Ethereum vs. Solana. The Future of Decentralisation

The blockchain world is keeping the developer community on its toes. Prominent additions like NFTs, Web 3.0, Metaverse, and decentralised finance have been the most talked-about phrases in 2022. As the demand for blockchain-based solutions grows, so does the need for blockchain platforms to produce those solutions.

Among some of the best blockchains are Solana and Ethereum. Solana is one of the world's fastest Layer-1 blockchains. But will it eventually dethrone Ethereum's supremacy and emerge as the leading platform for the expanding DeFi industry?

What is the difference between Ethereum and Solana blockchains? How easy is it for project founders and token creators to learn about the blockchain that most developers and the crypto community, in general, are familiar with? Let's see what we can find out!

The underlying technology is one of the fundamental differences between Ethereum and Solana. Each has a unique consensus mechanism at its core and different solutions to scalability issues.

In this part, we'll look at how the two blockchains vary from the standpoint of speed, cost, security, and decentralisation.

Solana is fast. The network can execute a block every 400 milliseconds and record 65,000 transactions per second (TPS) is unquestionably a key selling proposition. It is one of the quickest layer-one blockchains simply because of these qualities.

Ethereum, on the other hand, is very slow. Due to Ethereum's decentralised (Ethereum is more decentralised compared to Solana) design, the number of transactions it can handle is only 15 per second.

Because of Solana's scalability, both developers and users should expect transactions to cost less than $0.01 forever. It is, on average, sitting at $0.00025 per transaction as of February 2022. Of course, developers searching for a platform to construct their projects will find this quite tempting.

Ethereum has a high transaction cost. But it is declining rapidly. The chart below shows the constant decrease from almost $70 per transaction in May 2021 to $2.060 per transaction in February 2022.

Image Source: YCharts

Solana claims to be a safe blockchain, and it is secured by SOL. However, it has been hampered by a few days of sporadic network disruptions, and the count is up to six now. In September 2021, the network was hit by a Denial of Service (DoS) assault, rendering services unavailable to users. The blockchain suffered its sixth outage of more than 8 hours on 22 January 2022. Its website showed that the network suffered a high level of network congestion due to excessive duplicate transactions.

Image Source: Solana Status

The severe outages prevent transaction validators from producing new blocks for hours. Other blockchains, like Ethereum, had disruptions but quickly recovered, maintaining their appeal among blockchain users and developers.

The Ethereum blockchain is secured by ETH. Every transaction is verified and secured by a massive amount of processing power given by all of the machines on the network, making it almost impossible for any third party to intervene.

The underlying concepts of cryptocurrencies contribute to their security: the systems are permissionless, and the main software is open-source, allowing a large number of computer scientists and cryptographers to analyse all elements of the networks' security.

Validator node development is one component of decentralisation to consider. In the case of Solana, the Solana Foundation is the only organisation working on blockchain core nodes. Solana now has a single point of control, reducing the network's total decentralisation.

On the other hand, several core node developers, including OpenEthereum, Go Ethereum, Hyperledger Besu, and Nethermind, are working on Ethereum.

While Ethereum's capacity to perform a large number of transactions per second limits it, its decentralisation sets it apart. The entrance barrier to becoming a validator is low — notably in Ethereum — resulting in a trustless, decentralised network.

If we compare initial token allocations for Solana vs. Ethereum, then it is clear. Ethereum is far more decentralised, with only 15% insiders allocation. In comparison, Solana has a 48% insiders allocation making it a more centralised blockchain in comparison.

Image source: Messari

The DeFi ecosystem on Ethereum is more diversified, owing to the fact that it is a considerably older platform than Solana. On the other hand, Solana has used a variety of methods like the Riptide hackathon and IGNITION hackathon in order to attract more users and developers to its network.

The DeFi ecosystem on Solana is still in its early stages, a TVL of $7.04b as of 25 February 2022, with a number of DeFi protocols being released as we speak. Raydium is a Solana blockchain-based automated market maker (AMM) that uses the Serum decentralised exchange's central order book to offer lightning-fast transactions, pooled liquidity, and additional features for generating income. Raydium has a TVL of $633.64m as of 25 February 2022.

Ethereum is way ahead in its DeFi ecosystem, shown by its TVL as seen below, and it has been continuously rising.

MakerDAO is an Ethereum-based peer-to-peer organisation that allows anyone to lend and borrow bitcoins. Decentralised Autonomous Organisation (DAO) is another name for a peer-to-peer organisation. DAO is governed by a set of rules as an open-source blockchain ledger. Smart contracts are in charge of the loan and borrowing procedure. MakerDAO has a TVL of $15.38b, and the platform has seen a massive increase in value, as shown in the graph.

The Ethereum DeFi ecosystem is significantly larger for now and offers a far wider range of applications.

Now, we will show the difference with a few key numbers between Solana and Ethereum with the help of this table, which contains information accurate in February 2022:

Data Sources: YahooFinance, State of the Dapps DefiLlama

Serum is a decentralised exchange mechanism based on the Solana blockchain. It is permissionless, genuinely decentralised, and extremely fast. The transaction expenses are also exceedingly low: each operation costs only $0.00001 and peaks at 65,000 TPS. It has a TVL of $754.78m as of 25 February 2022.

ORCA is a decentralised exchange with its own liquidity pool that is run by an automated market maker (AMM). Orca allows traders to swap tokens, and crypto fans and supporters may form their own Ocra liquidity pools. It has a TVL of $388.57m as of 25 February 2022.

Orca is one of the most successful Solana initiatives, taking advantage of the network's features. For example, fast trades of less than one second are possible on the exchange, and gas fees are under $0.00002.

On the Solana network, Orca is the only pure AMM DEX. It does not rely on Serum for liquidity. Both Orca and Serum are one of the biggest projects on Solano in terms of their TVLs.

Curve is an Ethereum-based decentralised exchange liquidity pool. It was created with the following features in mind: high efficiency, low slippage, consistent coin trading, low risk, and fee income for liquidity providers.

Curve is the biggest project in the DeFi world as of 25 February 2022 with a TVL of $17.7b.

The gap between a trade's projected price and the price at which it is performed is known as slippage. The Curve DAO sets the fees and other settings. The cost is 0.04 percent for all pools. The liquidity providers receive half of the charge, while the DAO members receive the other half.

Uniswap is a decentralised crypto trading platform for automatic liquidity supply based on Ethereum. High spreads are a key issue with illiquid assets traded on normal markets. This difficulty is solved by Uniswap, which allows anybody to become a market maker. It has a TVL of $7.53b as of 25 February 2022.

On each deal, Uniswap charges a liquidity pool fee. This charge is split among the liquidity providers in the pool. It used to be a 0.3 percent fixed charge. With the introduction of Uniswap V3, the exchange started establishing fee categories based on the liquidity pool's volatility.

The fee tiers in Uniswap V3 are as follows:

Curve and Uniswap are the same in terms of their main use case. Both are used for a decentralised crypto asset exchange. The primary difference between the two DEXes is that you may exchange any ERC-20 standard token on Uniswap as long as there's liquidity, whereas Curve is only for exchanging stablecoins on Ethereum.

Solana and Ethereum are two well-known blockchains in the industry. Both are suited for the construction of DeFi applications. The success of the ETH 2.0 upgrade will determine the future of Ethereum. By implementing shard chains and switching from PoW to PoS, Ethereum 2.0 is supposed to overcome the major scalability issue. These modifications are expected to occur between 2021 and 2023.

However, Ethereum has a solid grip over the DeFi world with projects like Curve and Uniswap, even though rivals in Solana with the projects such as Serum, Raydium, and Orca are posing a threat. It's difficult to predict which blockchain will win in the long run. Right now, both of them seem like the primary choice for token creators to launch new platforms on with Solana demonstrating slightly more potential due to its rapidly growing ecosystem and the community.