Summary: Ethereum is the superior Layer 1 blockchain compared to Solana because it has more DeFi applications, more Total Value Locked, a longer history, and a more decentralized consensus design.
Ethereum is the gold standard in blockchains and is the closest to solving the 'blockchain trilemma' through their sharding and multi-layer scaling implementation.
Solana and Ethereum Comparison
In this Solana vs Ethereum guide, we will compare and contrast the two protocols in terms of their underlying architecture, consensus mechanisms, token economics, governance models, and development ecosystems.
Ultimately, we aim to provide readers with a well-rounded understanding of each protocol so that they can make informed decisions about which platform to use for DeFi, NFTs, or application development.
What is Solana?
Solana is a high-performance blockchain protocol that is optimized for speed, scalability, and security. The protocol utilizes a unique Proof of History (PoH) consensus mechanism that allows it to process transactions at speeds up to 50,000 TPS. In addition, Solana’s native token, SOL, is used to power the network and incentivize node operators.
What is Ethereum?
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of fraud or third-party interference. The Ethereum network is powered by the native cryptocurrency, Ether (ETH). Ethereum also features a built-in programming language called Solidity, which allows developers to write smart contracts on the Ethereum blockchain.
In terms of architecture, Solana utilizes a single-layer architecture whereas Ethereum utilizes a multiple-layer architecture. Solana’s single-layer design makes it more scalable than Ethereum because there is no need to process transactions through multiple layers (i.e., sharding).
Ethereum’s multiple-layer design, on the other hand, makes it more flexible because each layer can be optimized for different purposes (e.g., scalability, security, etc.). An example of the multi-layer design are Layer 2 networks like Arbitrum and Optimism, which borrow the security of Ethereum but act as an execution layer on a separate network.
Solana uses a Proof of History (PoH) consensus mechanism whereas Ethereum uses a Proof of Work (PoW) consensus mechanism. PoH is a novel consensus mechanism that is designed to be more energy-efficient than PoW, but is significantly more centralized because it has less than 40 validators.
That said, Ethereum will be transitioning from Proof of Work (PoW) to Proof of Stake (PoS) in an upcoming hard fork in Q4 of 2022. This will make Ethereum faster, more scaleable, and have less emissions by reducing the inflation rate paid out to miners. This change will mean that Ethereum has the best and most decentralized system.
Solana vs Ethereum DeFi Ecosystems
Solana and Ethereum are both in the Top 5 in terms of total value locked in decentralized finance applications on their blockchain. That said, Ethereum is the clear winner with $48 billion in value locked compared to Solana's $2.56 billion in total value locked.
Ethereum also has Layer 2 networks that have vibrant DeFi ecosystems like Polygon, Arbitrum, and Optimism. These Layer 2 platforms and applications are compatible with an Ethereum or EVM wallet like Metamask.
Solana has been the fastest-growing Layer 1 blockchain when it comes to NFTs in 2022 after seeing a huge boost following the Solana OpenSea integration. That said, it still lags in volume when compared to Ethereum. Generally speaking, Ethereum trades around $10m in daily NFT volume, whereas Solana sees $1m in NFTs traded.
As you can see in the table below, Ethereum (ETH) based collections are 9 of the top 10 on OpenSea. This highlights their dominance on large NFT marketplaces like OpenSea, Rarible, LooksRare and other platforms.
Solana vs Ethereum Tokenomics
The native tokens of each protocol serve different purposes. On Solana, the SOL token is used to power the network and incentivize node operators. On Ethereum, the ETH token is used to pay for transaction fees (“gas”) and is also used as a means of exchange.
Ethereum's token design is superior to Solana's because of EIP-1559, which was a protocol change that started to burn transaction fees on the network. This is created a deflationary aspect to the ETH's tokenomics, which is why it has largely outperformed the Solana token.
Both Ethereum and Solana have their advantages and disadvantages. Ethereum is the more dominant platform in terms of total value locked, tokenomics and NFTs, whereas Solana has a superior architecture for scalability. That said, both protocols have vibrant ecosystems with many use cases for developers to explore. Ultimately it's up to each individual developer or user to decide which platform is best for their own needs.
Dylan Matthews is the Co-Founder and head of operations at Buy Bitcoin Bank, with a background in engineering and experience as a Prop Trader. He has leveraged his knowledge and skills to build and scale the platform, providing users with a seamless experience for buying and selling cryptocurrency.