The Full History of Solana (Crypto Documentary)

Over the last year, we've seen a crazy spike in the price of solana, more than 100x. I'm not particularly interested in price movements and never give financial advice on this channel, but I still wanted to answer the question, is there something different about Solana or is this just another overhyped crypto project? Solana is now one of the largest cryptocurrencies in the world. And supporters of the project will tell you that it all comes down to the speed of the Solana network. Bitcoin can process about seven transactions per second. Ethereum is capable of almost double that. But Solana boasts the that the network can handle over 50,000 transactions per second. That's more than the entire Visa credit card network. And the Solana team claims that they can go even further. Whenever I hear about a breakthrough like this, I immediately think trade off. If speeding up a network was as easy as changing a few lines of code, everyone would just do it. So the Solana team must be thinking about things differently. So let's walk through the common trade offs in blockchain development as well as the history of Solana, so that we can make up our own minds about this project. Blockchain users don't only care about how many transactions can be processed at the same time. They also care about how quickly those transactions settle. Ethereum approves transactions every 15 seconds, while Bitcoin takes 10 minutes. Solana, on the other hand, is settling every 400 milliseconds. For some users this is really important, but everything comes with a cost. So what are Solana users sacrificing in favor of speed? Well, it's certainly not fees. Bitcoin and Ethereum are notorious for high transaction fees. And it wouldn't be crazy to think that a faster network would cost more to use. That's certainly true for most services, but blockchains are a little bit different. While Bitcoin transactions can cost the equivalent of several dollars to complete, and Ethereum can cost more than $100 during peak times, Solana transactions cost only a fraction of a penny right now. So if Solana is faster and you aren't paying more, where's the catch? Well, it comes down to something called the blockchain trilemma, and it's actually pretty straightforward. Essentially, in the world of crypto, there is a three way trade off between decentralization, security and scalability. Traditionally, you can only choose two. Most blockchains optimize for decentralization, meaning that there's no one central point of control that needs to be trusted and security, meaning that the blockchain will operate as expected and won't get hacked. But in this scenario you have to sacrifice scalability, meaning that high volumes of transactions will slow the network down. This is the case with the Bitcoin network, where millions of computers around the world verify the integrity of every transaction. It's a remarkably resilient system, and it's the gold standard for decentralization, but it's not very fast. The same proof of work mining system that enables its high degree of decentralization and security also means that every transaction requires tons of processing power and inhibits the scale of the network. One good example of a different approach to the blockchain trilemma is the Binance smart chain, which was created by the cryptocurrency exchange of the same name. This blockchain is capable of around 60 transactions per second, which is faster than both Bitcoin and Ethereum, and it has low fees. But it isn't very decentralized. Most of the computers that validate the network are controlled by Binance, so you have to trust them, just as you would a traditional bank. Wrestling with the blockchain Trilemma has been the focal point of many crypto projects over the last few years, debates have been raging in the cryptocurrency community over which project might actually create a new model with some real value, but there has never been a really clear winner. It's still very early in crypto generally, but Solana has attracted a lot of developers to their ecosystem, so they must have found a solution that at least feels right to certain people. Conversations about crypto usually go one of two pure speculation about prices or complex analysis of algorithms. This video is going to be neither of those. Instead, I'm going to focus on the actual human being behind the Solana project, Anatoly Yakovenko. As you as you've probably gleaned from my other videos, I firmly believe that the right founder can move mountains to make science fiction a reality by sheer force of will. So it's the human stories that I really like to focus on. Anatoly is a solid low level engineer who spent 13 years working at the semiconductor company Qualcomm. While he was there, he wrote software that now runs on hundreds of millions of mobile devices. Before Android and iOS were the most popular mobile operating systems, many phones ran what's called called the Binary Runtime Environment for Wireless or Brew for short. Back in the early 2000s, nearly every feature phone ran Brew, although it was often rebranded to look like it was developed by Verizon or AT&T. Anatoly wrote code for Brew that interfaced directly with the hardware in the phone. And this is incredibly complex work. Back then, phones weren't very powerful and resources like memory and CPU cycles were extremely limited. In order to win on performance, Anatoly's team at Qualcomm had to be as efficient as possible to really squeeze every bit of speed out of these limited chips. It was hard work, but it taught him how to write hyper efficient software, which clearly shaped his thinking about designing Solana. Even while Anatoly was at Qualcomm, he was playing around with cryptocurrency. At one point, he even considered getting into bitcoin mining. But he hit a bit of a funny stumbling block when he went to order the proper equipment.

There was a company that promised an ASIC for bitcoin mining and they built it, but they mined with it for six months before they gave it to anyone that pre ordered that like, showed me what crypto is all about. Don't trust anyone.

After a long career at Qualcomm and then a short stint at a distributed system startup, Anatoly joined Dropbox. He wouldn't stay long though. This was 2017 and he had become obsessed with crypto. During the most recent wave of hype, prices were spiking and Ethereum had just broken $20 billion in market cap. Everyone was talking about a breakthrough moment for crypto, and several Ethereum competitors started to emerge. A few of these were direct copies of the Ethereum codebase, But Anatoly didn't think that was a winning strategy. Instead, he was thinking about how decentralized blockchains could one day replace centralized exchanges like the nasdaq. Modern stock exchanges are some of the highest throughput systems in the world, with servers regularly executing tens of thousands of of transactions per second. A big part of why stock exchanges remain fast and relatively fair is precisely because they are centralized. The point of crypto is to have true decentralization, and the projects that succeed will be the projects that achieve that. Everyone trusts the exchanges to put each participant on a level playing field, and so far they have. When stock traders deploy code to interact with the New York Stock Exchange, that code can wipe wind up running on any one of many servers in the exchange data center. The problem is that if your server is a little bit closer to the central server, you could wind up with a speed advantage. So the NYSE connects every single server with a cable of the exact same length, 185 yards. This level of control is only possible in centralized systems, so the idea of running something like the NASDAQ or the NYSE on a blockchain was seen as a crazy idea. But Anatoly formulated a solution by going back to the early days of radio. The networks that power traditional radio had a problem when they first came online. If two stations tried to transmit on the same channel simultaneously, it would create static. Radio engineers eventually solved the problem by placing clocks at every radio station and then coordinating exact times when each station was allowed to transmit. Google actually uses something similar to synchronize its global data center network. Every Google server farm has an atomic clock, which allows it to stay in sync with other server farms around the world. The Bitcoin and Ethereum networks don't have built in clocks, so their validators need to spend considerable resources to figure out the correct order of transactions. Anatoly realized that if he added a timestamp to each transaction, he could speed things up considerably. He called this technology, which is now the core building block of Solana, Proof of History. The math behind this particular piece of Solana is fairly complex, so if you want to learn more, I'll leave a link to some resources in the description. But for now, the important takeaway is that Proof of History allows each validator to work faster instead of waiting for consensus from the other validators in the network. Blocks can be approved independently, provided that the timestamp is correct. In order to build the initial founding team for Solana, Anatoly reached out to former colleagues from Qualcomm. This was a smart move, since building Solana would require some remarkably complex low level programming. But the founding team weren't just great programmers. They also seem like incredibly intense people generally. Just look at the fact that four out of the five Solana co founders have completed an Ironman triathlon. This has clearly led to a fast paced work environment, which is important because they are competing against tons of other projects in the crypto space right now. Even though Solana is now worth billions, Anatoly launched the project with a pretty conventional seed round. He raised a little over $3 million in exchange for roughly 16% of the total amount of SOL tokens. This deal now stands as one of the best investments of all time, since the investors have made close to a 1 million percent return in just a few years. The speed of developments in crypto is really staggering now. That $3 million didn't last very long, so Anatoly raised another $20 million in three subsequent rounds. And those investors have also done Incredibly well. Even still, things didn't always go smoothly. 2018 marked the start of a crypto winter and the price of bitcoin fell more than 65%. This led to a few funds bailing on their planned Solana investments at the last minute. There was a silver lining for the Solana team though. Bear markets are great for washing out speculators and people who just want to get rich quick. After prices collapsed, the only people still working were genuinely passionate about crypto and in it for the long term. Anatoly and his team spent two years basically fully heads down. They didn't really talk to the media or try to promote their project at all. They just stayed laser focused on building great software. Reliability was top of mind. No one was going to use an unstable blockchain, no matter how fast it was. When they first launched their Test network with 40 validators, it immediately crashed and took multiple hours to restore. They eventually got the system working though, and were able to launch the beta version of the Solana mainnet in March of 2020. This wound up being perfect timing since stimulus checks were just about to hit bank accounts and lots of people were starting to worry about inflation, which drove them to take a deeper look at crypto. It wasn't just the crypto bull run that helped Solana become a top five cryptocurrency though. After all, plenty of new projects have come and gone in that time. While they were able to ride this new crypto wave, it was their community of developers that kept them from wiping out. But every project tries to build a vibrant community. So how did Solana actually pull it off? Well, it all comes down to building a high quality self custody user experience. That means making it easy for people who own Solana to move it out of the exchange where they might have bought it, and into a wallet where they can take it anywhere. Most cryptocurrency users still store all of their assets in centralized exchanges. This is usually fine because it means that they don't have to deal with installing a wallet, storing private keys, or accidentally sending funds to the wrong address. This works for lots of people, but it doesn't really align with Solana's long term vision. Anatoly estimates that only about 30 million crypto users self custody their crypto holdings and that's across the entire industry. That's really small compared to the most popular Internet services these days. Remember, Facebook has nearly 3 billion users. As with any crypto project, there are multiple options when it comes to how to interact with the blockchain. The most popular wallet for Solana right now is Phantom, and it's growing so quickly that usage of the Fantom wallet broke 1 million users just seven months after it launched. Now, we saw something similar happen with Ethereum back when MetaMask launched in 2016, and there are a ton of similarities between Fantom and Metamask. But Metamask users are increasingly running into high fees on the Ethereum network, and Solana doesn't have this problem. These low fees have enabled Solana to stake a claim in the NFT marketplace, with new projects launching every day and costing next to nothing to mint. But NFTs are just one small part of the decentralized financial system, and an increasing number of defi applications are being built on Solana. The key metric to watch here is hackathon attendance. Solana's first hackathon had 1,000 participants, the second had over 3,000, and the third broke 13,000. These hackathons help introduce developers to the Solana ecosystem and have already led to the launch of 400 different Solana related projects. These projects are all testing new ideas in a variety of industries. There's a music service called Audius, a gaming project called Star Atlas, and of course a ton of financial services. Developers clearly love the fact that Solana is so fast and cheap, but if we go back to the blockchain trilemma from earlier, we still need to discuss decentralization. This is a major sticking point when people discuss Solana, and conversations tend to get heated quickly whenever money is at stake. Add to the fact that decentralization is not a single metric, but instead a broad collection of decisions and you'll quickly find tons of differing opinions on the topic. One common way to analyze the decentralization of a blockchain is to look at how many nodes on the network it would take to grab full control. In a perfect scenario you would need thousands of people all coming together, but in reality, most blockchains have a handful of powerful organizations that orchestrate the majority of the mining and validating the number of entities that you need to compromise in order to take control is called the Nakamoto Coefficient and it's actually pretty good on solana currently at 19. But detractors are quick to point out that the real control comes from ownership of the actual sole to tokens. Control the tokens and you control the validators. And 48% of these tokens are controlled by insiders, with another 30% set aside for ecosystem development. Fans of other blockchains hate this because it's yet another form of centralization, but I do think this can be overcome with time. As the Solana team distributes tokens to the community, their proportional control will decline and eventually team members and investors, initial investors will sell tokens on the open market to diversify their holdings. It won't happen overnight, but it'll be interesting to see if the critiques of Solana change as tokens become more evenly distributed. Overall, I think Solana is so interesting because it feels like a project that was tailor made to refute the common criticisms of blockchains. For years, tons of people have been saying that decentralization isn't important and blockchains are slow and expensive. Solana Solana is the perfect counterexample to those arguments because it's fast, cheap, and not overly focused on decentralization. In the short term, it seems like the Solana team is making the right trade offs, at least in terms of attracting developers and building new applications. It seems reasonable that there might be a world where people would accept more centralization in the short run if there's a light at the end of the tunnel and they can experiment freely without worrying about high fees. But let's let me know what you think in the comments. Have you used any defi applications? Do you like Solana? I'm looking forward to digging more into crypto and Web three projects in the future, but in the meantime, please check out this recommended video. The YouTube algorithm thinks you'll really like it.