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What is Solana ($SOL)?

What is Solana ($SOL)?

Discover key facts about the Solana blockchain network, including its fast transactions, unique technologies, and SOL cryptocurrency.
6 minutes
08.04.2024
Editor Satoshi`s Secrets
What is Solana ($SOL)?

In Brief

Solana ($SOL) is a high-performance blockchain network designed for fast transactions and scalability, employing a unique transaction ordering method to enhance speed. Users interact with smart contracts and pay transaction fees using SOL, the network’s native cryptocurrency. Established by Anatoly Yakovenko in 2017, Solana utilizes Proof of Stake consensus and introduces innovative technologies for next-generation decentralized applications (DApps).

Solana is a high-throughput blockchain network designed for fast transactions, utilizing a unique transaction ordering method to enhance speed. Users can pay transaction fees and interact with smart contracts using $SOL, the network’s native cryptocurrency.

Introduction

Scalability has been one of the primary challenges in blockchain technology. As networks grow, they often encounter limitations in transaction speed and confirmation. Solana’s main objective is to address these limitations while maintaining a high level of security and decentralization.

Solana’s blockchain was founded in 2017 by Anatoly Yakovenko of Solana Labs (formerly a developer at Qualcomm and Dropbox). It utilizes a novel transaction verification method and aims to leverage multiple breakthrough technologies for the next generation of DApps.

DApps, or decentralized applications, resemble traditional applications and offer similar functionalities, but they operate within a peer-to-peer network such as a blockchain.

How Solana Works?

Solana is an open-source, third-generation blockchain based on the Proof of Stake algorithm. It employs Proof of History, a unique method of creating a trustless system to determine transaction time.

Tracking the order of cryptocurrency transactions is crucial. Bitcoin achieves this by bundling transactions into blocks with a unified timestamp. Each node must verify these blocks along with other nodes, significantly increasing the time for block confirmation. Solana, however, tackles this issue differently. Let’s delve deeper into the process.

All Solana events and transactions are hashed using the SHA256 hash function, which takes input data and produces a unique, highly unpredictable output. Solana uses the transaction output data as input for the next hash. This embeds the transaction order into the hashed result.

This hashing process creates a long, continuous chain of hashed transactions, establishing a clear and verifiable transaction order that validators can add to a block without the need for a timestamp. Additionally, hashing requires a certain amount of time to complete, allowing validators to easily verify how much time has elapsed.

By placing transactions in the hash chain, validators process and transmit less information in each block. Using the hashed version of the latest transaction state significantly reduces the time required to confirm a new block.

Proof of History differs from the Proof of Work consensus algorithm used in Bitcoin. Bitcoin blocks consist of large groups of unordered transactions. Each BTC miner adds a date and time to the block they mine, which can vary from other nodes or even be false, leading nodes to verify timestamp accuracy.

The importance of this technology lies in the fact that most networks spend time and resources synchronizing transaction times between network nodes. SOL creators implemented centralized clocks that all nodes can synchronize to without spending resources. Proof of History is not a consensus algorithm but a way to shorten transaction ordering confirmation time. Combined with Proof of Stake, it facilitates selecting the next block validator. Since nodes require less time to verify transaction order, the network quickly selects a new validator.

Key Features of Solana

The Solana team outlined eight core technical features that help the blockchain match the capabilities of centralized systems. The most notable among them is Proof of History, but there are others:

  • Tower Consensus: An optimized version of Practical Byzantine Fault Tolerance (PBFT) for PoH, allowing distributed networks to achieve consensus despite attacks from malicious nodes.
  • Turbine: A block propagation protocol.
  • Gulf Stream: A transaction transmission protocol without using a memory pool.
  • Sealevel: Parallel smart contract execution.
  • Pipelining: Transaction processing block for optimization.
  • Cloudbreak: Horizontally scalable account database.
  • Archivers: Distributed ledger storage.

Thanks to these features, the Solana network boasts high performance and a block time of 400ms, processing tens of thousands of transactions per second.

For comparison: Bitcoin’s block time is approximately 10 minutes, and Ethereum’s is around 15 seconds.

The Solana blockchain is highly attractive to developers. Firstly, the system allows applications to be built within it, rather than relying on external resources. This ensures development integrity and convenience. Secondly, the system utilizes the popular Rust programming language. As a result, developers do not need additional knowledge to work.

SOL owners can stake their tokens within the PoS blockchain consensus algorithm. A compatible cryptocurrency wallet allows tokens to be transferred for staking to validators who process network transactions. If successful, the validator shares staking rewards with token owners. This reward mechanism incentivizes validators and delegates to act in the network’s interests. As of May 2021, Solana had approximately 900 validators, making it quite decentralized.

What is the $SOL Token?

SOL is Solana’s native cryptocurrency, functioning as a utility token. The network burns SOL as part of its deflationary model. SOL holders can also become network validators. Like Ethereum, Solana allows developers to create smart contracts and projects based on the blockchain.

SOL uses the SPL protocol, a token standard for the Solana blockchain, similar to ERC20 in Ethereum. The SOL token has two primary uses:

  1. Paying transaction fees when using the network or smart contracts. The average transaction fee is 0.000005 SOL (or a tiny fraction of one cent).
  2. Staking tokens as part of the Proof of Stake consensus mechanism.

Other uses for SOL involve creating DApps based on Solana. For example, Chainvote creates a DeFi application for corporate governance with token-based voting. Solana’s price increased nearly 30 times in the first two quarters of 2021, attracting investors and speculators.

How to Purchase and Store SOL?

Solana (SOL) is tradable on all major centralized exchanges, including Binance, Huobi, Gate, KuCoin, ByBit, FTX, Coinbase, OKX, Hotbit, MXC, Bitmax, and Bithumb.

Among decentralized exchanges, notable ones include Dexlab, Raydium, and Orca. Additionally, the Jupiter Aggregator helps find the best price across multiple exchanges and facilitates the most advantageous exchange.

SOL tokens can be stored in cryptocurrency wallets that support SPL tokens, such as Sollet, Phantom, and Solflare. Additionally, they can be stored in multi-currency wallets like Trust Wallet, SafePal, and C98.

Hardware wallets like Ledger Nano or SafePal S1 are suitable for secure storage.

If you want to stake SOL, you’ll need a wallet with staking support (SolFlare, Phantom) or Solana command-line tools. The wallet allows you to create a staking account and delegate SOL tokens to a validator.

Staking can also be done on AMM platforms like Marrinade and Lido.

Conclusion

Solana is a relatively young project that improves speed and scalability. The token price of this network has significantly increased, attracting investor interest. However, there are still relatively few use cases and ways to apply Solana.

A conclusion about the impact of such transaction speed on the cryptocurrency world can be drawn only when a large number of people start using Solana. A fast network is great, but without an influx of users and usage scenarios, its advantages won’t be fully realized.

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