Solana (SOL)

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.

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.

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

• 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.
• Per latest update, Solana has 3,400 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 March 2024 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.

Solana vs. Ethereum

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

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:

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

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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