Solana (SOL)

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What is Solana?

Solana is a layer-1 blockchain platform seeking to solve the trilemma of speed, security, and decentralization. The blockchain protocol is one of several competing decentralized ledger technologies, including Ethereum, Cardano, and Ziliqa, looking to offer a robust ecosystem of cryptocurrency-powered products and services.

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Like other new-generation blockchain protocols, Solana incorporates smart contract capabilities, allowing developers to build decentralized applications (dApps) and services.

In the meantime, the platform distinguishes itself by embracing a distinctive architectural approach, which enables the processing of thousands of transactions within seconds, eliminating the need for a layer-2 protocol to offset the workload.

What is Solana?

Key Takeaways

  • Solana is a layer-1 blockchain that addresses the challenges of speed, security, and decentralization.
  • The platform processes thousands of transactions per second without needing a layer-2 protocol, making it highly efficient.
  • Solana was conceptualized in 2017 by Anatoly Yakovenko and initially named Loom before being rebranded.
  • The proof-of-history (PoH) consensus algorithm is central to Solana’s ability to process significantly more transactions per second than Ethereum.
  • Despite its success, Solana has faced several network outages, highlighting ongoing challenges in maintaining network stability.

History of Solana

Solana was first coined in 2017 by Anatoly Yakovenko, a former Qualcomm executive, to overcome the limitations of Bitcoin and Ethereum. Initially named Loom, the project focused on solving transaction speed and efficiency issues.

Yakovenko identified the absence of cryptographic clocks in older blockchains, which hindered consistent timing across networks without mutual trust. This led to the development of the proof-of-history (PoH) consensus algorithm, enabling Solana to process significantly more transactions per second (TPS) than Ethereum.

Due to a naming conflict with another project, the team renamed it Solana, inspired by Solana Beach in California. By 2018, Solana had scaled to process 250,000 TPS and eventually reached 500,000 TPS.

Key Facts About Solana

How Does Solana Work?

How Does Solana Work?

Solana relies on the PoH and PoS consensus algorithms. At its core, the PoH serves as the primary architectural foundation. It engages in a series of computations that capture digital records of events for verification. These events are often presented as cryptographic clocks that show timestamps of all transactions posted on the network alongside a data structure added to it.

While the PoH system leverages the renowned Bitcoin SHA-256 hashing system, it incorporates the streamlined PoS framework of Tower Byzantine Fault Tolerance (BFT). Through this BFT mechanism, consensus or transaction agreement is established. The Tower BFT mechanism ensures that the network is secure and operational and plays the role of another validation tool.

Once transactions are sent in, validators run them through the SHA-256 hashing algorithm to find their hash value. When the value is attained, it is recorded as a piece of data and linked to the previous link of the hash index.

Next, the PoH algorithm creates a timestamp of the new data, which is added to the network.

Solana vs. Ethereum

Here’s a comparison table highlighting key differences between Solana and Ethereum:

Solana vs. Ethereum

Feature Solana Ethereum
Consensus Mechanism Proof of History (PoH) + Proof of Stake (PoS) Proof of Stake (PoS)
Transaction Speed Up to 65,000 transactions per second (TPS) Approximately 15-30 TPS
Transaction Finality < 1 second ~6 minutes
Scalability High, due to PoH and efficient network architecture Moderate, planned to improve with Ethereum 2.0 (sharding)
Gas Fees Very low, typically fractions of a cent Variable, often high, depending on network congestion
Smart Contract Language Rust, C, C++ Solidity
Launch Date 2020 2015
Development Community Growing rapidly Largest and most active
Decentralization More centralized due to fewer validators Highly decentralized with thousands of validators
Ecosystem Expanding DeFi, NFTs, and various dApps Established with extensive DeFi, NFTs, and dApps
Energy Efficiency Energy-efficient, especially with PoH Improved with PoS, less energy-intensive than PoW
Key Strengths High throughput, low latency, and low costs Robust security, large developer community, and widespread adoption
Challenges Relatively newer, faces occasional network outages High gas fees, scalability issues pre-Ethereum 2.0

Proof of History

Proof of History (PoH) is a consensus mechanism introduced by Solana to improve blockchain scalability and transaction throughput. Unlike traditional consensus algorithms, which require nodes to communicate with each other to agree on the time and order of events, PoH uses a cryptographic clock to timestamp transactions.

This approach reduces the need for extensive communication between nodes, thereby significantly increasing the speed at which the network can process transactions.

The cryptographic clock in PoH is implemented using a verifiable delay function (VDF). This function requires a specific amount of time to compute, ensuring that events are recorded in the correct sequence without the need for real-time synchronization across the network.

Each event or transaction is hashed with the output of the previous event, creating a historical record that nodes can quickly verify. This sequence of hashes provides a clear, cryptographic proof that events occurred in a specific order, hence the name “Proof of History.”

What is SOL?

Like most crypto-based financial solutions, Solana is powered using an in-house network token called SOL. The digital asset was launched in 2020 and quickly skyrocketed through the global crypto ranks.

What is the SOL Token Used for?

Besides functioning as a speculative instrument, the SOL token performs several other functions in the blockchain network. It is used as a payment medium for validating transactions on the network and staking.

As of June 2024, the circulating supply of SOL is 461,793,534, with a total supply of 578,312,688, according to data from CoinMarketCap. Solana’s circulating supply is a crucial metric for investors and users of the network, as it impacts the token’s market capitalization and perceived scarcity.

What is Solana Staking?

Staking is an integral feature of all PoS-enabled platforms, and the SOL token is no exception. The concept revolves around locking up tokens to secure the network. In return for doing this, stakers are rewarded with newly minted coins.

There are a few ways through which users can contribute to network security and reap rewards:

Become a validator

A validator is a computer node or network that is tasked with the responsibility of verifying transactions. Though traditionally for big techs and wealthy individuals, Solana allows most to participate. There’s no set minimum SOL for staking, but a 0.02685864 SOL reserve is necessary for a vote account, which validators use to approve transactions.

Validators must also submit daily vote transactions costing up to 1.1 SOL. In return, they earn commissions and block rewards from transaction fees and the Solana blockchain, respectively. Within an epoch of 432,000 slots, validators get chances to verify transactions and earn their rewards.

Become a delegator
Delegators are regular SOL token holders who lock up their tokens with a validator to earn staking rewards. These rewards increase in line with inflation measures implemented by the blockchain network. They are then distributed to delegators based on the expected rate.

What Makes Solana Unique

  • Solana differs from Bitcoin and Ethereum, which started with proof-of-work (PoW) consensus algorithms.
  • The project uses a hybrid system of proof-of-history (PoH) and proof-of-stake (PoS) for high transaction throughput.
  • Solana can process at least 50,000 transactions per second (TPS) and potentially up to 710,000 TPS.
  • The PoH algorithm verifies the order and passage of time between events, similar to Bitcoin’s timestamping but applied in a modern context.
  • Validators in Solana must stake a certain amount of the network token to qualify for transaction verification.
  • Solana’s dual system offers significantly lower transaction costs compared to Ethereum, with an average fee of $0.00025 per transaction.
  • Transactions on Solana are paid through its native token, SOL, making it a cost-effective alternative to Ethereum’s often high gas fees.

Solana Pros and Cons

Pros

  • High transaction speed
  • Low transaction fees
  • Scalability
  • Growing ecosystem
  • Developer-friendly
  • Energy efficiency

Cons

  • Centralization concerns
  • Network stability
  • Newer ecosystem
  • Competition
  • Regulatory risks

    Future of Solana

    Despite its shortcomings, Solana remains a dominant player in the blockchain space. With its low fees and high-speed offering, the platform is poised to attract more blockchain developers.

    This indicates a promising trajectory for the popular Ethereum killer.

    The Bottom Line

    Solana is a layer-1 blockchain designed to tackle the challenges of speed, security, and decentralization. Solana, meaning “sunlight” in Spanish, was conceptualized in 2017 by Anatoly Yakovenko and initially named Loom before being rebranded.

    Its unique proof-of-history (PoH) consensus algorithm allows it to handle significantly more transactions per second than Ethereum. Despite its impressive capabilities, Solana has encountered several network outages, underscoring the ongoing challenges in maintaining network stability.

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    Ruholamin Haqshanas
    Cryptocurrency journalist
    Ruholamin Haqshanas
    Cryptocurrency journalist

    Ruholamin is a crypto and financial journalist with over three years of experience. Apart from Techopedia, he has been featured in major news outlets, including Cryptonews, Investing.com, 24/7 Wall St, The Tokenist, Business2Community, and has also worked with some prominent crypto and DeFi projects.  He holds a Bachelor's degree in Mechatronics. Ruholamin enjoys reading about tech developments, writing, and nature-watching