Discovering the Core Aspects Where Solana Truly Excels Over Ethereum

Editor’s Note: According to data, Solana’s token SOL has seen a nearly 60% increase in the past month. Whether stimulated by airdrop information from projects like LSD on Solana or the quietly doubling floor prices in the NFT market, Solana has shown impressive development in this recent bullish trend. As a result, the title of “Ethereum Killer” has been brought up again for discussion. Community blogger _gabrielShapir0 has published an extensive post discussing the differences between Ethereum and Solana and how they impact the important themes of “decentralization” and “governance.”

Value flywheel: costs are transferred from users to project parties

I’ve been meaning to write this article for a while, and I’ve been thinking about these questions since diving into Solana (and its source of centralization at the DApp level) a year ago.

Generally speaking, in my opinion,Solana attempts to achieve better scalability and composability by shifting costs to DApp teams and infrastructure providers instead of users… This is where the SOL value flywheel comes from.

If a blockchain’s main goal is to achieve low fees, then the value of its tokens cannot come from transaction fees alone. In contrast to this, Ethereum’s value growth comes from the fact that users are required to pay (and partially burn) ETH on every transaction, making it expensive for users but beneficial for those who hold ETH.

On the other hand, in order to ensure the security of the blockchain, some form of value proposition is required. How does Solana solve this problem?

1. Collect state rent from decentralized application (DApps) teams.

2. A voting fee is charged to the validator, which is what the validator must pay to participate in the voting of the block.

These two features do not exist in Ethereum and create additional value drivers for Solana Token (SOL), which partially offsets the impact of the lack of transaction fee demand on SOL prices, while also alleviating some security and public resource issues (such as state inflation).

However, the problem is that both may limit decentralization (because of the increased fixed cost of becoming a validator), and in addition, actually limit the immutability of the DApp due to the presence of state rents and the difficulty of coordinating payments at the “community” level. .

The first issue, as pointed out by @ceterispar1bus in his Delphi Research article on Solana, is that “this fixed cost combined with variable income based on token holdings inherently has a natural centralizing force, as larger validators essentially collect vote fees from smaller validators. The following example provides a high-level illustration of this dynamic. After about 10 days of voting, the largest validator increased by 0.6% relative to the initial token holdings, while smaller validators purely suffered a 0.6% loss from voting.”

Second question, we have seen at least one Solana DApp team abandon their DApp during the bear market.

Cost advantages of centralization

Token economics aside, there is an oft-noted issue, namely Solana’s performance validator hardware requirements… However, despite ETH maxis slamming this, this is not a “centralization” issue — Solana validators are decentralized (Satoshi coefficient).

“One of the most common criticisms of Solana is the expensive hardware required to run a full node. Due to the higher cost of running a full node, the number of nodes will be limited to a small number of network participants. Goals of Solana Slot times are 400 milliseconds, and a globally distributed set of validators is slow relative to a centralized validator, so how does Solana perform and how does it achieve such performance?”

There are also concerns about how smart contracts work on Solana and the accompanying issues of centralization and trust. Solana contracts operate on a literal on-chain inheritance structure, for example, all NFTs are sub-contracts of the main NFT contract controlled by Metaplex’s multi-signature.

“My first concern is the number of critical processes still controlled by multi-signatures. For instance, each NFT is based on Metaplex standards, and before they make their processes immutable in the next couple of years (z years), every NFT on Solana could be changed to, let’s say, a banana, or a coconut, or even a banana-shaped coconut… you get what I mean. Even with the planned immutability, concerns about taxation, centralization, and monopolies persist in the Metaplex ecosystem.”

This inevitably raises obvious trust issues, however, there may also be some benefits to this model.

It turns creating new smart contract standards into an entrepreneurial activity and simultaneously reduces the due diligence burden on users, as they no longer need to check the deployment of individual token contracts.

On the other hand, this model and the cNFT model also show how costs can sometimes be hidden. If there are too many rent seekers, user costs can increase, and Solana structurally provides some opportunities that Ethereum does not have. MetaPlex may tax NFT transactions forever.

At the same time, cNFTs are very attractive to users and offer them lower costs, thus lowering overall fees. However, these reduced fees will be passed on to the DApp team to cover RPC (remote procedure call) fees to maintain the data. This means that, similar to the state rent issue, Solana’s DApps may fail the “Bahamas test.”

In all of this, it would be a huge mistake to say that Solana is less “decentralized” than Ethereum etc… This is not a question of decentralization… but rather a question of autonomy, aka censorship-resistance.

Ethereum charges high costs for maintaining decentralization

While Ethereum achieves immutability, autonomy, and censorship resistance, at least in theory, and charges users a high premium accordingly, Solana is cheap, passing the cost of security onto validators and DApp providers.

Therefore, in general, Solana DApps will have a harder time minimizing trust from their teams (impacting autonomy), and in theory, the economies of scale for Solana validation should be at least greater than that for Ethereum validators (decentralization).

Furthermore, we care about decentralization because it limits autonomy. Hence, the real issue with things like performance requirements is that Solana’s verification may be limited to complex data centers that are susceptible to subpoenas/seizures, which could lead to censorship.

Therefore, if you consider the USP (Unique Selling Proposition) of blockchain to be censorship-resistant and autonomous, then ETH remains a better choice than SOL because it is more suited to the unique purpose of blockchain.

However, what if Ethereum isn’t particularly good at resisting censorship either? What if Ethereum is not very autonomous in practice?

Ultimately, in a PoS (Proof of Stake) system, the pillar of autonomy relies on the community’s willingness to engage in UASF (User-Activated Soft Fork) and socially sanction validators engaging in censorship. Unfortunately, Ethereum’s recent performance in this regard, particularly with OFAC (Office of Foreign Assets Control), has not been notably strong.

The commercial reality of social sanctions in PoS is that you are not only sanctioning validators, but if these validators are institutions (which is likely), many of their innocent customers using staking services will also be affected.

Do a few Ethereum developers really cut off millions of dollars worth of ETH from Coinbase customers on social media because Coinbase complied with OFAC’s scrutinized smart contracts? I am skeptical, and it seems Vitalik is also skeptical (given his advocacy for privacy pools now).

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