A blockchain is like a database used to store data. Unlike a traditional database with only a few copies of the entity – a live database and some backup copies, the records on a blockchain exist on thousands of computers (referred to as nodes). While a regular database uses tables to store data, blockchain contains data blocks.
Blockchains are used for digital currency transactions, and as technology emerges, these blockchains are used in numerous industries. For example, IBM uses a private blockchain to hold supply-chain records. Aside from financial records, the most prominent use of blockchain is for Non-Fungible Tokens (NFTs).
Numerous blockchains exist, but the leaders in the blockchain platform are Ethereum and Solana; they use technology in different ways to reach the same outcome.
Ethereum is the most established; it has been in existence since 2015 and is the most widely used blockchain for NFTs. Its popularity and approach to conducting transactions have led to expensive fees. The situation has provided an opening for competitors to enter the marketplace, with Solana, the most successful of the competitors. Solana started in 2017. However, in 2021, the popularity of NFTs and the limitations with Ethereum saw a significant increase in its use.
Ethereum is currently using a "proof-of-work" mechanism to operate. Any node that adds a new block to the chain must complete a complex puzzle. This process proves the computer has "done work," known as mining.
The news is broadcasted to other nodes in the network, and if accepted by others in the chain (in other words, consensus), a new block is added to the chain. The back and forth proof of agreement are time-consuming. It's the reason why Ethereum's transaction numbers are limited. The miner is rewarded in ETH for the work carried out (the digital currency associated with Ethereum).
Many people want to use the blockchain, leading to high transaction fees. Ethereum is in the process of moving to a “proof of stake” mechanism where a computer is allowed to validate transactions based on the number of ETH crypto coins it holds. This will result in more transactions and a reduction in fees. The drawback with the current “proof-of-work” is a slow process; it can only handle 15 transactions per second.
The Solana blockchain uses a different mechanism from Ethereum. It uses the “proof of stake” and “proof of history” approaches. “Proof of stake” means to carry out transactions, the node must hold crypto coins, in this case, SOL tokens. Solana can carry out as much as 50,000 transactions per second, a significant improvement on Ethereum.
There is no proof of consensus mechanism on the Solana blockchain. A timestamp determines when a process occurs, which is forwarded onto the next node to continue. Validation is carried out afterward utilizing the transaction time; it makes the process quicker. The vast number of transactions available on the Solana blockchain eliminates bottlenecks, and as a result, the transaction fees are low. However, the lack of proof of consensus leads people to question whether the Solana blockchain is decentralized.
As a result of the lower fees, many projects use the Solana blockchain. But the number is small compared to Ethereum. Solana has a smaller community of users and a shorter history as the newer entity. As a result, many investors are concerned and prefer Ethereum NFTs.
In December 2021, the Solana blockchain shut down for over 11 hours due to high memory consumption. This raises questions over the rules of decentralization. A decentralized system does not have one body of governance and should not wholly halt due to system failure.
Solana NFTs are eco-friendly. In contrast to Ethereum blockchain, it requires less power and less energy consumption. NFT projects on Solana are viewed as less trustworthy. Notable rug pulls have occurred where the project founders disappear with the funds following the mint. While this is also common with Ethereum, Solana NFTs are considered riskier.
NFTs have been dominated by the Ethereum blockchain and enjoy a near-monopoly. Other blockchains competing provide a more outstanding option for the investor. Solana blockchain has seen a meteoric rise in 2021; that pattern is set to continue in the future. Its technology schematics are advanced, while Ethereum's "proof-of-work" approach utilizes older techniques. It remains to be seen how the "proof of stake" approach, once rolled out by Ethereum, will affect the NFT market.