November 13, 2021

Is Solona Network the True Ethereum Killer?

By Blue


We are just over a month into the current cryptocurrency bull run, and Ethereum gas has become exorbitant when it comes to Traders being able to execute profitable and frequent trades on decentralized applications.  On-chain analytics show that Ethereum is the most widely used smart contract network at this time and, concurrently, Ethereum broke its all-time high in November 2021.  

Articles from 2017+ reference EOS and NEO cryptocurrencies as “Ethereum Killers”.  Why is no one commonly referencing these networks today?  The article will speculate on that question later on, but mainly it will focus on the buzz pertaining to the Solana network, one of the networks claiming to be better than Ethereum.  

How did Ethereum come to be the most used network? 

The simple answer is that they were the first decentralized supercomputer that has gained the most traction in terms of ongoing development.  As Bitcoin was the first Cryptocurrency, Ethereum was the first smart contracts platform that enabled new functionality to the crypto community.  With Ethereum existing as a utility coin for anything built on the Ethereum network, it has only gained in popularity, remaining in the #2 spot of as of 2021.   

Consensys quarterly collection of blockchain data displays how Ethereum withstands competition, citing 161 million total Ethereum addresses, and 2.91 million of those addresses interacting with DeFi systems in Q2 of 2021. Stablecoin supply also grew rapidly, up more than 60% to $65 Billion USD since Q1 2021. One contributing factor to these statistics is that stablecoins allow borrowing and lending on various decentralized applications, also known as dApps.

 

“A successful blockchain network will offer security, scalability, and decentralization.”

Why does Sam Bankman-Fried state Solana is better than Ethereum? 

At a conference on November 9, 2021, Sam Bankman-Fried, CEO of the crypto exchange FTX, discussed the Solana network, stating “Solana is one of the few currently existing publicly blockchains that have a really plausible roadmap to scale millions of transactions per second at you know, fractions of a penny per transaction, which is a scale that you need for this.”  

Bankman-Fried also discussed how Solana will be front-and-center in the Web 3 revolution on social media and gaming, referencing that social media will go on-chain and “is a massive opportunity, and one that’s right for Solana.”  According to market capitalization, Solana is the fifth-largest cryptocurrency by market value with a market cap of $73 billion. 

Blockchain is a network of partaking nodes that interact in a decentralized manner, meaning the network reacts freely with no principal governing authority. A successful blockchain network will offer security, scalability, and decentralization. To better understand the issues with Ethereum, one must understand throughput. Wikipedia defines throughput as “The rate of production, or the rate at which something is processed. The throughput of a communication system may be affected by numerous factors, including the limitations of underlying analog physical medium, the available processing power of the system components, and end-user behavior.”

Solana states that they better address throughput, the available processing power on-chain, with a network that can run up to 60,000 transactions per second at $0.0015 per transaction. Currently, Ethereum processes 17,000 transactions per second costing an average of $5.00 per transaction. If we compare Solana to Ethereum currently, it does have key advantages, but for how long? What will the competition comparison look like when Ethereum 2.0 has released all of its scheduled updates by 2022? 

One major difference we will see between the blockchains is modular versus monolithic blockchain type of design. Modular blockchain design allows the decentralization, security, and scalability to work separately on-chain, while monolithic blockchain design pushes to achieve all three aspects simultaneously. In simpler terms, scalability will remain an issue on monolithic blockchain technologies. Additionally, the Ethereum 2.0 release will upgrade to 100,000 transactions per second, addressing the component of speed. 

Will Solana upgrade their blockchain as well, or do they have other plans beyond the main focus on decentralized finance? Investing.com states “Seven Seven Six Ventures has identified Solana as the prototypical blockchain for building the next social media network. Reddit’s co-founder, and the founder of Seven Seven Six Ventures, Alexis Ohanian, stated on Monday, during the Solana conference, that the latter company will be creating a $50 million fund to develop social media projects on Solana.”  

What happened to the previous “Ethereum Killers”?

EOS cryptocurrency & NEO cryptocurrency. There is little activity on these Ethereum chains today. Why are these L1 networks dying off? One answer is that the network is dying because the participation is minimal. 

There are critical questions when contemplating the ultimate success of a network like:  How many users do they have? How much total value lock, or liquidity, do they possess? How many decentralized applications do they offer? There are numerous new Layer 1 networks that have high throughput; however, the issue is how much is built on the network itself. Several L1 networks may be faster, but they are new, so they may not have the advantage of a vast ecosystem like Ethereum. 

A good analogy is that ETH is the skeleton and the dApps are the meat and muscle. Solana and other L1 networks are a duplicate of that skeleton who are currently nurturing their meat and muscle. 

Conclusion  

There is no guarantee that these new networks could not eventually outperform Ethereum, but what is concrete now is that we need more time to see how these networks like Solana will develop, particularly with an emphasis on developer participation. 

If emergent blockchain networks are desiring enough market share to overtake the #2 cryptocurrency, a focus on creating a cult community is key. “What’s in it for me?”  If an organization can answer that key question for investors, as well as invoke a sense of loyalty from users who will then evangelize their product, then that technology can eventually overtake Ethereum. Online communities of fervent and intelligent citizens that share information is what makes cryptocurrency truly decentralized in the first place.