Solana vs Polkadot | Key Differences And Similarities

Solana and Polkadot are highly visible blockchain technology projects that have drawn substantial interest from both investors and developers. While they do have some similarities, they are different in many ways, especially when looking at their fundamental purpose or use case. This article will look at both networks, providing an overview and explaining how they are alike, and how they are dissimilar.

Solana Explained

Solana is a blockchain network that was designed to provide fast transactions and therefore high bandwidth.[1] As for just how rapidly this network may process transactions, a wide range of figures have been thrown around.

Transaction Speed

The Solana docs, which provide substantial detail on the project, state that the network could potentially handle millions of transactions per second.[2] "The architecture describes a theoretical upper bound of 710 thousand transactions per second (tps) on a standard gigabit network and 28.4 million tps on 40 gigabit," per the Solana docs.

An entry on the Solana Blog states that the network "can get really fast as it is only limited by hardware constraints (ie: CPU/GPU, memory & bandwidth)."[3] The Solana network's transaction speed is so fast because it uses Proof-of-History (POH), a consensus mechanism that provides every transaction with a timestamp and therefore confirms information more rapidly.[4]

Lower Costs

In addition to processing transactions rapidly, Solana can also do so in a rather inexpensive manner, as these transactions cost an average of US$0.00025.[5] The fees of other networks have risen far higher. For example, the cost of processing a transaction on Ethereum (ETH) surpassed US$70.00 in 2021.[6]

Growing Interest

Solana's substantial visibility and its significant bandwidth have helped draw interest to the network. More specifically, the Solana network has more than 5 million non-fungible tokens (NFTs)[7] and more than US$11 billion in value locked into DeFi projects.[8]

Tech Issues

In spite of this new technology, and the accompanying possibilities, the Solana network has either slowed down or gone completely offline multiple times, provoking concerns about how reliable it is.[9]

The Solana network first became unavailable in September 2021, when it went offline for a total of 17 hours.[10] "The cause of the network stall was, in effect, a denial of service attack," an analysis posted to the Solana website explained. The network became overwhelmed with transactions, at first becoming sluggish and then halting activity completely.

Solana's mainnet beta also suffered "high levels of network congestion," according to a Twitter account with the handle @SolanaStatus.[11] The account explained that "excessive duplicate transactions" provoked the incident.[12]

SOL Token

In terms of tokenomics, Solana uses the SOL token.[13] Users can harness this native token to interact with smart contracts on the network or pay for transaction fees.

In the beginning, the network had 500 million SOL tokens.[14] However, this figure has changed over time, as the network burned units of SOL and new supply has been added following a specific Inflation Schedule.The Solana Docs state that "The primary token burning mechanism is the burning of a portion of each transaction fee." The network burns half of every transaction fee.

At the time of this writing, there were roughly 315 million SOL tokens in circulation, according to CoinMarketCap.[15]

Another thing that users can do with their SOL tokens is stake them and help confirm the network's transactions in exchange for rewards.[13]

Polkadot Explained

Polkadot is a project designed to help varying blockchains transmit information to one another.[16] The project's "About" page explains it as such:

"Polkadot is built to connect private and consortium chains, public and permissionless networks, oracles, and future technologies that are yet to be created. Polkadot facilitates an internet where independent blockchains can exchange information and transactions in a trustless way via the Polkadot relay chain."

The Polkadot whitepaper sheds more light on the matter, stating that Polkadot is a protocol that makes it so different blockchains can send each other any kind of data, a situation that helps enable more real-word use cases.[17]

The Relay Chain

Polkadot uses something called the Relay Chain, which serves as the primary chain of the system, and parachains, which attach to it.[18] As long as they meet certain requirements, different blockchains are able to connect to the Relay Chain as parachains and exchange information.

Because of the way Polkadot was built, individual parachains can send each other information in an environment that is trustless and secure.[18] Under this system, these parachains can put together blocks and submit them to the Relay Chain, whose validators will then check those blocks. If the submitted blocks pass the test, they are added to the final chain.

Polkadot's DOT Token

The Polkadot network uses the DOT token, a digital asset that serves three specific purposes.[19] The first of these is governance. The DOT token allows users to have total control over the platform, giving them say over matters like upgrades and setting the fees of the network.

Additionally, users can add parachains by locking up or "bonding" their tokens, which requires those tokens to be unavailable for a time.[19] Finally, users can stake their DOT, which helps support the consensus mechanism leveraged by Polkadot. More specifically, Polkadot uses something called Nominated Proof-of-Stake, which rewards users for temporarily devoting their tokens to the system.[20]

DOT Uses An Inflationary Model

The DOT token has an inflationary model.[20] While it originally had a total allocation of 10 million tokens, an event known as the redenomination changed this amount to 1 billion.[21] The current system (as of January 2022) is designed to produce an annual inflation rate of 10%.[20]

As of this writing, there were approximately 1.16 billion units of DOT, according to PolkaStats.[22]

How Are Solana And Polkadot Similar?

Solana and Polkadot are both blockchain projects that have generated significant visibility and become trending topics across social media.

Token Appreciation

Solana and Polkadot's respective tokens have appreciated significantly, too. The price of SOL climbed from less than US$0.90 in April 2020 to almost US$260 in November 2021, according to CoinMarketCap.[23] DOT has also risen substantially, climbing from less than US$3.00 in August 2020 to more than US$50.00 in November 2021.[24]

Assets Do Not Pay Dividends

In spite of these impressive gains, it is important to keep in mind that purchasing SOL or DOT is not like buying a stock. More specifically, SOL and DOT don't grant access to companies that generate revenue or earnings. These assets also do not pay dividends. As a result, they could be considered purely speculative assets.

Staking

Both of these projects make use of staking for consensus. More specifically, Solana uses Proof-of-Stake along with POH, leveraging POS to help the network maintain stability.[25] Polkadot uses a kind of POS called NPOS.[20]

They also offer those who stake their tokens rewards. By locking up their SOL tokens, users can generate rewards in the form of additional tokens and help support the network while doing so.[29] While tokens are tied up in this manner, users will be unable to access them.

Staking works similarly on Polkadot, where users can "stake" or tie up their DOT tokens for a brief time and help the network validate blocks in exchange for earning rewards.[20]

What Are The Differences Between Solana And Polkadot?

Solana and Polkadot are both blockchain projects, but they have completely different purposes.

Different Purposes

Solana is a network created specifically to provide rapid transactions and minimal transaction fees. On the other hand, Polkadot was designed to help different blockchains exchange information with each other.

Consensus Mechanisms

The two also differ in terms of their consensus mechanisms. Solana uses POH and POS.[25] On the Solana network, individual validators have the ability to weigh in on which specific blocks should be added to the blockchain, therefore confirming the transactions they contain.

Polkadot, alternatively, uses NPOS, which harnesses both nominators and validators.[26] Nominators support specific validators with their tokens. The validators, in turn, get to decide which blocks are added to the Relay Chain.[27]

Summary

Both Solana and Polkadot have managed to stand out as blockchain projects. They have differentiated themselves for their compelling use cases. Solana has stood out for its ability to handle an impressive number of transactions. Polkadot, on the other hand, has distinguished itself with its innovative and practical value proposition.

At the time of this writing, they were both listed in the top 20 cryptocurrencies by market value on CoinMarketCap.[28] Solana has enjoyed some very compelling gains, rising from less than US$0.90 to almost US$260, appreciating more than 25,000%.[23] Polkadot has also rallied, climbing from under US$3 to more than US$50, gaining more than 1,000%.

Going forward, it is impossible to know how well either of these projects will do, and how much their respective tokens will rise in value. However, investors do have a wealth of data they can pour through, including technical documents, the performance of SOL and DOT and also third-party assessments of these two projects.

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Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.

References

1

Retrieved 04 Feb 2022 https://academy.binance.com/en/articles/what-is-solana-sol

2

Retrieved 28 Feb 2022 https://docs.solana.com/introduction

3

Retrieved 28 Feb 2022 https://solana.blog/seriously-how-fast-can-solana-blockchain-get/

4

Retrieved 28 Feb 2022 https://solana.com/news/proof-of-history

5

Retrieved 28 Feb 2022 https://solana.com/

6

Retrieved 28 Feb 2022 https://ycharts.com/indicators/ethereum_average_transaction_fee

7

Retrieved 28 Feb 2022 https://solana.com/developers/nfts

8

Retrieved 28 Feb 2022 https://solana.com/developers/defi

9

Retrieved 28 Feb 2022 https://www.businessinsider.in/cryptocurrency/news/ethereum-killer-solana-network-crashes-for-third-time-in-six-months/articleshow/88703869.cms

10

Retrieved 28 Feb 2022 https://solana.com/news/9-14-network-outage-initial-overview

11

Retrieved 28 Feb 2022 https://twitter.com/SolanaStatus/status/1484947431796219906

12

Retrieved 28 Feb 2022 https://twitter.com/SolanaStatus/status/1484947435235463173

13

Retrieved 28 Feb 2022 https://academy.binance.com/en/articles/what-is-solana-sol

14

Retrieved 28 Feb 2022 https://docs.solana.com/inflation/terminology#

15

Retrieved 28 Feb 2022 https://coinmarketcap.com/currencies/solana/

16

Retrieved 28 Feb 2022 https://polkadot.network/about/

17

Retrieved 28 Feb 2022 https://polkadot.network/Polkadot-lightpaper.pdf

18

Retrieved 28 Feb 2022 https://wiki.polkadot.network/docs/getting-started

19

Retrieved 28 Feb 2022 https://polkadot.network/dot-token/

20

Retrieved 28 Feb 2022 https://wiki.polkadot.network/docs/learn-staking#

21

Retrieved 28 Feb 2022 https://wiki.polkadot.network/docs/redenomination

22

Retrieved 28 Feb 2022 https://polkadot.polkastats.io/

23

Retrieved 28 Feb 2022 https://coinmarketcap.com/currencies/solana/

24

Retrieved 28 Feb 2022 https://coinmarketcap.com/currencies/polkadot-new/

25

Retrieved 28 Feb 2022 https://solana.com/staking

26

Retrieved 28 Feb 2022 https://wiki.polkadot.network/docs/maintain-guides-how-to-nominate-polkadot#

27

Retrieved 28 Feb 2022 https://wiki.polkadot.network/docs/learn-validator

28

Retrieved 28 Feb 2022 https://coinmarketcap.com/

29

Retrieved 03 Jul 2022 https://support.exodus.com/article/1551-solana-staking-faq#about

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