With the crypto market being so volatile, most of the top digital assets have fallen like the house of cards. Several digital tokens are also trading sharply below their lifetime peaks. One such name is Solana, a highly functional project providing decentralized finance (DeFi) solutions. The token is about 85 percent below its all-time peak.
Solana is a blockchain similar to Ethereum. But it has a different technical structure where the developers write applications using Rust instead of Solidity or Vyper. The end-user applications in the Solana ecosystem include decentralized finance (DeFi), non-fungible tokens (NFT), marketplaces, games, e-commerce, and much more.
How does Solana work?
Launched in March 2020, Solana’s blockchain has supported decentralized finance (deFi) and apps as well as smart contracts. The prime focus of the Solana network is to settle transactions quickly at a scale. It has largely managed to accomplish that using an impressive dual model that blends a proof-of-history (PoH) which is an encrypted computational series that quickly and securely verifies timing between two events with an energy-sipping proof-of-stake (PoS) model.
Solana’s official website states “the Solana platform is the fastest blockchain in the world and the fastest-growing ecosystem in crypto, with thousands of projects spanning DeFi, NFTs, Web3, and more.”
Moreover, Solana’s project can handle 65,000 transactions per second (TPS), leading some mainstream media outlets to call Solana the “Visa of Crypto Networks.” But lately, Solana’s impressive network seems to be surrounded by major hiccups.
Recurring dark times of Solana
Solana has gone offline several times in the past 12 months. The blockchain suffered a recent outage on 1st June 2022, when a bug caused production to come to a halt. According to the report, validator operators were able to restart the mainnet after four and a half hours.
This was not the first time. Earlier, a blockchain outage occurred in January when the network was plagued with problems and poor performance for nine days out of 31 in the month. Later, duplicate transactions were blamed for the second outage in the same month.
Again, on April 30th, the network crashed after NFT minting bots automated programs that were designed to exploit a new NFT project’s launch, overloaded Solana with 6 million transactions per second. Therefore, Metaplex, the creators of Solana’s NFT protocol, went ahead to implement a “bot tax” penalty. If this was not enough, Solana went down again for almost eight hours in early May.
Solana, with its promises of speed, has often been called an “Ethereum killer” for running DApps and DeFi applications.
Solana’s co-founder Anatoly Yalovenko opted for Twitter to clarify that the previous worldwide outage was caused by a bug that prompted the nodes to generate distinct outputs, resulting in a consensus failure. He also explained that because of the long-lasting nonce instruction, a portion of the network believed the block invalid, and no transactions could be processed.
tldr:— T◎lyxNFT, 🇺🇸 (@aeyakovenko) June 1, 2022
Durable nonce instruction caused part of the network to consider the block is invalid, no consensus could be formed. Network is restating with durable nonce feature disabled. Fix for durable nonces will be out asap. https://t.co/5gZnpCp36N
This latest incident saw Solana’s (SOL) unit price crash even harder than the other digital assets in the past 24 hours, with the token losing 12% of its value.
Usually, blockchains operate by securing transactions by adding them to blocks and chaining them together cryptographically. So, if a block violates these rules, it cannot be added to the chain. If too many blocks begin to fail, then an outage happens, exactly the case with Solana.
So, to fix the outage, validators running on the network were then required to upgrade their software versions to a new version to fix the bug before a restart. A process that took approximately four hours.
Solana was launched as an alternative blockchain to Ethereum, the most popular blockchain for nonfungible tokens and decentralized finance. Here, NFTs are a type of receipt that represents the ownership of a virtual item, such as a piece of digital artwork, video game, music, or documents. These items can be bought, sold, and traded.
These capabilities have made Solana a very attractive opportunity for decentralized applications and wallets that transacts more quickly and cost-effectively. There is also the Phantom wallet, focused entirely on allowing users to access and run dapps directly out of Solana.
As a direct competitor to Ethereum, Solana has witnessed major venture capital backing during the cryptocurrency boom in 2021 with a $314 million private token sale led by Andreessen Horowitz and Polychain Capital. It also surpassed Ethereum in daily NFT sales volume for the first time in May with $24.3 million in sales for Solana to $24 million for Ethereum.
That brings us to the question, Is Solana a good investment? While the Solana network has some truly remarkable technology that operates like a dream, it is difficult to invest in a project that has such an established pattern of problems to maintain the stability of its network.
Even though it is currently trading at a dirt-cheap discount of 85% from its peak set last November, its super glitchy tech has too much uncertainty.
Moreover, these recurrent outages are a cause for concern for the long-term viability of the project. Solana being a platform that holds a sizable LTV, these outages are causing financial and other difficulties for anyone (from developers, aApp users, other third-parties like exchanges, etc.) using its services.
So, if Solana fails to address these issues, there may be migration to other alternatives. It could be other Layer – 1 blockchain or Layer – 2 solutions. Overall, the reliability of a network is extremely important.
This is only an opinion and not financial advice. Investors should always do their research, by only investing the amount they can afford to lose.