What is Solana (SOL), How Does It Work, and Why Does It Matter?

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.

History of Solana

Year	Event
2017	Anatoly Yakovenko conceptualizes Solana.
First half of 2018	Greg Fitzgerald prototypes the concept, achieving 10,000 TPS. Next, the first company was co-founded by Fitzgerald, Yakovenko, and Stephen Akridge and is called Loom. Loom is changed to Solana due to its close resemblance with a similar blockchain project.
Second half of 2018	Solana scales and records a whopping 500k TPS in the final test.
March 2020	Solana is launched after raising $20 million from investors.
September 2021	Solana suffers its first outage for 17 hours following a transaction surge that forces the network offline.
May 2022	A repeat outage event, but this time, it lasts seven hours and is done by bots.
October 2022	Another outage lasts up to six hours due to a consensus bug in the validator client.
February 2023	The most recent outage occurs on 25 February, lasting for almost 24 hours

Solana was conceptualized in 2017 by former Qualcomm executive Anatoly Yakovenko. However, the project didn’t go live until three years later. Interestingly, it didn’t initially bear the name Solana – it was first known as Loom.

The defining quality of Solana is the use of cryptographic clocks. Following his experience as a designer of distributed systems at Qualcomm, Yakovenko made a notable discovery. He found that older blockchains like Bitcoin and Ethereum lacked cryptographic clocks, which helped keep the time between computer networks that lack mutual trust.

Also, the cryptographic clock enabled it to process a higher transaction output than Ethereum’s 15 transactions per second (TPS). This functionality became known as a proof-of-history (PoH) consensus algorithm.

To propel this project forward, Yakovenko collaborated with a former colleague, Greg Fitzgerald. They reimplemented the code using Rust instead of the original C programming language. Everything came to life in 2018 when Greg began prototyping the open-source implementation of the whitepaper.

The first release saw the project sign and verify 10,000 transactions in less than half a second. Subsequently, another developer, Stephen Akridge, joined forces and demonstrated that the network’s throughput could be further amplified by offloading signature verification to graphics processors.

This led to the inception of Loom – Solana’s answer to the throughput issue.

However, an unexpected challenge surfaced with this chosen name. Another Ethereum-based entity bore the name Loom Network. To avoid misinterpretation, the Loom team renamed the blockchain project after Solana Beach, located north of San Diego. And this was how the team came about the name.

In the latter part of 2018, Solana succeeded in scaling its technology for cloud-based networks and successfully processed 250,000 TPS on 19 July. Building on this progress, it continued its upward trajectory, eventually reaching a peak of approximately 500,000 TPS. This sustained growth paved the way for the project’s launch in early 2020, two years later.

The first Solana set of blocks was created and added to the blockchain on 16 March 2020, following a $20 million pre-seed funding led by Andreessen Horowitz and Polychain Capital. Since then, Solana has solidified its position as one of the best layer-1 smart contract protocols.

What Makes Solana Different?

Solana is geared towards heralding a new generation of financial products and services powered by blockchain technology. However, it does not go about doing it the way Bitcoin and Ethereum started.

Unlike its predecessors, which adopted proof-of-work (PoW) consensus algorithms known for their top-notch security but lower transaction speed, Solana takes a different path.

Bitcoin has stuck by the PoW mechanism, but Ethereum recently transitioned to the newer proof-of-stake (PoS) consensus algorithm. However, Ethereum is still grappling with speed and network charge concerns, prompting its reliance on layer-2 protocols like Polygon and Optimism.

Solana is inherently different from its older counterparts. The censorship-resistant protocol runs on a hybrid system of a proof-of-history (PoH) and a proof-of-stake system.

This dual processing power has seen Solana post at least 50,000 TPS. Yakovenko stated that the Solana network could process as much as 710,000 due to this system.

Although the PoH concept is akin to the Bitcoin timestamping system, it is applied in a modern context. According to Solana’s whitepaper, the PoH algorithm verifies order and passage of time between events. It encrypts the trustless passage of time into the distributed ledger technology, blockchain.

With the PoS system, validators are often tasked with verifying transactions. To do this, validators must stake or lock a certain amount of the network token to qualify. Solana’s dual system also has another benefit it grants to developers and retail users of the network. It is infinitely cheaper than Ethereum.

For context, an Ethereum transaction is measured as a gas fee, payable in Ether, which often goes as high as $500 in peak transaction periods. Solana costs only a fraction of this, with an average transaction charge of $0.00025. Each of these transactions is paid through its native token, SOL.

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.

Key Facts About Solana

Yakovenko raised $20 million in 2018 to launch the Solana blockchain;
The first block of transactions was executed on 16 March 2020, making it the official date of Solana going live;
The project sold $314 million worth of SOL to a group of investors led by Andreessen Horowitz and Polychain Capital;
Developers can build a wide array of dApps on Solana, including non-fungible tokens (NFTs), decentralized games, decentralized autonomous organizations (DAOs), and payment systems;
Solana has a 0% net carbon impact, making it an ESG investor’s dream for a decentralized investment vehicle;
It has 1,926 validator nodes, including Google, Brave browser, Circle, Meta, and others;
The platform has endured several network outages and a hard run at retaining its uptime. Solana Labs, responsible for developing and maintaining the protocol, released a report in July 2023 stating that its uptime performance has significantly improved.

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.

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 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.

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.