What Is Solana? | How Does SOL Crypto Work? | Notum
Feb 04, 20226 min read
Solana is a blockchain platform designed for running decentralized applications (dApps). It was founded in 2017 by San Francisco-based Solana Labs. Solana is known for much faster transactions it can process and lower transaction fees compared to such blockchains like Ethereum.
The blockchain has its own currency called Solana (SOLUSD) and with the ticker symbol SOL which is used to pay transaction fees and for staking. It also empowers holders to vote in future upgrades. It’s also used by developers of non-fungible tokens (NFTs), dApps, and other software projects.
- A fast cryptocurrency that people consider as a potential alternative to Ethereum (ETH);
- It hosts over 350 apps on its network;
- A new technology, the PoH mechanism, made it possible to speed up the transaction time. It can process around 50,000 transactions per second (TPS).
Solana is designed to guarantee that network usage expenses are less than one cent per transaction, with new more than twice-per-second confirmed blocks. How is that speed possible? The answer is Solana’s innovative PoH mechanism that enables operating faster.
Solana claims that it can host hundreds or thousands of transactions per second at an average price of $0.00025 per transaction. Compared to Bitcoin, which can sometimes be really slow and needs about 90 minutes to process and confirm a transaction, Ethereum charges relatively high fees.
The network has some features worth mentioning such as:
- Sealevel — Solana allows numerous smart contracts to run at the same time. This saves time and makes Solana a cost-efficient blockchain network.
- Gulfstream system — this system replaces “memepool needs”, as Solana's network can manage a memory pool size of 10000 transactions.
- Tower Byzantine Fault Tolerance (BFT) — Solana is protected by BFT, which ensures that a particular node failure doesn’t impact the working of the whole system. This algorithm helps the nodes to continue working even after numerous failures.
- Cloudbreak — Solana follows a horizontal scaling method, enabling it to increase its scalability. Cloudbreak organizes a database that can read and write transaction input, and it’s responsible for setting up a connection between hardware and software.
- Pipeline — Solana spreads tasks among different hardwares that quickly validate the information blocks.
- Turbine – Solana divides blockchain nodes into smaller chunks, the main purpose is to increase the transactions’ speed.
- And as the cherry on the cake — a proof-of-history concept (PoH).
Proof-of-History Concept (PoH)
Anatoly Yakovenko, who is Solana's co-founder, published a whitepaper in November 2017 describing the Proof of History (PoH) concept. PoH is proof for verifying order and period of time passed between events, and it is used to encrypt trustless passage of time into a ledger.
Yakovenko pointed out that blockchains that were then publicly available did not rely on time, so each node in the network had its own local time zone without relying on any other participants' time in the network. Due to such flaws, there was no guarantee that every other participant in the network would make the exact same choice.
Proof-of-history provides a cryptographic timestamp that empowers every validator in the network to trace the correct order of transactions or events. Thanks to PoH, all nodes on the Solana blockchain can agree on the time in the network without communicating and agreeing with each other on what time it is. As validators are in charge of their own clock, the verification process is reduced. It highly improves the speed at which transactions are processed on the Solana network.
The nodes can agree on the time prior to consensus about the transactions, creating a special environment that can manage far more transactions than any other blockchain network.
From a technical point of view, proof of history can't be called a consensus mechanism, but it is critical to Solana's speed since it allows its proof-of-stake blockchain to operate better than other blockchain technologies.
Staking and Validating Solana
How to earn money with Solana? That’s quite easy — you can simply become a validator or a liquidity provider for the Solana network. The Validating option asks for high computing power but staking your SOL to provide liquidity to a pool doesn’t require transferring or selling your holdings.
Powerful computing devices with 12-core processors, 128GB or more of random access memory (RAM), and 1.5TB of hard drive space would allow you to validate transactions. You can also use a virtual computing device using a cloud platform.
According to the proof-of-history operating protocol, Solana validators use a system of time stamps and cryptographic verification for adding new blocks to the blockchain. Validators add blocks at the same time, and they are synchronized across the whole Solana network a bit later.
The Solana blockchain gives its validators voting privileges within the Solana network. It is worth mentioning that Solana validators can participate without a minimum SOL balance, using the so-called Solana vote account.
Plus, if you have a wallet that can hold SOL and Solana-based tokens, such as Phantom, Waves, or Sollet, you can be engaged with different apps there. You can also trade one token for another on a decentralized exchange (called DEX) such as Raydium, or buy an NFT on the Solanart marketplace.
Solana vs. Ethereum
People often call Solana an “Ethereum killer”, but why? Let’s compare the two networks briefly. Among Solana’s strong points are its transaction fees which are low, about 0.000005 SOL, or around $0.001, and the transactions themselves are really swift and smooth, they are usually confirmed within a minute. Solana operates around 50.000 TP/s compared to Ethereum’s 15 TP/s.
Despite all the advantages, Solana isn’t a bed of roses only. Solana is still in beta. It's quite strange and risky to invest your money or build an app on the platform once the project is in beta version. Above all, Solana asks its validators to have extremely high computing power. The point is that validator nodes aren't mighty enough to manage the network activity slowdown processes or cause instability on the platform.
Ethereum has long been plagued by high fees for transactions, which sometimes skyrocket into hundreds or even thousands of dollars, especially at times of high network congestion.
It’s evident that there is no obvious winner in this competition of networks. The market and people decide which one is going to be the best but both systems can easily coexist.
Solana’s Last Updates
As you probably know, Solana has an alternative to ERC - 20 tokens. Called “Solana Program Library” (SPL). Coinbase, the US-based crypto exchange, plans to allow withdrawals of SPL.
While Ethereum-based tokens like Shiba Inu (SHIB) and Binance Coin (BNB) have circulating market capitalizations of around $10 billion, the biggest SPL token by the same metric is Serum (SRM) at $281 million, according to Coinbase data.
One of the biggest NFTs marketplaces on the Net, OpenSea might support Solana NFTs in the near future but it’s still more like a buzz.
Helpful Solana Links
Here are two main tools to track your SOLs — Solscan, here you’ll find all your transactions and other transaction histories. The second one, Solana Beach, explores validators, transactions, blocks, and activity on Serum.
If you are interested in Yakovenko's whitepaper we've mentioned earlier — enjoy reading it here.
NFTs admirers and lovers can definitely enjoy the following websites — digital eyes, solanart.io, magic eden, and solsea.io.
Once you want to check on Solana’s price growth — have a look at these illustrative stats and charts that compare different coins and tokens, The Coin Perspective, CoinMarketCap, and Coingecko.
Solana made it possible to have the quickest transactions on low fees, it introduced a new algorithm called Proof-of-History (PoH), it made people compare it with such gigantic ecosystems as Cardano and Ethereum, it has ambitious plans with introducing a Solana Program Library which is opposition for an ERC-20 token.
If everything is going to be alright, Solana will have a bright, promising future and become a strong player on the market to give people better variety for crypto investing and trading, so let’s hope it will.