Learn about Solana
Solana has become very popular in the DeFi and NFT spaces, as Ethereum users look for new platforms with cheaper and much faster transactions.
Solana is a public, open-source blockchain that sustains smart contracts, non-fungible tokens (NFTs), and decentralized applications, also known as dApps.
Native to this blockchain is the SOL token, which issues network security through staking, as well as means of transferring value.
Solana was first created in 2017 by Anatoly Yakovenko, in company with Raj Gokal, who is a current board member and Chief operations officer in Solana.
Yakovenko, who is now Solana’s CEO, came from a background in system design and wanted to carry out his knowledge to a new blockchain model that enabled faster processing speeds.
The original name for this project was Loom, but at the same time, Ethereum released Loom Network. To avoid confusion, they quickly renamed their project to Solana, and as the company name, they choose Solana Labs.
The Solana cryptocurrency was first available during private token sales in 2019. SOL and the Solana protocol were released to the general public later in 2020.
There are a few things to know about Solana
- It’s a proof-of-stake cryptocurrency, that includes DeFi and NFTs smart contract capabilities.
- The boom in the NFT and DeFi spaces has driven fees extremely high on Ethereum causing crypto users to look for other options, like Solana.
- Solana literary brags about a theoretical throughput of 65.000 transactions per second with almost zero fees.
- Solana has been at the very center of controversy in the crypto industry as “doubters” claim its transaction speed is only possible because the chain has surrendered decentralization for it.
The creators wanted to create a brand new blockchain that could scale to global approval. At the time blockchain transaction speeds were limited to only about 15 per second.
Yakovenko and Gokal tried to look for a solution, to make a new blockchain that could meet demand on a global scale.
Like every other blockchain system today, Solana is still pretty new and of course, not without controversy.
How does it work?
Solana runs on a hybrid protocol concept called proof-of-history (PoH) and on a protocol of proof-of-stake (PoS).
Proof-of-stake is an algorithm that allows a blockchain to maintain precise information across all of its users.
With this protocol, cryptocurrency owners guarantee, or rather “stake”, their coins to a validator. A validator is a computer that runs the blockchain software with its own copy of the blockchain.
You can look at these validators as miners in a proof-of-work blockchain, such as Bitcoin’s.
Rather than competing with other computers to complete complex math tasks and puzzles like in proof-of-work, validators are chosen to add the next block of transactions based on how long they have staked for, how large their stake is and a couple of other criteria.
The main idea is to measure the level of commitment network users have and reward them for their dedication. The larger the stake relative to circulating supply, the more secure and decentralized network becomes.
What is proof-of-history?
This is a method for proving that transactions are found by the right leader and are in the correct sequence.
Solana’s blockchain is split into slots or periods of time where validators assimilate transactions and produce a block. In this system, leaders are chosen before each slot in order to save time.
A node, or validator, is chosen to be a leader of a slot through the proof-of-stake method based on the quantity of SOL.
Each validator is responsible for counting a count or a total of the passage of time, known as proof-of-history, and the next block of transactions for the slot they have been chosen for.
How does it work?
- The first validator is assigned to slot one and spends five seconds looking for the next block.
- Then the second validator is assigned slot two and takes five seconds to find the following block, adding up to a total of ten seconds.
- The third validator is assigned to slot three and like the others, takes five seconds to find a block. By the end of the cycle, a total of fifteen seconds have passed.
It takes each validator the same amount of time to complete it.
Proof-of-history increases throughput and lowers latency because slot leaders can stream transactions to the rest of the validators, rather than waiting to fill an entire block and send it at once.
Validators can stamp each incoming transaction with a time, or proof-of-history value, so the other nodes can order transactions within a block precisely even if they aren’t streamed in chronological order.
The other nodes can then verify these transactions as they come in, instead of having to review an entire block of transactions at once.
What makes Solana stand out?
Solana separates from other blockchains in the way consensus is formed, among the nodes. Although proof-of-history has its benefits, there are some concerns about Solana’s voting mechanism and whether or not it causes centralization.
With Solana, nodes must vote on blocks and the validity of their transactions in order for them to become part of the chain.
Nodes send votes to the leader and the leader is responsible for calculating the votes themselves and signing off on the block.
In a typical blockchain, validators are chosen with proof-of-stake. Then they create the next block of transactions and broadcast this to all the other nodes in the network.
The rest of the network examines the new block against their version of the ledger. Each node then checks its version of the ledger and the new block against all other nodes in the network.
From there, nodes separately choose whether to agree that this new block is legitimate or not.
The process continues until a majority of nodes have agreed on one new version of the chain. While it is time-consuming, letting nodes come to an agreement without a middleman counting votes has been core to decentralized blockchains since Bitcoin was created.
The SOL tokens
The SOL token has two use cases, one is staking where token holders can stake their SOL and receive rewards, as we mentioned above.
The other one lets users use SOL as payment for fees connected with running smart contracts or any other transactions.
Also, Solana distributed a fixed amount of inflation-based rewards across its validator set that secures the network. Each staking reward is calculated by the number of staked tokens. Solana launched with an inflation rate of about 8%, which is expected to decline by 15% each year, a trend that will decrease until the rate is 1.5% annually, where it will persist.
Solana’s network allows for a theoretical throughput of 65.000 transactions per second, and that is a significant jump from Bitcoin and Ethereum.
Solana offers a much lower barrier to entry, which helps to increase the network user base very fast.
Averaging at 0.00025$, Solana transactions cost a fraction of the price of other blockchains. Solana draws users worldwide thanks to its increased throughput capability and low costs.
It currently has a total of 1.469 nodes in its ecosystem, with over 74% of the tokens running supply staked to the network generating rewards.
Solana’s DeFi (decentralized finance) ecosystem at this moment has over $8.6 billion in total value locked among its many platforms. This puts Solana in sixth place, right behind Ethereum, Avalanche, and Fantom.
Solana’s leading platforms are the decentralized exchange called Serum, the open mining platform Quarry, and the staking platform Marinade Finance.
Passive income with Solana
You can make passive income with Solana since it uses proof-of-stake to validate transactions, so it gives you an opportunity to stake your crypto and earn rewards.
When you stake it, you pledge your SOL tokens to a validator node that checks transactions. In return, you receive a portion of the block reward that the validator initially receives. It’s vital to set up a blockchain wallet and choose a validator.
It’s worth mentioning that cryptocurrency is a much different type of passive income than cash. Like other cryptocurrencies, Solana is unstable.
With everything being said, another thing to mention is that Solana is not without issues. The most important one is an uneven power structure.
Messari, a crypto research company found that 48% of Solana’s initial token allocation went to the team, company, and venture capital companies, in other words to the “insiders”. Solana Foundation got the other 13%.
Outages have also become a problem as Solana has grown more popular. The Solana network experienced a few outages in 2021 and 2022.
It takes some time to stabilize a blockchain, and Solana is far from being the only one to go through outages. Additionally, Solana has not yet stated the blockchain’s mainnet, so its beta development period is not completed.
Innovations that Make Solana the First Web-Scale Blockchain
In order to create a permissionless, and a decentralized network that matches the performance of a single node, the Solana team developed eight crucial technologies:
Some of them are mentioned above, and here is the whole list of innovative solutions:
- Archivers — Distributed ledger storage
- Proof of History (PoH) — a clock before consensus;
- Gulf Stream — Mempool-less transaction forwarding protocol
- Sealevel — Parallel smart contracts run-time;
- Pipelining — a Transaction Processing Unit for validation optimization
- Cloudbreak — Horizontally-Scaled Accounts Database
- Tower BFT — a PoH-optimized version of PBFT
- Turbine — a block propagation protocol;
On top of proof-of-history, Solana runs Tower Consensus, a consensus algorithm specifically structured to take advantage of the synchronized clock. Tower Consensus prefers liveness over consistency.
Nodes escalate their timeouts to come to an agreement, but because the ledger is also a trustless source of time, nodes can observe and examine the timeouts of all the other validators in the network.
Solana’s block-propagation technique, Turbine borrows heavily from BitTorrent. As a block is streamed, it is split up into small packets along with erasure codes, and then fanned out across a large set of random peers.
In a high-performance network, mempool management is a new class of problem that other chains don’t have to address. Gulf Stream functions by pushing and forwarding transaction caching to the edge of the network.
As a result of these great innovations, the Solana network is a super-fast distributed ledger technology that will always keep going.
It is not slowed down by consensus. Furthermore, the system optimizes data propagation, does not weigh down validators with massive stored chain history, and leverages parallel GPUs massively for transaction processing.