A problem is the starting point of every great innovation. Solana’s problem was evident. For mainstream adoption, blockchains are too expensive, slow and difficult to use. Ethereum had problems with congestion. Bitcoin was rigid and unsuitable to complex applications. And no other company has made significant progress in addressing the scaling problem. This became a technical challenge for one engineer who was on a quest to create his own network that could process transactions as fast as the internet.
Anatoly Yakhenko, an experienced Qualcomm engineer, focused his attention on Web3. The potential of Web3 to decentralize finances and transform the internet attracted him. After nearly ten years of relative success, the blockchain technology had started to atrophy. Its fatal flaw was that it was slow in scaling. It was this inefficiency that created a bottleneck. This inefficiency was a major bottleneck in areas like real-time games, decentralized financial networks, infrastructure networks and AI inference.
It was mainly because blockchains did not have a built in clock. In a decentralized network, each node confirms transactions in sequence. This requires network-wide approval before the finalization. This process was sluggish, and it made blockchain unfit for high-speed applications. Yakovenko made his breakthrough with proof-of history (PoH), an innovative cryptographic technique that timestamps all transactions prior to their entry into the block. This creates a sequence of verifiable events.
Unlike traditional validation — where nodes process transactions in sequence — PoH enabled simultaneous processing. This was the rocket fuel that fueled efficiency. Unlocking unheard of throughputs and eliminating congestion, this innovation was revolutionary. Yakovenko gathered a group of engineers including Greg Fitzgerald, also from Qualcomm, and Raj Gokal. Solana Labs was founded in 2018 by Yakovenko and his team, who were inspired to create the company after spending time at a California beach where he used to go surfing.
Solana Labs raised around $20 million in its early years from early investors and venture capitalists. The team built and tested a prototype network, proving PoH’s potential with benchmarks demonstrating over 50,000 transactions per second — many orders of magnitude faster than Ethereum and Bitcoin.
Solana’s mainnet launched in beta form on March 20, 2020. This was just before the Covid-19 virus pandemic threw global markets into turmoil. Even though the timing was off, developers and investors were drawn to the promise of low-cost high-speed transaction. The ability to process transactions for fractions of a cent made it an ideal platform for DeFi applications, gaming platforms and a multitude of experimental decentralized tools — all of which had, up until that point, been constrained by Ethereum’s slow speeds and high gas fees.
Solana Labs received a funding round of $314 million in June 2021. The investment was led by Andreessen-Horowitz (a16z), and Polychain Capital. It was the legitimacy that this runway provided to the ecosystem which allowed it to expand and innovate rapidly. Serum (a DEX), Raydium, (an AMM liquid provider), Mango Markets and others soon moved to Solana. The end of 2021 saw the Solana price surge to highs of $260 — up from $0.50 just 18 months before — cementing its status as a top-five cryptocurrency by market cap. Investor confidence skyrocketed, and Solana’s momentum seemed unstoppable. By 2021 Solana, which began as an ambitious project, had become a significant force within the crypto world. But, under its rapid rise were challenges which would test the resilience and stability of this network.
Next time: The fall. Why the fall of Solana, one of the biggest crypto players in the Web3 eco-system sent shockwaves throughout the ecosystem and many thought it wouldn’t last.
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