Solana (SOL) is a high-speed blockchain created to process thousands of transactions per second while remaining secure and decentralized. No one has achieved all three characteristics (speed, security, and decentralization, AKA the blockchain trilemma), but Solana believes its unique technology can.
In 2017, Anatoly Yakovenko founded Solana to compete with Ethereum in the layer one blockchain space. Ethereum developers code in Solidity, a little-known programming language that isn't beginner-friendly. Beyond the limited pool of coders adept at Solidity, Ethereum uses a slow and inefficient proof of work algorithm for transaction consensus.
Instead of using Solidity or another specialized language for writing smart contracts, Solana uses Rust. Just last year, 90% of respondents in a software developer survey said they currently use Rust or have in the past. That figure gives Solana a massive pool of developers to work with who are already comfortable with the blockchain's native language.
Moreover, instead of using proof of work like Ethereum and Bitcoin do, Solana developers went with proof of stake consensus combined with proof of history transaction ordering. The latter is Solana's innovation that makes its network capable of up to a whopping 50,000 transactions per second.
In other words, Solana is very fast and is one of Ethereum's fiercest competitors. Things get more interesting under the hood, so let's look at how Solana works and explain the popular SOL token.
Solana is a layer one blockchain network attempting to scale up for billions of everyday users. To understand the relevance of Solana's mission, think of Visa. People worldwide swipe Visa cards at such high volume that, at any given time, several thousand transactions are happening per second.
However, Visa is centralized and just does one thing — process transactions. On the other hand, Solana wants to go beyond Visa's capabilities using a decentralized network that can also host apps on a new type of internet called Web3.
Until now, no blockchain has achieved the blockchain trilemma problem. The trilemma refers to scaling, security, and decentralization. Usually, to attain any two of those qualities, you must sacrifice one — unless you're Solana.
Solana uses a combination of proof of stake consensus and proof of history to solve the blockchain trilemma. The significant innovation here is proof of history because it's how Solana scales its performance up to 50,000 TPS. So, let's take a closer look at how it works.
You don't have to read tons of technical material to understand what Solana proof of history is. The simple explanation is it's a clock for Solana that orders transactions based on timestamps.
Before Solana invented proof of history, blockchains had a hard time agreeing on when an event occurred. That's because decentralized systems can't refer to third-party sources of information lest they compromise the blockchain's integrity. Most blockchains get around this by sending the message in question throughout the network until most nodes sign off on it. Then, they broadcast the message network-wide.
If that sounds like a lot of work with tons of lag time, you're right on. Therefore, it should be no surprise that blockchains using this system to organize transactions are super slow. For instance, Ethereum can only handle up to roughly 15 transactions per second.
Solana ditches the roundabout way of organizing transactions by simply making the timestamp logged with each event trustworthy in itself. If we can all agree ahead of time that X event happened at Y time, we can save plenty of time and process transactions faster.
Proof of history uses SHA 256 encryption to hash events, thus organizing them neatly for validators who add them to blocks. By taking the work of ordering transactions out of the hands of validators, they spend less time validating, making the entire network more efficient. Remember, efficiency equals speed.
Because of proof of history, Solana can process 50,000 transactions per second, making it the world’s highest-performing layer one blockchain. But it’s essential to distinguish here — proof of history comes before proof of stake consensus. All PoH does is get transactions organized ahead of consensus, cutting down the time and work needed all around.
Proof of history is Solana’s key feature — so much so that the team literally built Solana around PoH. It’s easy to see why: When compared to Facebook’s Diem, Solana processes 25 blocks in the time it takes Diem to process one block.
Solana can’t achieve its design goals without other innovative technological breakthroughs to go along with proof of history. The Solana team has additionally built out exactly eight core innovations, but let’s focus on Solana’s three best features.
Turbine is the technological feature Solana credits with solving the blockchain scaling trilemma. Rather than transmit entire blocks to the network, which in some cases are 128 MB large, Solana propagates blocks to the network in packets.
A leading validator breaks the 128 MB block into 2,000 64 KB packets then transmits the packets to 2,000 individual validators. Each receiving validator swaps the packet with a small group of validators called a neighborhood, then sends its data to the next neighborhood.
Demand on Solana’s bandwidth remains light because small packets are being retransmitted rather than large ones, enabling block data to reach an astonishing 40,000 validators within 200 milliseconds.
Mempools are the number of unconfirmed transactions waiting to be processed in Ethereum and Bitcoin networks. As the amount of network activity increases, so does the strain on validators. That’s why mempool queues grow exponentially during things like token sales, NFT events, and high-volume decentralized exchange trading.
Solana approaches the mempool problem of unprocessed transactions by empowering validators to handle mempool queues of up to 100,000 transactions. We mentioned earlier that Solana does 50,000 transactions per second, so 100K txs in the mempool clears in two seconds flat.
Running smart contracts is intensive for first-generation smart contract platforms like Ethereum and EOS. With their current architecture, both platforms are capable of running single smart contracts at a time.
Now, imagine Web3 built on a blockchain. Countless users are digging into myriad applications, handling decentralized finance, playing blockchain games, and minting NFTs. These moments require smart contracts firing in the background — but many of them will be relegated to mempool queues.
Solana’s solution to the slow paradigm of single-threaded runtimes is Sealevel, a runtime allowing thousands of smart contracts to run in parallel. The obvious huge advantage here is that transactions can process and execute simultaneously, boosting Solana to internet-scale operability.
Solana is one of Ethereum’s key competitors, along with Polkadot, Dfinity, Cardano, and upstart Near Protocol. While Ethereum and Solana have similarities, their differences are starker.
As you can see above, Solana makes some profound technological leaps over Ethereum regarding transaction speeds, costs, and sustainability. But Ethereum’s first-mover advantage is working wonders.
Ethereum launched in 2015, giving it a head start of several years over Solana. That’s helped Ethereum aggregate the vast bulk of DeFi value and also explains why the platform is now the home of NFTs too.
That doesn’t mean Solana won’t catch up to Ethereum in the DeFi and NFT industries, both crucial to adoption, but the platform has serious work to do. To help pave the way to parity with Ethereum, Solana recently raised a hefty $314 million — enough to fund its ecosystem for years to come.
SOL is the native cryptocurrency token of the Solana blockchain network. Because SOL is used for different purposes within Solana’s ecosystem, it’s classified as a utility token. The two most prominent use cases for SOL are payments and Solana staking.
SOL tokens are used to pay for Solana transactions in the same way ETH works for Ethereum. Any time you use an application, send a payment, or otherwise interact with Solana smart contracts, you pay a gas fee made in SOL.
Solana is a proof of stake network requiring validators to stake SOL tokens for the right to validate transactions. However, most people will opt to delegate their stake to a validator while reaping the staking rewards.
You can easily stake SOL tokens from an FTX Exchange wallet or a SolFlare wallet used in tandem with a hardware wallet.
Cryptocurrency tokens, like most medium of exchange assets, tend to be inflationary. That is, additional tokens come into the circulating supply over time. Some tokens have fixed reserves, and others are indeterminate — it all depends on token economics.
Solana has an aptly named dis-inflation mechanism to combat token inflation and reduce the SOL supply to the point of deflation. 50% of each transaction fee is burned from the supply, thus permanently reducing the amount of SOL in circulation.
The point is to increase SOL token scarcity, making SOL a good investment for long-term speculation and an attractive proposition for would-be validators.
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