What is Solana?
Solana is a programmable smart-contract blockchain that aims to achieve high transaction throughput without sacrificing decentralization. It is a direct competitor to Ethereum, and will be even more so once Ethereum has completed its merge and switched to Proof-of-Stake. The Solana project pioneered a bundle of novel approaches, including the Proof-of-History mechanism, which differentiates it from other Layer 1 blockchains.
SOL is the native coin of the Solana blockchain and is used to pay transaction fees within the network. SOL can also be staked with a validator to earn network fees and give holders the right to participate in protocol governance. The Solana project is built and supported by the Solana Foundation, based in Zug, Switzerland, and Solana Labs, located in San Francisco, California.
Related: How to Buy Solana (SOL) – Step-by-Step Guide
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The History of Solana
Solana launched its mainnet in 2020. But the history of the project goes way back. Prior to founding Solana, the founding team had already worked together at Qualcomm for years building operating systems for the first smartphones. There, Solana co-founder Anatoly Yakovenko has mainly worked on solutions for synchronizing computers in a network.
After pivoting his attention to decentralized blockchain networks, Anatoly realized that synchronizing network nodes across decentralized networks was difficult because these networks can not rely on external clocks. Bitcoin and Ethereum have solved this problem through the Proof-of-Work mechanism, which is reliable but slows the network down significantly.
In his whitepaper published in 2017, Anatoly Yakovenko describes a novel solution to keep track of time between computers that don’t trust each other, which he called Proof-of-History. According to the whitepaper, this mechanism has the potential to increase the speed of blockchain networks by a thousand times or more.
Together with his former colleagues Greg Fitzgerald and Stephen Akridge, Anatoly started to build the first version of the Proof-of-History algorithm and later scaled up the technology to run on a cloud-based testnet. In the beginning, the trio called their project Loom, before rebranding it to Solana to avoid confusion with another crypto project. The name Solana is a nod to a small beach in California, where Anatoly and Steven lived and surfed for three years during their time at Qualcomm.
How does Solana work?
“It is possible for a centralized database to process 710,000 transactions per second […]. At Solana, we are demonstrating that these same theoretical limits apply just as well to blockchain. […] The key ingredient? Finding a way to share time when nodes cannot rely upon one another. Once nodes can rely upon time, suddenly ~40 years of distributed systems research becomes applicable to blockchain!” – Solana Documentation
Solana works on a Proof-of-Stake consensus model, which has been modified with eight new key innovations. The core innovation that underlays Solana is the Proof-of-History mechanism, which allows for the creation of historical records that prove that an event has occurred at a specific moment in time.
While validators of other blockchains have to communicate with each other to agree that time has passed, each Solana validator maintains its own clock. These clocks consist of a SHA-256 Verifiable Delay Function (VDF). A VDF requires a specific number of sequential steps, which a Solana validator has to work through. Even with powerful computers, these steps can only be sped up by approximately 30%. Presenting the result of a VDF, therefore, proves that a minimum amount of time has passed and allows to chronologically order all the VDFs outcomes.
For illustrative purposes, imagine taking several pictures of a moving car. As the pictures are shuffled later on, it is fairly simple to put them back in chronological order. The same is true for the results of the VDFs. Even if generated by decentralized nodes spread around the globe, the produced blocks can be easily put in the correct order with help of the results of the VDFs.
Thanks to the Proof-of-History mechanism, communication between nodes is drastically reduced and nodes can work in parallel. Solana’s technology enables the blockchain to execute the incoming transactions in parallel. Nodes then share the executed transactions with the other network nodes, which then check them for validity and order them in chronological order according to the timestamps. Combined with its seven other key innovations, Solana is theoretically capable of handling up to 50,000 transactions per second at a fraction of the cost. This is over a thousand times more than Ethereum.
What does Solana do?
Solana aims to be the smart contract blockchain that can handle the entire blockchain transaction volume on a single chain. Currently, Solana offers the highest transaction throughput of all blockchains, at least on paper, and claims to be able to further increase speed in the future. At the same time, Solana offers very competitive fees of approximately $0.00025 per transaction.
In contrast to other smart contract blockchains like Polkadot and Ethereum, Solana has purposefully decided against a sharding model. In its worldview, sharding — that means running multiple blockchains in parallel to increase transaction throughput — slows down a network because all of these chains have to communicate with each other.
The high transaction volume made possible through Proof-of-History allows Solana to handle all the volume on a single chain. In its vision, Solana is a one-stop shop for all things blockchain. Everything from daily payments for coffee to DEX trading to NFTs marketplace transactions and metaverse data can be processed on Solana’s single mainchain. No sharding, bridging, and Layer 2 scaling solutions are needed.
Is Solana Decentralized?
Solana describes itself as a decentralized, permissionless, secure, and scalable blockchain. In the crypto world, however, Solana is often said to not be truly decentralized. This criticism is partly justified as Solana runs on significantly fewer nodes than Ethereum or Bitcoin. The reason is that Solana’s high transaction throughput comes with heavy hardware requirements for validators.
Network participants wanting to run validator nodes need to acquire purposely built hardware. It is recommended to run nodes on a computer with at least 256 GB RAM, a 16- or 32-core processor, and a commercial high-speed internet connection of at least 1 Gbit/s, better is up to 40 Gbits/s. Personal computers and standard fiber optic internet connections are therefore not capable of running Solana validators nodes.
As a result, there are many fewer validators running the network than on competing blockchains like Ethereum. Currently, there are about 1,900 Solana validators and several hundred more are expected to join the network in the months to come. Solana has made the deliberate decision to prioritize scalability over decentralization. But this does not mean that Solana is not decentralized enough, as decentralization exists on a spectrum and has certain trade-offs. Depending on the use cases and security requirements, different levels of decentralization can make sense for different blockchains.
Can you mine SOL?
Solana is a Proof-of-Stake blockchain and, therefore, their native coin, SOL, can‘t be mined. SOL coins can be staked with validator nodes to earn transaction fees.
How high can Solana (SOL) go?
Solana has seen a price explosion during the crypto bull market in 2021/22. At the beginning of 2021, SOL traded for $1.80 per coin. Only eight months later in August, SOL reached its current all-time high and topped out at $258. This spectacular return of 143x in just a few months attracted attention beyond the crypto world and spurred the price fantasies of SOL investors.
The SOL price dropped back into two-digit territory in the following crypto winter. Nevertheless, Solana still ranks among the top ten cryptocurrencies and attracts high volumes to its blockchain. It has established itself as one of the core blockchains for NFT trading, which brings many new users into the Solana ecosystem.
Should the Solana technology prove reliable and the promised transactions per second realizable, then Solana is very well positioned to become one of the dominant players in the crypto industry. The chain’s native coin, SOL, will reflect this competitive strength and its price will move accordingly.