Transactions per Second for Solana

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Transactions per Second for Solana

Low fees are one of the existential selling points for Solana. As with Ethereum, the actual fee is a function of supply and demand. When demand for block space rises, the price to include a given transaction in a block appreciates accordingly. 

Solana features a much higher transaction capacity than Ethereum. We’ll cover just how much in the chapter on theoretical transactions per second.

A look at network explorer Solana Beach reveals transactions cost between 5,000 and 10,000 lamports. One lamport equals one-billionth SOL. In dollar terms, the average Solana transaction has cost $0.00025.

Actual transactions per second (TPS)

Between 2,000 and 3,000 TPS are conducted on the Solana network at the time of this report. This number dwarves Ethereum’s 35 TPS by almost two orders of magnitude.

Figure: Solana transaction breakdown

Source: Solana Beach

On Solana, 80%–90% of all transactions are used for voting and synchronization, so this number is misleading on its own. Other blockchain projects have ridiculed Solana for its inflated numbers in the past.

Avalanche CEO Sirer weighs in on Solana’s transaction numbers. Source: Twitter

Before comparing apples to apples, voting has to be factored out of transaction counts since Ethereum nodes don’t vote. Assuming the upper bound of 90% votes, Solana would still process 200–300 TPS or 10x Ethereum at a fraction of the cost.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

The Consensus Mechanism of Solana

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The Consensus Mechanism of Solana

Solana has a unique consensus mechanism called TowerBFT and proof-of-history (PoH). Co-founder Anatoly Yakovenko, with a background in distributed systems design, thought hard about blockchain scalability problems in 2017 after Bitcoin transactions took days when demand surged. 

According to an interview with Acquired, he discovered that most consensus issues vanish when the systems involved agree on a common timeline. Take the dreaded double-spend issue, for instance. In a synchronized system, you can assume that the first transaction is valid and the second is thus fraudulent.

Solana implements a surprisingly straightforward method of synchronizing nodes. It uses a sequential hash that runs over itself continuously, creating a rhythm that all nodes follow.

Proof-of-history uses recursive calculations where the previous output is used as the next input. Only with the output of the current function “X” will a validator be able to calculate the output of the next function “Y.” All validators need to solve the same function “X” and then be able to derive the output for the next function “Y” around the same time. Like this, Solana creates synchronization across its network.

Figure: The proof-of-history flow of control

Source: Binance Research

Besides PoH, Solana uses its version of the practical Byzantine fault tolerance (PBFT) consensus mechanism called Tower. PBFT is an industry standard.

Programming language

Solana uses Rust, a recent, functional programming language for programs that run on top of its blockchain and base layer.

Rust has seen a remarkable rise in popularity for blockchain applications thanks to its performance advantages. From a purely technical point of view, it seems like a clear winner compared to Ethereum’s Solidity.

However, the lack of tooling, libraries and knowledgeable developers means that many wheels need reinventing to get DApps off the ground. The advent of the Anchor framework has ameliorated that somewhat by reducing the amount of work necessary just to get started by 80%.

This next article will look at the question if Solana is able to scale. What is the network’s transaction speed in theory and practice? And what are the advantages and disadvantages of the design choices involved?

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

Staking and Lending with Solana

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Staking and Lending with Solana

SOL holders enjoy a variety of options for putting their tokens to work. Non-custodial staking is available in the Exodus wallet or with the native Solana-CLI command-line tool. Staking rewards are around 6%–6.5% APY at the time of writing.

Custodial staking is possible on Binance Earn, Kraken and FTX and, typically, offers fewer earnings. Binance Earn offered 6.5% APY this November 2021.

Then there’s lending on platforms such as Solend or Tulip Finance. Even staked SOL can be lent on Tulip, albeit for a meager 1.79% yearly yield, while Solend offers 3.87% for supplied SOL.

Lending becomes more exciting when providing stablecoins. Solend offers 24% on USD Coin (USDC), and Tulip grants 15% APY on USDC-USDT pairs via Raydium.

Solana initial coin distribution breakdown

The degree to which Solana is decentralized was the subject of heated controversy on Crypto Twitter this autumn. The pièce de résistance is the number of tokens held by the team and by VC backers. Solana has an initial token supply of 500 million SOL with a yearly inflation rate of 1.5%.

Binance Research found out that the team holds 12.79%, and VCs bought 29.15% of all tokens during the seed and funding sale, a total of 41.94%.

Figure: Solana initial token supply distribution

Source: Binance Research

The pie chart doesn’t include the $314.15-million token sale that Polychain Capital and a16z completed in June 2021, and the exact amount of tokens involved was not published. The exchange price for SOL was $30–$40 in the months ahead, though it’s probably fair to assume that a steep discount was applied, given the scale of the purchase. Presupposing a $20 token price, 15.7 million SOL or 3.14% of the initial supply would have changed hands. 

Staking validators have to pay transaction fees on voting and syncing transactions but earn staking rewards as well as block rewards. Running a viable validator requires a stake that produces rewards in excess of transaction costs. In September 2021, the minimum stake required had surpassed $1 million — a significant barrier to entry for new validators. 

Despite that, almost 1,200 validators are operational at the time of this writing. The top 19 validators control 33% of all SOL staked and could theoretically halt the network if they colluded.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

Solana vs. Ethereum

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Solana vs. Ethereum

Solana’s implementation is fundamentally different from Ethereum’s. On the latter, programs can hold state; on the former, they cannot. A program’s state is the data it uses.

For example, one piece of data could be an incremental counter that assigns a number to NFTs as they are minted. This incremental counter would be stored in a program’s state on Ethereum, which Solana cannot do.

Instead, Solana uses accounts to store and access data. Accounts can also store multiple addresses to send and receive tokens. Like Ethereum with its ERC-20 standard, Solana also supports tokens built atop it.

Unlike Ethereum, every token needs an address of its own, which is then part of an account. It is a bit similar to Bitcoin’s HD wallets in practice, but with a different implementation and functionality.

To make a long story short, we will look at active accounts instead of unique addresses. Though this number is difficult to pinpoint accurately, research from CoinDesk and Solana Beach arrives at a substantiated estimate of 1.2 million active accounts.

Solana protocol revenue and price-to-sales ratio

One of Solana’s most vital selling points is its low transaction fees. Currently, a transaction costs $0.00025. Transactions on Solana are a bargain compared to Ethereum, where a Uniswap trade frequently costs over $100. Conversely, these low fees lead to lower protocol revenues. 

Source: Token Terminal (Y-axis has a log scale.)

The Graph reports earnings of just $3.2 million for Solana, while Ethereum miners gained $1.5 billion in the 30 days leading up to Nov. 16, 2021.

Looking at the price-to-sales ratio, Solana lands on a multiple of 30,909x earnings, while storage protocol Filecoin has a multiple of “only” 514x.

Solana is in a difficult position from a price-to-sales perspective. On the one hand, it needs low fees to remain attractive for traders and financial applications. On the other hand, SOL’s price is hard to justify at this point.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

Real-World Use and Adoption of Solana

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Real-World Use and Adoption of Solana

Driven by DeFi activity and NFT sales, Solana rose to prominence the fall of 2021. Constantly pushing the envelope, its team now wants to onboard “one billion users” in the following years. 

Named after a famous beach near San Diego, California, Solana is the brainchild of former Dropbox engineer Anatoly Yakovenko. Development started in 2017, and in April 2018, he and his co-founder, Greg Fitzgerald, secured their first backing from Abstract Ventures and 500 Startups. Solana had its big break in 2020 when Sam Bankman-Fried backed the project. He successfully deployed FTX’s decentralized exchange protocol, Serum, on Solana. In 2021, Polychain Capital and a16z injected $314 million into the blockchain venture with a private token sale. 

Solana’s beta mainnet saw the light of day in March 2020 and quickly attracted developer attention. According to recent research, it is on a path to overtake Ethereum when comparing developer activity in the form of GitHub commits, pull requests and forks.

Solana developer activity exhibits substantial growth

Source: Twitter

This chapter will focus on metrics that reflect the real-world usage of Solana. Looking at the meteoric price growth is a good indicator of investor confidence. To gain a deeper understanding, we’ll look at unique addresses, lending and staking rates, and protocol revenue plus the price-to-sales ratio.

As a marker of centralization risk, we’ll finally look into how many tokens are held by the team and VC backers.

Solana Summer: SOL price rose more than sixfold in autumn 2021

Source: Messari

Solana’s (SOL) price was on an absolute tear starting in August 2021, called “Solana Summer.” The token’s value rose from $35.15 to a high of $258.65 between Aug. 1 and Nov. 6, 2021. A boom in NFT sales, perpetual futures volume and a tight-knit community propelled Solana’s market capitalization to more than $73 billion and made the token No. 4 on the CoinMarketCap list of coins sorted by market cap at times.

Seen from a November 2021 perspective, Solana is up more than 130x from a year ago and outperformed all other top 100 tokens except Axie Infinity (AXS), Kadena (KDA) and Fantom (FTM). 

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

What is DeFi currently lacking and how can we overcome it?

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What is DeFi currently lacking and how can we overcome it?

Insider Insight with Bernhard Koch, Founder and CEO Cryptix

As a venture builder in the fintech sector, we build bridges between innovation and effective everyday usability. Thus, it is a given that we closely follow the developments in the DeFi space and the increased use of DAOs. What we recognize, however, is that DAOs intentionally lack substance when it comes to financial regulation:

DAOs are unregulated and legally unaccountable – not the right approach we deem suitable to serve the masses. The widely used “dot-org-constructions” based on non-profit-foundations are mainly used to avoid taxes.

At Cryptix, we have chosen to go the extra mile with a long-term regulated approach. While the main character of a DAO meets our requirements for decentralization and community engagement, it lacks the legal safety and conformity for the masses. Consequently, we have tried to think out of the box, and have successfully created a superior solution: We call it DGO – decentrally governed organization.

Unlike a DAO, a DGO makes use of a legal body: The Societas Cooperativa Europaea (SCE). While an SCE is not a new concept, we’ve discovered that very few are aware of this cooperative form, despite its great number of benefits: 

  1. Legal clarity and compliance by using a real legal entity.
  2. Responsibility and commitment as the SCE is legally liable.
  3. DGOs can have a for-profit motive, thereby creating more sustainable and engaging incentive structures for its members, which are ultimately more supportive and loyal to a project.
  4. An SCE can change residence within EU countries with low hurdles to operate from a jurisdiction where the environment favors innovative approaches of such DGO and its members.
  5. Voting on governance and strategic decisions can be made accessible and incentivized in a user-friendly mobile app, with absolute transparency and no manipulation due to real on-chain voting. While members, due to its simplicity, won’t even notice they’ve just voted on-chain.

These benefits come with a more complex, time-intensive, pioneering and expensive path. Nevertheless, we are committed to going down this path and thereby creating a never-before-seen and promising concept, born from the connection between SCE and blockchain technology. In our opinion, this is the next logical step towards enabling a non-crypto community to experience the benefits of decentralized finance, and include them in a powerful, transparent and direct way of decision-making in important projects.

Cryptix is already employing the described DGO model and legal construction within one of its projects, a layer-1-blockchain with its own native cryptocurrency, products and complementary services in layer-2. These Layer 2 services will be run by a DGO and involve their users at the enterprise level in a very simple and highly transparent way as never before.

We are excited about this journey and are already receiving stunning feedback for this concept. We will keep a close eye on user participation and learnings to grow and adapt together for the benefit of the community, its members and our society.

Summary

Ethereum helped crypto to get to where it is today. Without NFTs, without DeFi, and without the ability to launch tokens in less than 30 minutes, many projects simply would not exist, and the world would be poorer for it.

Ethereum is here to stay. Massive network effects, a large pool of development talent, and a mature tech stack mean it is easier and more sensible to launch on Ethereum than any other blockchain. 

The onus is now on Ethereum’s developers to manage a timely upgrade to a more scalable and renewable future without compromising security and uptime — a genuinely colossal feat. The last upgrades to the mainnet have gone off without a hitch and have inspired well-earned confidence in the skills and thoroughness of the contributors.

2022 will be a make-or-break year for Ethereum. Its open, self-reflective culture and the surprisingly far-sighted thought leadership of Vitalik Buterin inspire confidence that it will be its best year yet.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

DApps & NFTs on Ethereum

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DApps & NFTs on Ethereum

The No. 1 DApp on Ethereum is the NFT marketplace OpenSea. OpenSea outpaced its competition in 2020 and is now the go-to place to trade and collect NFTs.

With more than $10 billion in total sales, it is a true juggernaut, solely responsible for 135,000 ETH (~$450 million) in burned transaction fees since the London upgrade in August 2021.

No. 2 is the DEX poster child Uniswap, which brought Bancor’s Automated Market Maker model to the mainstream and is the go-to for coin swaps. Following these two monsters are SushiSwap, an erstwhile Uniswap clone that now lives on more blockchain platforms than any other DEX, and OlympusDAO and Curve Finance, two DeFi powerhouses.

NFT sales volume and transaction volume

Ethereum NFT sales amounted to $2.2 billion in September and $1.7 billion in October 2021, according to research by Messari, more than eight times the volume of the next competitor, Solana. Most of that volume comes from big-ticket sales such as CryptoPunks or BoredApes, where a single deal can be worth millions.

However, looking at just the dollar-denominated volume doesn’t paint a complete picture. Ethereum saw 132,879 unique buyers in October, compared to 68,235 on Solana. The average amount a collector spent on Ethereum was $12,878 in October 2021.

While Solana’s dollar-denominated value was only an eighth of Ethereum’s, its activity was half. Ethereum certainly faces strong competition in the NFT market, and sky-high fees hurt its position because they price out new entrants.

Figure: Daily NFT sales on Ethereum

Source: NonFungible.com

Top projects like CryptoPunks and BoredApes at record prices, and traditional companies like Adidas and Nike have launched NFT collections. So it is safe to assume that this technology is not yet exhausted, even if NFT transaction volume has dropped sharply, from 1.08 million sales in October to 360,000 in December 2021.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

The Risks of DeFi

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The Risks of DeFi

What are the risks with DeFi and how can investors mitigate those risks? The biggest risk in DeFi is the so-called rug pull, which can be generalized to any action by the project team that is unexpected and harmful to investors, but often immensely profitable to the project team.

To some extent DeFi allows more opportunities for such actions, because the space is new, quick-moving, and investors are hungry for new opportunities and projects to invest in. This is why they often skip doing detailed due diligence.

Furthermore, due to the complex nature of smart contracts and DeFi composability, it’s often possible for a big risk to be hiding in plain sight, and unless you’re experienced in reading Solidity and actually put in the time to do due diligence, you won’t spot it.

For example, when Sushiswap vampire-attacked Uniswap, they had a so-called migrator contract as part of the design. The contract owner could set this migrator contract to a malicious address and withdraw all LP tokens.

While this didn’t happen in Sushiswap, many of it’s forks exploited this to steal all the liquidity staked, even if a migration was never on their roadmap. One way to protect yourself from such risks is to check if a project has been audited by a reputable security firm, but a significantly better way is to be able to read the code and understand the contracts yourself.

This will allow you to understand “intended behavior” that would pass an audit but allows the project team to “rug pull”, such as the one given in the example. If you’re unable to, just trusting your intuition in terms of whether something seems shady or too good to be true goes a long way.

Over time, DeFi will actually become more resistant to this – because of its open nature, anyone being able to read code can actually feel safer putting their funds in a DeFi project rather than a centralized exchange or platform.

As the industry matures and more people learn how to analyze these projects, DeFi’s strength of being fully transparent and auditable will shine.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

How can Cryptocurrency Investors avoid being Front-Run?

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How can Cryptocurrency Investors avoid being Front-Run?

When buying altcoins, it’s possible that there are early investors in that altcoin that you don’t know about. They bought at a much lower price before the coin was publicly traded so they are incentivized to sell and bag in a profit. To avoid this, cryptocurrency investors need to do deep due diligence and analyze the whole circulating supply of a specific coin/token before investing.

An Insider Insight with Ivo Georgiev, CEO of Ambire

But there is also a different definition of front-running when it comes to cryptocurrency investing. When you buy/sell tokens on a DEX, you may get front-run or sandwiched, allowing bots to benefit from your allowed slippage. Slippage in DEXes is the difference between estimated execution price before the trade and the execution price when the trade actually happens (when the transaction is mined), and sandwiching is inserting transactions right before/after your trade to manipulate the spot price, so that your trade is executed at the worst allowed price for you.

It’s still a form of front-running because the bot benefits from knowing your trade before it happens, and it’s the most widespread form. To prevent this, you can use a technology like Flashbots, which is a way of directly negotiating mining of your transactions with a miner, without broadcasting them publicly. The easiest way to do that is to use a wallet that has Flashbots built-in, like Ambire Wallet.

Is secure storage of Layer 1 cryptocurrencies like Ethereum different from secure storage of Layer 2 cryptocurrencies like Polygon (Matic)?

Secure storage of cryptocurrencies is the same regardless of whether it’s a L2 or L1 – it’s all about key management, and the industry standard for secure key management is to use a hardware wallet like Trezor/Ledger. 

There is one caveat to that – bridged assets that exist on Ethereum but not natively on Polygon, but are bridged to Polygon, carry the extra bridge risk – for example, if the bridge gets hacked, the Polygon wrappers of those assets may suffer. As such, it’s better to keep those on their native chain (Ethereum).

What are the best blockchains for earning yields in DeFi and what yields per annum can investors make potentially? 

This varies by the day but UST on Terra was pretty popular, allowing over 30% yields on their native stablecoin before the collapse. As a less proven chain, this was riskier than lending USDT/USDC on Ethereum for something like 3-5%. A middleground in terms of risk/reward is earning yield on stablecoins on Polygon, with a couple of solid options:

Aave and Tesseract (Yearn alternative on Polygon), both allowing yields between 5-10%. Whatever the case may be, all these yields are at least ten times better than what banks can offer you, especially in this low-interest economic climate.

One way to protect yourself from such risks is to check if a project has been audited by a reputable security firm, but a significantly better way is to be able to read the code and understand the contracts yourself!

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

Decentralized Finance on Ethereum

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Decentralized Finance on Ethereum

DeFi and Ethereum are almost synonymous and the DeFi directory Defiprime lists 214 Ethereum DeFi projects which indicates a significant growth over the last couple of years.

DappRadar even lists 2,990 decentralized applications (DApp). No other blockchain has inspired more developers, and Ethereum’s stack has become the de facto standard for many other blockchains. Even strong competitors such as Avalanche, Moonbeam or Fantom feature EVM compatibility to allow teams easy portability of projects from Ethereum.

Names such as Uniswap, Curve, dYdX and Instadapp have all deployed on Ethereum first and moved on to become household names in the crypto community. Ethereum is where DeFi was invented, and it is the protocol with the most exciting innovations, such as dYdX or OlympusDAO, and the largest and wealthiest user base.

Source: The Defiant

Total Value Locked (TVL) on Ethereum DeFi

It is no surprise that the most value in decentralized finance is locked on Ethereum. DeFi applications on this blockchain control more than $150 billion.

Source: Defi Llama

The three most significant projects — Curve, Convex Finance and MakerDAO — account for 36% of all TVL on Ethereum. Counting locked value has some crucial challenges, however. Staked coins can be used in farms whose liquidity provider tokens can again be further deployed and so on. The double- and triple-counting of an uncertain percentage of all assets is unavoidable. TVL numbers should be viewed as a general indicator of growth and activity and not be taken at face value.

There are two other aspects to DeFi on Ethereum that are very important: DApps and NFTs. In next weeks article we will take a closer looks at those aspects to see where their importance lies in the general Ethereum ecosystem.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

Ethereum Transactions and their Cost

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Ethereum Transactions and their Cost

Sending Ethereum costs around $5, and more complex transactions like swaps or adding liquidity mostly cost more than $100 in the last quarter of 2021.

Transaction fees are auction-based – users who pay the highest fees are processed first.  This sometimes leads to outright bidding wars. With the Ethereum network at 100% capacity, transaction fees were painfully high in 2021. In October, average transaction fees were $28. Ethereum earned the criticism of being a “rich boys club” because smaller investors simply could not participate.

Figure: Ethereum transaction fees were $28 on average in October 2021, and peaks were $70

Source: Blockchair

Average and theoretical TPS and time-to-finality

One Ethereum block is mined every 13.8 seconds on average, but this number fluctuates with mining capacity. Since only a limited number of transactions can be included in a given block until its storage capacity is filled, the theoretical maximum of Ethereum transactions is 35 per second, assuming that all transactions are small. Ethereum de facto processed 1.2 million transactions per day in October or 13.8 TPS. Transactions for staking, minting and swapping use more data and fill a block faster.

Since a consensus of other miners could still overwrite the most recent block, most applications demand three to six blocks to pass before they deem a transaction to be final. Time-to-finality is 42–90 seconds, accordingly. Users have to wait for finality until they can move on in their trades, and 90 seconds is a long time for the internet age.

Ethereum 2.0 will drastically change that and offer up to 100,000 TPS, and time-to-finality could be as low as six seconds, depending on the final implementation.

Current throughput and speed mark Ethereum as a member of the “old guard,” but strong network effects remain relevant. The big question is whether the upgrade to a sharded, performant Ethereum 2.0 will come soon, or whether other chains will take a piece of Ethereum’s pie.

In order to become a global DeFi system, Ethereum needs to actually implement this growth in potential TPS, otherwise competitors will gain ground that can already theoretically process more transactions.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

Ethereum’s Solidity & Consensus Mechanism

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Ethereum’s Solidity & Consensus Mechanism

Ethereum’s move toward proof-of-stake (PoS) ETH2 was demonstrated on a testnet in October 2021 and is expected to be implemented on the mainnet this year.

Like Bitcoin, Ethereum also uses a proof-of-work consensus mechanism. Miners collect transactions for a block, aggregate them cryptographically, and then have to try quintillions of different numbers, called nonces, until the resulting hash has a certain number of leading zeroes. While Bitcoin uses the industry-standard SHA256 algorithm, Ether miners compute “Ethash,” a slightly altered version of the SHA3-256 and SHA3-512 algorithms.

It is much harder to build application-specific chips (ASIC) for Ethash, so the ASIC arms race never happened on Ethereum. Instead, miners use high-end graphics cards (GPU) like the Nvidia RTX 3090. Miners’ insatiable demand led to Nvidia implementing a throttling switch when cards detect mining workloads, so gamers could afford GPUs.

Figure: MSI Nvidia RTX3090 graphics card, typically used for Ethereum mining

Source: msi.com

Solidity — Ethereum’s programming language

Vitalik Buterin wanted to allow developers the freedom to run everything they could dream of on top of the blockchain and create a massively distributed system. He called Ethereum the “world computer” because miners worldwide would execute programs.

Bitcoin has a programming language called Script that has limited functionality. Ethereum’s language needed a complete instruction set to give developers more freedom.

Gavin Wood, who later founded Polkadot, was the first to implement a working version of Ethereum and developed Solidity as Ethereum’s language. Later, another language called Vyper was introduced. (Smart contracts can be written in both.)

Since miners run different hardware, Solidity compiles to so-called bytecode, executed by the Ethereum Virtual Machine (EVM), abstracting the hardware layer. This way, a developer doesn’t have to worry about what machine a miner will run. The EVM takes care of that.

Solidity is easy to read and is quite similar to JavaScript in the way the code looks, although it has several fundamental differences — e.g., more stringent variable data types.

With a TVL of more than $160 billion and thousands of projects, the need for improved performance has become critical. We will look at the full extent of the performance currently required in another article next week.

This article is an extract from the 80+ page Scaling Report: Does the Future of Decentralized Finance Still Belong to Ethereum? co-published by the Crypto Research Report and Cointelegraph Consulting, written by ten authors and supported by Arcana, Brave, ANote Music, Radix, Fuse, Cryptix, Casper Labs, Coinfinity, Ambire, BitPanda and CakeDEFI.

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