What is Solana (SOL)?
Over the years, one of the top challenging issues with most blockchain networks, including Bitcoin and Ethereum, is the inability to execute transactions in the fastest time possible. To provide a solution to this pressing issue of transaction speed, several layer-2 solutions such as the Bitcoin Lightning Network have been deployed. Solana is a layer-1 smart-contract project that has been created to solve the major challenges of blockchain networks. Solana blockchain, its token, and projects in its ecosystem are built on this.
Solana is among the few blockchains that seem to have found an answer to speed and scalability as it aims to solve the blockchain trilemma: security, speed, and scalability. Solana is (relatively) secured, fast, and scalable. Its dual and hybrid consensus algorithm mechanism is what gives the blockchain its uniqueness and (growing) popularity.
The Solana project started in 2017. The founder and co-founders are Anatoly Yakovenko and co-founded by Greg Fitzgerald. Although the idea and initial work on the project started in 2017, Solana was officially launched in March 2020 by the Solana Foundation, a non-profit organization dedicated to the decentralization, growth, and security of the Solana network. Solana has risen to be among the top 10 largest cryptocurrencies in the world following its huge market capitalization.
Get to know what Solana is, how it works, its native token, as well as what makes it unique in comparison with other blockchain platforms.
How Does Solana Work?
Solana is a high-speed blockchain that provides effective throughput and scale without sacrificing decentralization. Solana is a open source, third-generation blockchain platform with smart-contract functionalities.
Proof-of-Stake (PoS) and Proof-of-History (PoH) consensus mechanisms
To accomplish its purpose, Solana combines proof-of-stake (PoS) and the novel proof-of-history (PoH) consensus mechanism. This is in contrast to Bitcoin, for example, which uses proof-of-work (PoW), a highly energy-intensive and ecologically unfriendly consensus mechanism. PoS and PoH—the two-consensus mechanism approach—makes Solana distinct from other blockchains. It gives Solana the capability to execute up to 50,000 transactions per second.
In simple terms, PoH means a new block can be added to the blockchain network without any mutual agreement. In Solana, every node has its own clock and they take decisions, without consulting each other. PoH increases the speed of transactions, makes the blockchain network more efficient, and keeps a track record of all the transactions.
The PoH consensus algorithm is what enables transaction verification on the Solana network. Also, blocks are produced on the network by the algorithm using timestamps. It utilizes this information to determine if a transaction is genuine by taking into account the time it took for it to happen on the network. The Solana PoH algorithm runs parallel with the underlying PoS mechanism and this helps the network in recording immutable historical data and previous events on the network.
Solana blockchain is also censorship-resistant. This is because the Solana network is spread over thousands of independent nodes. Using its novel PoH mechanism, the Solana network can synchronize these nodes.
Other mechanisms in Solana Blockchain
1. Tower Byzantine Fault Tolerance (BFT) algorithm
The BFT system is like a safety shield for the Solana ecosystem. It ensures that a particular node failure doesn’t impact the working of the entire system. This algorithm enables the nodes to continue working even after numerous failures.
Solana enables multiple smart contracts to run at the same time. This saves time and makes Solana a cost efficient blockchain network. The technology which enables solana to run multiple smart contracts at the same time is known as “sealevel”.
Most of the tasks in Solana’s ecosystem are segregated to ensure fast processing of transactions. Solana assigns the input data to different hardwares that are involved in the network. Multiple hardware quickly validates the information blocks via a process known as pipelining.
Solana divides different blockchain nodes in smaller packets, the main purpose of this process is to increase the speed of transactions.
Due to the platform’s fast transaction-execution time and low fees, thousands of projects ranging from decentralized finance (DeFi), non-fungible tokens (NFTs), Web3, and more have been developed on the Solana blockchain. It is worth noting that transactions remain less than $0.01 for both developers and users on the Solana network. For this reason, many users and developers have embraced the platform and its native token.
Read also: What is Blockchain Technology? Meaning, Types, and Use Cases
What Makes Solana Unique?
The speed and scalability of Solana are two of its most captivating qualities. With its true web-scale blockchain characteristics, it is one of the few protocols that claim above 1000 TPS. Categorically, a minimum of 50,000 TPS is supported by Solana, making it at least 3800 times faster than the Ethereum (ETH) network and 10,000 times faster than the bitcoin (BTC) network.
According to data, Solana’s average block time is 400 milliseconds, and it can quickly add a new block to the network. In essence, the processing time on this platform is ultra-fast. Additionally, the Solana platform’s hybrid design allows for faster validation of smart contracts and other types of transactions.
Solana Blockchain and Ethereum Blockchain
Solana rivals Ethereum, which is currently the largest decentralized apps platform, by promising faster operation and lower transaction fees.
Solana is most easily described as an advanced Ethereum competitor. But there are a lot more apps on Ethereum. So why are some developers switching to Solana?
Ethereum has long been plagued by high transaction fees. These transaction fees sometimes cost hundreds or even thousands of dollars, especially at times of high network congestion.
Solana has a larger theoretical throughput—meaning it can handle more transactions per second than Ethereum—so the fees are currently extremely low, typically costing 0.000005 SOL, or about $0.001. This partly explains why developers are increasingly switching to Solana. At the time of writing, Solana has over 400 apps built on it, bringing about the rapid growth of the Solana ecosystem
Solana network however has a major challenge: repeated outages. Also, Solana, allegedly, favours its venture capital investors with unfair tokenomics. Before it became defunct in November 2022, FTX-related Alameda Research was one of Solana’s venture capital investors—a connection that Solana tried to shake off after the FTX implosion. Other investors in Solana are BlockchainWall Management (seed), and many others, including a16z, OKEx, Jump Trading, and Polychain Capital.
Read also: What is Ethereum?
The Solana Ecosystem
The Solana Ecosystem has blockchain projects across various sectors and industries. Below, we highlight 3 of the top projects across DeFi, lending protocols, NFT projects, Web3 apps, and wallets.
1. DeFi Projects
Serum: This is the major decentralized exchange (DEX) built on the Solana blockchain. It has center on-chain order books and machine-pairing features that enable users to profit from providing liquidity and pairing services.
Raydium: It is an AMM (Automated Market Maker). Raydium is used to swap, farm, and stake. It is connected with Serum’s order book.
Phantom: a digital wallet reimagined for DeFi, making it safe and easy to store, send, receive, collect, and swap tokens on the Solana blockchain.
2. Lending Protocols
Apricot Finance: a next-gen lending protocol that supports cross-margin leveraged yield farming. The mission is to help users maximize yield while protecting their downsides.
Francium: a DeFi strategy platform that provides yield strategies and a decentralized, strategized building infrastructure designed and built specifically for DeFi users.
Solend: described as “the bank of the future”, Solend is the leading algorithmic, decentralized protocol for lending and borrowing on Solana.
3. NFT Projects
Exchange.Art: a Solana NFT Marketplace focused on 1/1 art and independent creators. Exchange is the most innovative NFT marketplace on Solana.
Magic Eden: Building the biggest and most liquid NFT marketplace globally and home to the next generation of digital creators.
Solsea: The first NFT marketplace that enables creators to choose and embed licenses when they mint NFTs.
4. Web3 Apps
Audius: the latest project to move over to Solana and has been growing rapidly, now with over 1 million monthly listeners. Audius is creating a fully decentralized community of artists, developers, and listeners collaborating to share and defend the world’s music.
Phantasia Sports: The #1 blockchain-powered, peer-to-peer fantasy sports platform. Phantasia offers daily and season-long fantasy sports contests all securely stored on the blockchain.
Grape Protocol: is a decentralized social networking protocol to create, reward, and secure any online community by harnessing the power of Solana.
In the Solana ecosystem, Tether ($USDT) and USD Coin ($USDC) are two of the most common USD stablecoins. To view SOL transactions as well as transaction history, Solscan is Solana’s tooling + explorer platform available to anyone. And with Solana Beach, stakeholders of the Solana blockchain can explore the network’s statistics, validators, and token metrics.
Read also: What are the top 5 blockchain projects you should know?
Solana (SOL) in the Market
Just like most blockchain platforms, Solana blockchain has its native token. The native token is also called Solana, with the ticker, SOL.
While SOL serves as the governance token of the chain, it is also a digital asset that can be traded on several top exchanges, including Binance, Coinbase, and KuCoin among others.
According to Coinmarketcap, the circulating supply of Solana (SOL) is over $1 billion with a total supply of 539,312,705, at the time of writing.
In May 2021, SOL price per token was only about $0.95. Interest in Solana (SOL) was at its peak in 2021 when the utility token recorded its highest dollar value per token. That is, in November 2021, SOL reached an all-time high (ATH) of $260.06. It became the fourth-largest crypto in the world with a market cap of $72 billion. At the time of writing, SOL has lost up to 90% of its ATH price.
Regardless, developers and investors are still interested in the token, positioning themselves to benefit from the advantages associated with the Solana blockchain.
Read also: What are the top 5 centralized crypto exchanges you should know?
While Solana is among the popular and widely adopted smart-contract platforms, it is not a perfect blockchain as it has recorded a few network outages over the years. Consequently, trust in the project has been affected to some extent.
But the advantages and benefits of Solana blockchain in the area of scalability and speed are what continue to make Solona attractive, particularly for developers. And this is exactly why Solana is generally considered as a promising project in the crypto market. Before you jump on the SOL cab for a ride, do your own research (DYOR).
Read also: Introduction to Polygon and Its Ecosystem
Credit to Contributing Authors: Ndianabasi Tom and Thelma Opurum.