.
2. Is the performance still correct?
Solana has captured the attention of crypto devotees since the beginning of its existence in 2017 with major announcements. Above all, the extremely high throughput of 65,000 transactions per second (TPS) made a name for itself. Because by comparison, the smart contract giant Ethereum with its 15 TPS appeared like an outdated pneumatic pipe system. And even the well-established and widespread Mastercard system would have to swallow the dust of the blockchain newcomer with its 5,000 processed transactions per second.
But the information ultimately seems a bit out of thin air. Blockchain achieves a relatively high transaction throughput of around 3,000 transactions per second. But it is still far from the desired value. However, with the improvement of the hardware, it had to go steeply uphill. In any case, a blocking time of 400 milliseconds deserves respect. And overall, the concept of proof of history and other key innovations seem to inspire numerous investors.
3. How decentralized is Solana really?
The biggest debate surrounding the project concerns the issue of decentralization. Admittedly, proponents of blockchain talk about the solution to the blockchain trilemma. But it is easy to claim to be fully decentralized. But when it comes to demonstrating this decentralization, seemingly insurmountable barriers arise.
The circuit of validators can consist of a large number of different addresses. But whether there is a central owner behind these addresses cannot be seen via blockchain. According to Solana, almost 2,000 validator nodes are currently active in the system. In comparison, Ethereum has almost 500,000 validators in the network, with some node operators combining multiple validators. Proof of Stake networks like Avalanche, Polkadot, NEAR and Polygon leave Solana behind in the validator comparison.
To express the degree of decentralization, the specification of the so-called “Nakamoto coefficient” has been established. This metric defines the minimum number of validators that cumulatively stake 33% of the network’s staked tokens. Depending on the network’s consensus mechanism, a collaboration between these verifiers would theoretically be able to censor or stop the network’s transactions altogether.
Thus, a higher Nakamoto coefficient represents a higher distribution of staked tokens and a higher degree of decentralization.
With a Nakamoto coefficient of 33.4, Solana has a better distribution of stakes among its validators than other networks such as Cosmos, which has a Nakamoto coefficient of 6. While Polkadot achieves only 15 percent of Solana’s numbers with just under 300 validators, its Nakamoto coefficient three times higher due to its staking mechanism, which requires an even distribution of the stake among validators.
Overall, the battered SOL network comparison is still well placed.
But the distribution of power in the blockchain system itself is not the only problem when it comes to the risk of dependence on other service providers. In addition, many validators use providers such as Amazon Web Service (AWS) as a data center. Here, too, there is a dependence on central players. To counteract this, the operation of the necessary node software on your own PC should be simpler and more secure. Due to the rapid development of the blockchain environment, we may be curious to see if and when the hardware will be ready.
4. How is the token distribution in the system?
A point that separates the spirits. Because the Solana Foundation controls a large part of the tokens themselves. Because in addition to 11 percent of all tokens in circulation, the foundation controls an additional 37 percent of the common fund. However, newly created tokens flow to users over time as stake rewards. Nevertheless, even in 2028, the Solana Foundation will control 7.4 percent and the community foundation 24.7 percent of the tokens in circulation.
While the Solana Foundation uses the effort for the ecosystem itself, there is some uneasiness in the subtext. Especially considering the incredible experiences of 2022, the crypto community is very cautious – with good reason! Everyone should decide for themselves whether the relatively centralized decision-making and investment power is positive or negative for the project.
5. Are the developers still active?
Smart contract blockchains are there to enable decentralized applications and thus meaningful use cases. Above all, this requires a strong commitment from the client. Because without a developer, progress within a network cannot continue. Therefore, it is of great importance to check the activity of the “real doers”.
As number 4 in the general comparison, Solana is doing well. Especially considering places one to three. Because Ethereum is the top dog in the smart contract space, and both Polkadot and Cosmos connect different blockchains. And interoperability is a trend that cannot be dismissed out of hand.
So far, all signs of life are present. The project is intact, has prominent support and the process is breathing. Although the decentralization is a thorn in the side of many crypto-investors, very good on-chain data speaks as much for the project as the good decisions of the fund so far.
Therefore, we look forward to the further development of the project and, if necessary, to solutions to the problems that the blockchain users bring to the project managers.
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