Introduction
Solana is a public Blockchain platform created to overcome the scalability challenges that have plagued Blockchain technology.
As crypto networks expand, they frequently encounter limitations in terms of transaction speed and processing times. Founded in 2017 by Anatoly Yakovenko, Solana aims to address these issues without sacrificing security or decentralization.
Solana first and foremost utilizes an innovative method of transaction verification. Dubbed “Proof-of-History” (PoH), it attempts to resolve the traditional limitations of slow transaction speeds, high fees, and excessive energy consumption that can be present in cryptocurrencies such as Bitcoin and Ethereum. PoH allows for the efficient processing of thousands of transactions per second (TPS), providing a scalable solution for the Blockchain industry.
How Does Solana Work?
Solana is a third-generation Proof-of-Stake (PoS) blockchain that uses several unique innovations to provide fast transactions, low fees and high throughput.
Solana's key features include:
- Proof of History (PoH), a time verification process without the need for a traditional timestamp;
- Parallelization, allowing for processing of multiple transactions at once;
- Tower Byzantine Fault Tolerance (BFT), a PoH-optimized version of Practical BFT;
- Turbine, a block propagation protocol;
- Gulf Stream, a transaction forwarding protocol without a mempool;
- Sealevel, a parallel run-time for smart contracts;
- Pipelining, a validation optimization for transaction processing;
- Cloudbreak, a horizontally-scaled accounts database.
These features work together to create a network with 400-millisecond block times and the ability to process thousands of TPS, making it significantly faster than Bitcoin's 10-minute block time and Ethereum's roughly 15-second block time.
Solana's PoS consensus mechanism allows holders of its in-house SOL cryptocurrency to stake their tokens with validators who process the network's transactions. Staking tokens with successful validators can result in rewards being shared, incentivizing both validators and token holders to act in the network's best interest. As of December 2022, Solana had 2,034 validators and a Nakamoto coefficient of 31.
What distinguishes Solana from other Blockchain platforms?
Proof-of-History (PoH) algorithm
Instead of following the traditional validation method used by Bitcoin, which involves grouping transactions into blocks with a single timestamp and requiring nodes to validate these blocks in consensus, Solana utilizes a process known as Proof-of-History (PoH).
Solana's transactions and events are hashed using the SHA256 algorithm, which produces a unique and unpredictable output based on the input. The output of each transaction is then used as input for the next hash, resulting in a chain of hashed transactions that clearly displays the order of these transactions.
This hashing process also takes a specific amount of time to complete, allowing validators to easily verify the time elapsed. By using this method to order transactions, the network requires less information per block, and therefore has a faster block confirmation time.
PoH doesn't serve as a consensus mechanism, but rather shortens the time spent confirming the order of transactions. When combined with Proof-of-Stake (PoS), selecting the next validator for a block is much more efficient as nodes do not need as much time to validate the order of transactions. As a result, the network selects the next validator more quickly.
Transaction costs
Solana boasts impressively low transaction fees, with the average cost being just $0.00025. This reduces one of the major hindrances in Web3, as exorbitant gas fees on the Ethereum network, for example, can significantly increase the cost of individual on-chain transactions.
Energy economy
Solana's validation process, which requires fewer resources and less time, has made it one of the most energy-saving Blockchain networks. The Solana Foundation, the non-profit responsible for maintaining the security and stability of the Solana network, regularly publishes third-party audits that compare Solana's energy impact to other blockchain projects and household energy consumption. In September 2022, the latest report highlighted the following energy usage statistics:
Solana transaction: 508 Joules
Google search: 1,080 Joules
Non-voting Solana transaction: 3,290 Joules
Ethereum transaction (post-Merge estimate): 144,036 Joules
iPhone 13 battery full charge: 44,676 Joules
Solana network yearly usage: 4,056,273,936 Joules
Mining one Bitcoin: 5,005,764,000 Joules
Average US household yearly energy usage: 38,574,000,000 Joules
What is the SOL Token?
SOL is the primary utility token of Solana, which is burned as part of its deflationary mechanism. Users need to possess SOL in order to pay transaction fees when making transfers or interacting with smart contracts. SOL holders also have the option to become network validators. Like Ethereum, Solana enables developers to build smart contracts and launch projects on its blockchain.
SOL operates on the SPL protocol, which is the token standard of the Solana blockchain, similar to ERC-20 on Ethereum.
The SOL token has two primary functions:
- Covering transaction fees incurred while using the network or smart contracts;
- Staking tokens as part of the PoS consensus mechanism.
Decentralized applications (DApps) built on Solana are constantly creating new use cases for SOL and other tokens built using the SPL standard.
The Solana Ecosystem
Since the launch of its mainnet beta in 2020, the Solana ecosystem has grown at an impressive pace. As of December 2022, there were over 21,255 Github developer repositories and a user base of eight million active users.
Not only has the Solana network attracted a large developer community, it has also caught the attention of traditional giants such as Discord and ASICS. The former allows users to link their profiles to Solana Wallets, while the latter utilized the Solana Pay protocol to offer a limited-edition shoe design to customers.
Solana's fast transactions and high throughput have made it the go-to network for various Web3 use cases, including NFTs, payments, games, DeFi, DAOs, and mobile.
Solana Non-fungible tokens (NFTs)
Over 22.7 million NFTs have been minted on Solana by 150,000 creators as of December 2022, and the network supports NFT projects such as the Degenerate Ape Academy, Solana Monkey Business and Okay Bears.
Solana and DeFi
Solana's transaction times make it a popular choice for decentralized finance (DeFi) projects, with over $150 million raised in 2022. Key DeFi projects on the network include OpenBook and Jupiter Aggregator.
Solana Pay
The Solana Pay protocol powers the payments ecosystem, allowing for quick and seamless transactions. This has attracted a number of projects, as evidenced by the recent announcement of Stripe's fiat-to-crypto on-ramp, where 11 out of 16 launch partners were built on Solana.
Solana Games
Solana's fast transactions and high throughput have also made it an ideal platform for gaming, with 15 live games and 37 expected by March 2023.
Solana DAO
The growth of tooling in the Solana ecosystem has also led to a surge of decentralized autonomous organizations (DAOs), resulting in 8,489 DAO proposals and 34,484 total votes.
Solana Mobile
The June 2022 launch of the Saga Phone, the first mobile phone to use the Solana Mobile Stack, along with the availability of the TabTrader app on the device, has positioned Solana as a strong contender in mobile-first crypto development.
The combination of the Solana Mobile Stack and the user-friendly seamless trade on-the-go TabTrader app creates a fast and reliable platform for managing cryptocurrencies on a mobile device, potentially attracting more developers to build decentralized applications on the Solana blockchain. With the Saga phone, users will have easy access to a seamless and innovative crypto trading experience, further solidifying Solana's position as a potential frontrunner in the mobile crypto space.
Solana problems
Like any nascent Blockchain network, Solana’s expansion and ongoing metamorphosis into a major crypto industry offering has come with hurdles. On several occasions in 2022, the Solana blockchain stopped processing transactions altogether due to an error in the transaction validation process.
This in turn led to a debate on network security, as unlike with Bitcoin, manual “freezing” of a blockchain is possible when one or more parties has the power to do so.
A separate point of contention revolves around Solana’s validators and the true extent of its decentralization. This principally revolves around the limited number of validators and the high entry price to become one, as well as the influence of the development team on validation.
Conclusion
Solana's cutting-edge technology offers incredibly fast and scalable solutions, providing arguably endless opportunities for traders and developers to offer a diverse range of services to consumers worldwide.
As one of the most popular Blockchain platforms, Solana nonetheless remains in the early phases of its development as a mainstream financial product. Its underlying technology has not been immune from growth pains, while questions remain about the true extent of the network’s decentralization.
As with any altcoin, meanwhile, SOL is prone to volatility and investing in it should be done with care, especially by crypto beginners.
To find out more about cryptocurrency trading and the optimal ways to trade, check out the TabTrader Academy.
