You are reading an excerpt from our free but shortened abridged report! While still packed with incredible research and data, for just $20/month you can upgrade to our FULL library of 50+ reports (including this one) and complete industry-leading analysis on the top crypto assets. 

Becoming a Premium member means enjoying all the perks of a Basic membership PLUS:

• Full-length CORE Reports: More technical, in-depth research, actionable insights, and potential market alpha for serious crypto users
• Early access to future CORE ratings: Being early is sometimes just as important as being right!
• Premium Member CORE+ Reports: Coverage on the top issues pertaining to crypto users like bridge security, layer two solutions, DeFi plays, and more 
• CORE report Audio playback: Don’t want to read? No problem! Listen on the go.

Monolithic refers to a blockchain in which every node performs all parts of the blockchain: execution, consensus, and data availability. Execution refers to the computation of transactions, while consensus refers to ordering transactions and nodes coming to an agreement on the state. Data availability guarantees blocks are fully published to the network. The consensus layer plus data availability guarantees all blockchain data is published and accessible to anyone.

Solana is a monolithic layer-one (L1) smart contract protocol developed to enhance network scalability and performance through its novel Proof-of-History technology. The Solana ecosystem is supported by its own native cryptocurrency, SOL, an SPL token that operates similarly to the well-known Ethereum ERC-20 tokens. Through the SOL token, Solana has the ability to host decentralized applications (dApps), marketplaces, and other protocols to support a growing decentralized financial (DeFi) ecosystem.

Whereas modular blockchains separate these layers, dividing the total work done among the different specialized layers/nodes so that, on net, more total throughput is produced compared to what any individual node could have processed, e.g., a divide-and-conquer approach.

Modular chains provide potential improvements over monolithic chains in terms of network fees. Within a monolithic chain, all transactions compete for the same blockspace independent of the rest of the chain’s activity. However, a modular approach can optimize for different applications and thus more efficiently price resources.

A rollup’s TPS is dependent on the data capacity of their L1 for throughput. The more data capacity on L1, the higher the (theoretical) throughput for rollups. Once an L1 runs out of data capacity for the rollup, the limit has been reached, and no additional transactions can be processed. Therefore, now the limiting factor for a blockchain’s scalability is its data availability. 

To address this issue, there are “Data Availability Layers” - chains built to serve solely as a DA/shared security layer for rollups by specializing in ordering transactions and maximizing the DA capacity. In most cases, they generate a proof for L1 clients that (essentially) guarantees confirmation that all block data has been published on-chain. Examples such as Celestia and Polygon Avail only provide high data capacity; the rollups simply optimize execution.

Celestia and Solana

Celestia is a new modular blockchain that primarily serves as a "data availability network." By separating execution from consensus, Celestia can offer cheap transaction verification costs regardless of demand. Celestia can maintain high decentralization and scalability because it will enable users to launch light nodes from a basic mobile device.

Importantly, Celestia does not execute any transactions like typical rollups (Arbitrum, Optimism, zkSync, etc.). Validators on Celestia guarantee data availability for verifiers to authenticate the veracity of off-chain executions so as to eliminate any need for a challenge period like in Optimistic rollups. Data availability is critical in this regard because as long as all the execution data is made available on the mainnet, the chain does not require every node to execute every transaction in order to validate transactions and reach consensus. 

It is a network that has the latest state of an L2 that can be leveraged by verifiers to assess whether or not data is available (and, therefore, can reconstruct the prior state to check if execution has been done appropriately in different intermediate states). 

While Solana may be an Ethereum competitor, it’s not an Ethereum clone along with the likes of Binance Smart Chain (BSC), Avalanche’s C-Chain, Fantom, and others (all to varying degrees). Solana isn’t Ethereum Virtual Machine (EVM)-compatible, meaning existing Ethereum dApps and infrastructure can’t be easily ported over to Solana. Rather than the EVM, Solana operates within the LLVM, a standard compiler that separates human readable code (Rust) from assembly, which is low-level code that can take advantage of hardware optimizations. 

Solana's performance is wholly dependent on the hardware/computer performance of its validators, e.g. higher throughput is only achieved by more expensive, performant hardware. This works well when your chain only needs less than 10,000 TPS, but it can’t support millions of users and transactions without centralizing around a few mega datacenters facilitating all transactions. This future is not unlike the current state of the internet and, therefore, adds little value.

Even at today’s transaction numbers, Solana has been overloaded by transactions that have led to outages and a degraded network (discussed more below). This has, of course, happened to other chains like Ethereum in 2017 with Crypto Kitties and ICOs, but this is precisely why Ethereum was forced to find a sustainable scaling solution.  

Ethereum’s EVM can, in theory, handle up to ~2,000 TPS, as seen in Binance Smart Chain when you max out the gas limit and block times. However, even this is insufficient to service long-term block space demand. To scale sequencing, Solana made some impressive innovations: taking advantage of a parallelizable execution environment and a clever consensus mechanism, which allows for far more efficient throughput. But, despite its improvements, this is neither sufficient nor scalable. As Solana increases its throughput, the hardware costs to run a node and process transactions also increase.

Monolithic chains suffer from the fact that all use cases and dApps compete for the same limited block space. There can be no compartmentalizing of resources or efficient resources pricing like in modular chains. This means, for example, a top Solana dApp like Serum, a DEX that relies on lightning-fast transactions and low latency, will likely face increased competition for block space (to its detriment) with the rise of NFT adoption and minting. The two use cases are equally valid but have very different blockchain needs to service very different customers at very different frequencies. A monolithic chain can do nothing to rectify this.

In contrast, most modern blockchains are or intend to implement a modular approach to their chains and the scalability problem. Ethereum PoS and rollups, Polkadot, Cosmos, Avalanche, Celestia, Polygon, NEAR, etc. are all working on different approaches to scaling that involve splitting the blockchain’s total work among different layers and nodes so that greater throughput can be achieved than a single node.