Speed, Scalability and Solana’s Opportunity
*Disclaimer: this is not financial advice and should not be viewed as recommendations to buy or sell any asset, this is purely educational and the information below is solely my opinion, please do your own research and develop your own conviction*
It’s easy for us to sit and think that the best technology will always win, but even though that’s common sense, it couldn’t be the furthest thing from the truth.
If the only thing people cared about was great technology, companies like Apple wouldn’t wield the immense power they have over individuals. Let’s be honest, the iPhone is an amazing innovation, and quite frankly, the only phone that should exist, but it’s nowhere near the best piece of technology on the market. Every year we see phones from Google and Samsung with better internals, better cameras, better raw power, but for some reason, despite offering better features to their users, they fail to capture an audience and drum up the kind of sensational demand associated with an iPhone release.
We see this even spread out into the world of software with companies like Fastly that sport amazing, cutting edge technology that is superior to their peers, but consistently failing to gain traction, incapable of stealing market share and downright unlikely to ever expand their presence beyond their core group of customers.
So why is that the case? Why does the iPhone dominate mobile, why does Cloudflare eviscerate Fastly on the sale’s floor? We’ll get into those answers in a little bit, but until then, I want to talk about how these ideas connect to crypto, primarily whether or not Ethereum’s scaling solutions will be the penultimate winners, or if there’s a better competitor that provides the iPhone and Cloudflare moments for crypto.
Speed and Scalability
Two of the biggest problems plaguing crypto today are gas fees and transactions per second. For crypto to become a true revolutionary force, it would have to increase its throughput to be equal to or better than the current infrastructure of the TradFI/Web 2 world.
When we look at payment processors like Visa or MasterCard, we see the networks having throughputs over 1700 TPS with theoretical opportunities to be scaled up to 56,000 TPS. When we look at Ethereum, however, we are currently operating, on mainnet, at a much lower frequency, 30 TPS.
In normal circumstances, when block space isn’t being highly sought after and congested from liquidity mining programs or NFT drops, 30 TPS operates in an efficient way to get our points across. But with Ether becoming the settlement layer for the internet and all digital assets, we see the need to ramp things up to the next level in order to accommodate for the rising demand and adoption.
Scaling solutions have been adopted to address these issues, the three most popular options being Polygon, Optimism and Arbitrum.
Polygon operates as a side chain, so it’s technically not a layer two scaling solution, since it’s secured by the Polygon network and utilizes the MATIC token for gas. This isn’t a big deal to most people, in fact Polygon has emerged as the leading sidechain over its competitors, but it is worth noting that it doesn’t utilize the Ether network for security. Despite that, Polygon has gained traction because of its ability to process 6,500 TPS with gas fees that are pennies in comparison to what is being delivered on the Ether mainnet.
Optimism and Arbitrum are both pure layer two scaling solutions which means they utilize the Ether network’s security moat which is a big deal for people who plan to be transacting in major DeFi protocols. When it comes to the regular user who is just looking to LP or yield farm a few bucks, being secured by Polygon or Ether seems negligible, but for the institutions and whales who are moving markets, security is their biggest and most desired priority.
And while Optimism and Arbitrum are secured by mainnet, which can give them a bit of a moat and edge over competitors, especially when you consider they can process 4,500 TPS, they aren’t necessarily the perfect plug and play protocols for the average user.
Crossing the Bridge
The biggest issue plaguing crypto and Ethereum in general today is the need to provide a seamless user interface that regular old normal people can effortlessly interact with.
Think about your parents or your friends who aren’t down this rabbit hole and think buying bitcoin on Robinhood or PayPal is the right move, they’re not familiar with owning a Web 3 wallet or engaging in any type of self custody. Most of their money sits in a centralized exchange that probably doesn’t even have two factor authentication turned on, and if they even do, it’s probably SMS verification which is probably less secure than not even having any 2FA at all.
These people are obviously not the ones who are currently participating in liquidity mining programs, trading on DEXes, yield farming or even buying NFTs (but they’ve heard of them and are interested, that’s for sure).
But.
They’re the ones who will be joining in the craze at the end of this cycle and during the next one. They’re the ones who will eventually take crypto to a $5-10T market cap with over 3-4 billion active users. They’re the ones that technology should be being created for, not the crypto punks, current degens and apes, or veterans from 2017 and earlier.
And the biggest prohibiting factor from getting these people fully on board, and able to interact with DeFi, NFTs, play to earn gaming, and much much more, is ease of use and user interface.
This is where the Apple and Cloudflare dynamic begins to steep in.
In order to use Polygon, Optimism, Arbitrum or any other scaling solution or side chain, BSC and Avalanche included, users need to take a few steps to get there.
The first thing they need to do, before they even think of crossing the bridge, is to add the new network to their Web 3 wallet. When you use MetaMask, you’re pre-programmed with the Ethereum mainnet and some testnets. But if you wanted to take advantage of the three figure APR’s on Polygon, let’s say, you can’t do it from the default settings. Instead, you need to either go into the settings of your MetaMask wallet and manually input the new network settings, or visit the Matic Network’s official website and have them install the network for you. This leaves you vulnerable to a couple of things, phishing and mistakes.
Although it’s fairly easy to do this, you won’t be able to do it on your own without being told how to do it. This means you’ll need to ask questions in the project’s Telegram or Discord, and hope to not get scammed, read the blog and Medium posts from the project, or watch a tutorial on YouTube. But throughout all of this process, if you’re a newcomer, you are very susceptible to innocently being taken advantage of.
Every time I ask a question in a project’s Telegram, I’m immediately DM’d by scammers who are trying to prey on me. I know to block them and move on, but if you’re new to this, and don’t have a personal friend or family member to guide you, you’re in a very vulnerable place.
So this is issue number one that I have with the current way speed and scalability is being addressed.
Issue number two comes from needing to cross the bridge. And while I get the necessity here, and the technology behind it, and how it works, it is a little annoying that in order to hop along networks to get the best APR’s or fees, I have to constantly bridge my assets and be susceptible to withdrawal waiting periods.
There are some projects in development to address this issue and simplify it, like the Hop Protocol, but we’re still very early and not at that point yet where any asset can easily be hopped along any chain. Right now all we can move through Hop is USDC, USDT and MATIC through mainnet, Polygon, Optimism and xDAI. This is a good place to start, but it’s nowhere near where we need to be to prepare ourselves for the impending influx of users and the tsunami of adoption bearing down on us.
This is where I can see Solana having an opportunity thanks to the primer I have associated with Apple and Cloudflare, if, of course, they build on where they are today and fulfill my vision.
The Winning Advantage
There are a few reasons why Apple and Cloudflare dominate their peers despite not dominating them technologically:
Ease of Use - iOS is one of the smoothest operating systems around, and using an Android phone has always left me confused and unsure of what to do next in order to use any of the apps I wanted to peruse. In regards to Cloudflare, it’s been known to be one of the easiest pieces of software to implement whereas Fastly requires more time to learn and understand the intricacies of its products.
Community - User satisfaction often dictates the winners in these technological arms races. There’s a reason the Zune never caught on, and it had nothing to do with pricing or specs. If always comes down to the community, if there is a group of people who like a product, they are more likely to tell others about it, drawing in new people and essentially creating a pyramid-like chain of events that builds out an ecosystem.
Developers - Technology catches on and thrives because of the developers that are drawn to a network. If devs enjoy using the product, have fun creating and find themselves liberated to innovate as they please, they will strengthen their presence and as a result improve the ecosystem being created.
User Interface - Products need to be pretty, appealing and friendly to the eye. As humans, we have a tendency to shut down or lose interest when we aren’t captured visually by something. Looking at the wrong UI can pronounce a technology dead on arrival despite its merits behind the scenes.
Lindy Effects - The longer a technology exists, the more likely it is to be around in the future. This makes sense completely since most startups fail early on and if they can make it to the IPO stage and produce two or three years of solid earnings reports, they’re more likely to turn into a long lasting investment. Same can be applied to the products we use. The more we see an iPhone, the more likely we are to continue seeing iPhones.
So where does this leave Solana?
Solana’s Potential
Solana operates as a competing layer one blockchain that some people think of and look at as an Ethereum killer due to its immediate settlement, capable of 55,000 TPS on its testnet, and near zero fees.
But referring to Solana as an ETH killer is a bit of an injustice and unfair claim to make, considering that Ethereum is the top dog in this race, and unlikely to be dethroned due to its developer and security moats.
Instead, the real appeal to Solana comes from its advantage in comparison to other competing L1’s and Ethereum’s scaling solutions.
So what makes Solana the most interesting alternative and potential scaling solution for Ether?
Its speeds and low fees can position Solana to become the leading network for NFTs, play to earn gaming (GameFi), and other low security use cases like social media or messaging. Since Solana does carry some centralization risks in theory, due to the exuberant costs associated with running a node, it does face some headwinds with winning over DeFi protocols and matching Ethereum’s TVL which is closing in on $100B.
However, with NFTs already existing on their platform, and becoming sought after, despite the quality of project being inferior currently, we are seeing adoption and execution which should continue to gain traction as projects look for alternatives to the Ethereum network to either supplement their current releases, or maximize their potential yield.
We do have some Ethereum scaling solutions geared toward NFTs like Immutable, but we haven’t seen a working product yet with users acting upon it, so in theory, Solana should have an advantage here.
And it’s biggest advantage, which derives from memetic desires and the ability to attract new users, is Solana’s simplicity and beautiful user interface. Users don’t need a bridge to enter into the Solana network if they have access to a Coinbase account. They can very easily purchase SOL, download the Phantom app extension on their computer (mobile app is in production and will eventually on ramp millions of new users), send it there in seconds and begin shopping for NFTs on Solanart.io or DigitalEyes.Market and begin their journey, allowing them to do what everyone else is doing on Ethereum at far lower costs.
Memetic desire is one of the key tailwinds for the Solana network as new users will want to be involved in the next Ethereum and take advantage of the cheaper option since gas fees are dreadful murder currently.
Solana, of course, needs to execute and attract high quality creators to their ecosystem. Copying and pasting everything that’s done first on ETH isn’t going to provide much staying power, and this is where community and developers come into play.
Solana has seen its community increase lately due to the rise of NFTs on its platform, and the ease of use associated with the network. In order to get these kinds of speeds and fees on Ethereum, users have to go through setting up new networks, bridging their tokens, and avoiding being scammed. With Solana, they just need their wallet address and can get going on their journey.
Being as someone that’s only used Ether in the past and finally getting involved in the Solana ecosystem, it’s really impressed me and made me want to become a more active community member since I can very quickly, efficiently and cheaply start bouncing between liquidity pools and DeFi protocols without having to burn a bunch of money and barely break even. I can even make this entire experience worthwhile with small sums of money, which, yet again, appeals to new users.
Solana has also received rave reviews from developers due to the power and freedom they have by not being hamstrung by Solidity. As more developers flock to the ecosystem, more creative products will be developed and more opportunities will grow for users. This will flesh out Solana’s potential as a scaling solution or side chain for Ethereum.
Solana hasn’t created Lundy Effects yet, it’s far too young, but at its current stage in existence, it’s infinitely farther along than Ether was in 2017. This is allowing the network to be set up to create Lindy Effects down the road as it has working products, growing adoption, and strong institutional supporters.
I do firmly believe that in the future, Solana will be looked at as an alternative to Ethereum’s scaling solutions because of the ease of use which will bring together all of the other factors that take a great piece of technology and make it a clear cut winner. While scaling solutions like Arbitrum and Optimism seem to be great pieces of tech in their own right, their communities are just extensions of the Ethereum network, and it’s developers are just devs that were already on the network who are now upgrading their infrastructure to reflect the new opportunities, or developing new products with the best speeds and security in mind.
At some point you will see tens to hundreds of different scaling solutions which will indirectly water down the Ethereum network and wind up confusing new users more than supporting them. Unless a network aggregator enters the fray, or wallets seamlessly incorporate a new technology to shift you through different networks without you knowing it, you’re just going to see more headaches and issues rise up in the long run than have problems solved.
And what will the purpose for these other chains even be when we see Solana bring it’s EVM compatibility to mainnet? With Neon Lab’s EVM currently in testnet, we have the foundation of complete throughput domination in development. Once the EVM goes live, we will see Ether's biggest protocols, like Uniswap, Aave, SushiSwap, etc. enter the Solana network and solidify its moat as the best potential side chain and scaling solution while still providing an easy user experience that is enjoyable and rich in community spirit.