Blockchain networks have long been proposed as new innovative payment rails. However, over the years, blockchain networks have struggled to scale to support the high throughput, low-cost, secure transactions that payment companies need and consumers expect. Over the past year, the Visa team has been closely following the technical innovations behind blockchain scalability and has been encouraged by the significant progress made by new L2 networks on Ethereum and blockchain alternatives built from scratch. Our goal is to deeply understand the technical characteristics of blockchain networks and explore how these technical characteristics can be used to help enhance our existing network and create new products for commerce and money movement.

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While we believe that the payment ecosystem may use multiple blockchain networks, we think the Solana blockchain network has the potential to be one of the networks that helps drive mainstream payment flows. Solana has a lot of advantages in payments due to its speed, scalability, and low transaction costs, which helps make it an excellent candidate for efficient blockchain settlement rails using stablecoins such as USDC. The Solana blockchain network has many key features and novel innovations that are worth exploring for anyone interested in payment technology.

1. Visa-scale transaction throughput

As a global payment network, Visa can process over 65,000 transactions per second. While Solana has not executed transactions on the scale of Visa, Solana averages 400 user-generated transactions per second (TPS), often surging to over 2,000 TPS during peak demand. This is a significant level of throughput that makes it useful for testing and piloting payment use cases. In comparison, Ethereum processes an average of 12 TPS and Bitcoin processes about 7 TPS.

Parallel Transaction Processing: Based on its high transaction throughput design, Solana can process transactions in parallel, which helps to greatly improve network efficiency. Transactions affecting separate accounts can be executed simultaneously, allowing Solana to effectively support payment and settlement scenarios for two-party transactions or single-direction payments to multiple parties.

In Solana, smart contracts called programs can also be executed in parallel. Transactions specify the state or account to interact with, allowing validators to run non-conflicting transactions simultaneously. Unlike other chains such as Ethereum, which use a single-threaded model, Solana takes a multi-threaded approach to parallel transaction execution. In short, while blockchains such as Bitcoin and Ethereum process transactions sequentially, the Solana architecture allows multiple transactions to be processed simultaneously. This design helps prevent congestion in one part of the network from affecting the overall network performance.

2. Predictable low transaction costs help improve payment efficiency

As for costs, Solana’s transaction fees are typically less than $0.001, making them not only affordable but also predictable. This low-cost predictability makes it an attractive network to explore efficiency gains and cost savings for existing payment operations. In the chart below, Solana clearly outperforms from a cost perspective when compared to Bitcoin and Ethereum, where fees can fluctuate in unpredictable ways depending on the demand for transactions executed on the network. A network with unpredictable transaction costs could make it more difficult for payment companies to manage their products and could lead to confusing consumer experiences.

Cost Predictability through Localized Fee Markets: Solana’s localized fee markets are unique among blockchains. This innovation is closely tied to Solana’s parallel processing capabilities, where non-overlapping transactions are executed in separate threads, like vehicles traveling on separate roads. Network congestion is a significant reason why other blockchain networks may experience fee increases, which can have a negative impact on the entire system. The popularity of NFT issuance could increase network congestion, making consumer P2P transactions (which may occur simultaneously) more expensive or even economically infeasible.

Solana’s approach helps ensure that congestion in one account (e.g. Alice’s USDC balance) does not impact other accounts (e.g. Bob’s USDC balance). If an account becomes busy due to high demand for a specific asset (like an NFT), only fees for that specific account will increase. Fees for other accounts will not be affected by the congestion and will remain stable. This results in a fee market that responds to the needs of the use case. When demand for a specific asset surges, the transaction cost of that asset will temporarily rise. At the same time, the costs of other transactions on the chain are unaffected. By allowing computations using different states to run in parallel, Solana can create fee markets based on the field of “state competition” rather than having a single global fee market.

3. Consumers expect transaction finality

Transaction finality measures how quickly users can expect their actions to be confirmed on a blockchain network. For payments, transaction confirmation time is just as important as network throughput. For example, Ethereum’s transaction confirmation time averages about 12 TPS; however, due to gas limits during periods of network congestion and the requirements of smart contracts, users may experience several minutes of wait time before their transactions are confirmed. Solana targets a slot time of 400 milliseconds, but can actually achieve between 500 and 600 milliseconds.

The vast majority of applications in Solana use the "optimistic confirmation" mode to achieve finality. Optimistic confirmations are a mechanism used by the Solana blockchain to achieve finality without waiting for all validators (or entities responsible for producing blocks) to vote on blocks. In optimistic confirmation mode, a block is considered finalized if validators representing more than two-thirds of the delegated staked validators vote on it, and none of the optimistically confirmed blocks are rolled back or successfully achieve finality. This mechanism allows Solana to achieve finality in a shorter time than many other blockchains. Faster transaction completion speeds lead to a better payment experience. In comparison, Bitcoin can take up to 60 minutes to create an additional six blocks before a transaction is considered safe and final.

4. Availability: Large number of nodes and multiple validator clients

A payment network is only effective if it can always initiate and execute transactions when a user needs to pay. For blockchain networks, availability is best measured by the number of independent participants, or nodes, that work together to operate the network so that consumers can initiate transactions. As of July 2023, the Solana network has an astonishing 1,893 active validators (entities responsible for generating and voting on blocks). In addition, there are 925 nodes called RPC nodes, which may not create blocks themselves but maintain local records of transactions. The large number of nodes in a blockchain network enhances its resilience and redundancy. If some nodes experience problems or go offline, as long as a sufficient number of nodes remain operational, the network can still operate normally without data loss. The Solana community is also concerned about the diversity of node geography and infrastructure providers to make the network more robust in response to events such as natural disasters or changes in access policies by providers. Solana network nodes are distributed in more than 40 countries, with hundreds of unique hosting arrangements and locations. This helps ensure that the network can operate smoothly and reliably even in the face of technical challenges.

Validator clients are software tools that enable node operators to act as validators on proof-of-stake blockchains. Diversity in validator clients enhances network resilience. While one client may have a bug or vulnerability, another may not. This ultimately reduces the likelihood of a single software issue bringing down the network. Solana initially used a validator client from Solana Labs. In August 2022, Jito Labs launched a second validator client, jto-Solana, for the mainnet. Soon after, Jump Crypto launched Firedancer (in beta), a standalone C++ validator client. Firedancer stands out for its potential to bring substantial performance enhancements, with live demonstrations reaching 600,000 TPS. The purpose of requiring different validator clients is to keep the network running stably. In addition to Ethereum, Solana is one of the very few chains that has multiple, fully independent validator clients.

5. Meeting modern needs

Solana’s unique technical advantages, including high throughput from processing transactions in parallel, low costs from a localized fee market, and high resiliency with a large number of nodes and multi-node clients, come together to create a scalable blockchain platform with a compelling payments value proposition. This is part of the reason why we decided to expand our stablecoin settlement pilot to include Solana network transactions. As we experiment with our stablecoin settlement capabilities on Solana, we also plan to test Solana’s ability to meet the needs of modern enterprise financial operations. #DeFiChallenge