Solana (SOL) is a cryptocurrency designed to operate similarly to and improve upon Ethereum. Named after a small coastal city in Southern California, Solana is the brainchild of software developer Anatoly Yakovenko.
What is Solana?
Solana is a blockchain that shares many notable similarities with Ethereum—in fact, it is often called an “Ethereum killer.” Like Ethereum, the SOL token can be purchased on most major exchanges. The real value of this token lies in performing transactions on the Solana network, which boasts unique advantages.
The Solana blockchain uses a proof-of-history consensus mechanism. This algorithm uses timestamps to determine the next block in Solana’s chain.
Most early cryptocurrencies, like Bitcoin and Litecoin, use a proof-of-work algorithm to determine the blocks in their chain. Proof of work uses a consensus mechanism that relies on miners to decide what the next block will be. However, this proof-of-work system is slow and resource-intensive, leading to massive energy consumption. This is one reason why Ethereum shifted to a proof-of-stake system, reducing energy consumption by 99.9%.
Unlike the previous proof-of-work mechanism, proof of stake uses staking to determine the next block. Staked tokens are held as collateral by the blockchain until validators reach a consensus on the next block of the chain.
History of Solana
Solana was founded in 2017 by software engineer Anatoly Yakovenko. With a deep technology background, Yakovenko initiated this project with a core team including Greg Fitzgerald, Stephen Akridge, and three others, giving birth to Solana Labs.
The whitepaper for the Solana network was released the same year. The platform conducted 5 rounds of ICOs, raising over $25 million to launch and release the SOL token on major exchanges.
How Solana Works
The focus of the Solana Foundation is to make DeFi accessible on a larger scale, and they use the PoS consensus mechanism to achieve this. In other words, the mining rate depends on the amount of coins staked by a node. The staking process requires locking up a certain number of coins for a specified period. The network uses these locked coins to improve itself. After the staking period ends, the staker receives additional coins as interest, depending on the initial amount staked.
Similar to the Ethereum network, users are allowed to launch their own projects with Solana. These projects can be decentralized applications (DApps) or DeFi platforms and need to be created using the Rust programming language.
Proof-of-History (PoH)
The PoH computation chain creates a historical record proving that an event occurred at a specific moment in time. The process is carried out through a set of sequential steps to evaluate and ultimately produce a unique, publicly verifiable output.
Unlike PoW or PoS consensus, PoH is not a consensus mechanism but a system that allows transaction validation through timestamps. Each transaction block is validated in 400 milliseconds, which is a beat of the decentralized clock on Solana. The timestamp in Solana is made possible by the SHA-256 hash function, where the output of one transaction is reused as input for the next hash.
On the Bitcoin network, BTC miners with different local times must continuously search for valid timestamps to mine a block, leading to errors and incorrect timestamps. The PoH system significantly extends the ability to validate transactions.
PoH introduces a chain of organized hash functions for validators to process. Using the latest hash state of the transaction can significantly reduce block validation time. As a result, a node can validate as many transactions as possible within 1.6 seconds (a total of 4 blocks). Then, the node responsible for mining switches roles with another node. During validation, the node responsible for mining is considered the leader node.
Key Features
Solana stands out from other networks through 8 technical innovations. Besides the notable PoH, the 7 innovations below make the Solana network feasible.
- Tower BFT: An updated version of the practical Byzantine Fault Tolerance (pBFT) system. While pBFT allows nodes in the network to vote on important decisions, Tower BFT eliminates the need for nodes to vote on every single transaction. Instead, they can automatically leave a previous vote to serve all subsequent transactions and proposals. This saves the network time.
- Gulf Stream: Mempool is where all transactions are added until they are validated by nodes. Solana uses a slightly different approach with mempool. Using the Gulf Stream system, non-leader nodes can begin validating some transactions in the mempool, so it does not get overloaded. As a result, the network saves a lot of time here.
- Sealevel: The function of smart contracts in the Solana network is slightly different from that of other developing cryptocurrencies, where smart contracts are interwoven as they cannot operate in parallel. Solana uses Sealevel to allow smart contracts to run in parallel without causing any disruption. This gives Solana a performance advantage in the network. Having Sealevel is like being able to create more lanes on a superhighway.
- Turbine: Another unique feature introduced by Sol is Turbine, responsible for splitting transactions into smaller parts. This helps nodes receive information faster while using less bandwidth. This is another reason why Sol is one of the best-performing cryptocurrencies in terms of time efficiency.
- Cloudbreak: Using the Cloudbreak feature, the Solana system can access and process data simultaneously, using older versions as backups.
- Pipelining: Pipelining is a hardware structure in Sol responsible for directing transaction information to the designated hardware. This process streamlines block verification.
- Archivers: Also a hardware structure, Archivers work with Pipelining, helping leader nodes access information on the network at a faster rate.
What is the SOL Token?
SOL is the native token of the Sol network, using the SLP protocol and serving as a utility token. For instance, SOL can be used to transfer value and interact with smart contracts.
It is uncertain whether there will be a maximum supply of SOL coins. The network uses a token burning process as a deflationary policy. By holding SOL, users can become network validators. Although the initial SOL burning process was slow, it is one of the top cryptocurrencies in terms of market capitalization and return on investment (ROI).
Solana vs. Ethereum
The rapid expansion and flexibility of the Solana ecosystem have inevitably led to comparisons with Ethereum, the leading blockchain for decentralized applications (dApps):
- Smart Contracts: Both Solana and Ethereum have smart contract capabilities, which are crucial for running advanced applications like decentralized finance (DeFi) and non-fungible tokens (NFTs).
- Consensus Mechanism: Solana and Ethereum both use the proof-of-stake (PoS) consensus mechanism, where validators stake their cryptocurrency as collateral for the privilege of earning rewards while supporting the blockchain. Sol improves PoS by additionally implementing PoH.
- Speed: Much attention around Sol in 2021 was due to its clear advantages over Ethereum in terms of transaction processing speed and transaction costs. Solana processes over 2,700 transactions per second (as of December 12, 2023), and the average cost per transaction is $0.00025. Meanwhile, Ethereum can handle less than 15 TPS, while the average transaction fee is around $2.62.
Pros and Cons of Solana
Pros
SOL is a popular coin in the cryptocurrency market. What are the main reasons to invest in SOL?
- Backed by major venture capitalists in the market.
- Supports Web 3.0 and the Internet of Things (IoT).
- Proof-of-History system.
- Excellent scalability and capacity.
- Low transaction fees.
Cons
While there are many benefits to investing in cryptocurrency, caution is still necessary. What should you consider when investing in SOL?
- High investment requirements and low returns for validators.
- Nodes in the network are uneven, leading to asymmetric reward distribution.
- Multiple past network crashes due to application overload.
Conclusion
Currently, the SOL token is considered a must-have investment by many investors and traders. Moreover, those wanting to mine coins find Solana profitable thanks to its fast validation system. SOL stands out from most other top cryptocurrencies by providing better, faster, and simpler services.
The nature of the cryptocurrency market remains uncertain, and no one can predict the future of this emerging technology accurately. It is best to seek financial investment advice before participating. However, Solana and SOL are among the blockchain and cryptocurrency projects with a fairly promising future in today’s crowded market.
You can see the SOL price here.
