What is Solana and How Does it Work?
Despite its financial ties with the now-bankrupt FTX crypto exchange and getting caught up in a heavy bear market, Solana has managed to recover and rise to one of the leading blockchains for DeFi, NFTs, GameFi, and other market sectors.
In this article, we take a deep dive into Solana, the technology behind the blockchain, its key features, how it compares to other chains, and future prospects.
What is Solana (SOL)?
Co-founded by Anatoly Yakovenko and Raj Gokal in 2018, Solana is a high-throughput Layer 1 blockchain that launched in March 2020.
With high scalability and a rapid block time, it is among Ethereum's most prominent competitors in the field of smart contract blockchains. Thus, it features much lower fees than Ethereum's mainnet, with Solana users paying $0.038 of gas fees on average in the last epoch.
With its inexpensive fees and near-instantaneous transactions, Solana has focused on promoting blockchain technology's mass adoption. The project targets markets like DeFi, GameFi, and NFTs to offer a more user-friendly alternative to Ethereum-based dApps.
The Tech Behind Solana
It's important to mention two major technologies that make Solana unique.
The first is the Proof-of-History (PoH) mechanism, which acts like a global cryptographic clock that provides a digital record of events taking place on the blockchain at any given time. It assigns a timestamp to each transaction that occurs in the network.
With PoH, validators within the Solana ecosystem don't have to wait until everyone verifies a new block to add it to the blockchain. Instead, they check for new votes and add them to the newly generated block in real-time. This allows Solana to operate with a block time of 0.4 seconds while significantly enhancing the Layer 1 chain's scalability.
Solana utilises the Tower Byzantine Fault Tolerance (Tower BFT) consensus mechanism. Based on the Proof-of-Stake (PoS) algorithm, it is a custom implementation of Practical Byzantine Fault Tolerance (PBFT), which has been optimized to work with the Proof-of-History cryptographic clock. As the project describes it, Tower BFT prefers "liveness to consistency," leveraging PoH before consensus to reduce messaging latency and overhead.
As Tower BFT is based on the PoS algorithm, validators must stake the native SOL token to propose new blocks. Upon getting selected by the network and successfully validating a new block, the validator receives SOL tokens as a reward for securing the ecosystem. On the other hand, the slashing mechanism punishes malicious behavior by taking a portion or all of the staker's SOL stake.
What Are the Key Features of the Solana Blockchain?
Solana is known for its high-speed and low-cost transactions, making it a top choice for decentralised applications. Below are its key features:
High scalability and throughput: Solana has the potential to process up to 65,000 transactions per second (TPS) in ideal conditions, but real-world performance typically ranges between 400 and 4,000+ TPS, with peaks exceeding 2,000 TPS under high demand.
Fast block times: Transactions are processed almost instantly, with a block time of approximately 0.4 seconds.
Low-cost transactions: Solana offers lightning-fast and inexpensive transactions, thanks to its Proof-of-History (PoH) cryptographic clock and Tower BFT consensus mechanism, ensuring efficient processing.
Optimised for user experience: Its speed and low fees enhance the usability of decentralized applications (dApps).
Leading blockchain for DeFi, NFTs, and GameFi: Solana is one of the most widely used networks for decentralized finance (DeFi), non-fungible tokens (NFTs), GameFi, and other Web3 applications.
How Does Solana Compare With Other Blockchains?
Check out the following table to learn more about how Solana compares with other blockchains based on different factors:
| Solana | Bitcoin | Ethereum | BNB Chain | TRON | |
|---|---|---|---|---|---|
| Smart Contract Capability | Yes | Limited | Yes | Yes | Yes |
| Consensus Mechanism | Proof-of-History (PoH) combined with Proof-of-Stake (PoS) | Proof-of-Work (PoW) | Proof-of-Stake (PoS) | Proof-of-Staked-Authority (PoSA) | Delegated Proof-of-Stake (dPoS) |
| Number of Validators | 1,506 | N/A (uses miners) | 1 million+ | 45 | 27 |
| Transactions Per Second (TPS) | +65,000 (Theoretically) | ~7 | ~14 | ~10,000 | ~2,000 |
| DeFi Total Value Locked (TVL) | $6.65 billion | $5.18 billion | $46 billion | $4.75 billion | $4.32 billion |
| Market Capitalisation | $81.1 billion | $1.8 trillion | $283.2 billion | $83.4 billion | $19.6 billion |
Please note that these figures are approximate and subject to change due to the dynamic nature of blockchain networks and cryptocurrency markets.
What Could the Future Hold for Solana?
Despite its meteoric start, Solana had a rough time in the crypto market following the FTX scandal. That said, like a phoenix, the high-throughput Layer 1 blockchain has risen from the ashes, becoming one of the leading chains for DeFi, NFTs, GameFi, and other important digital asset sectors.
As a result, Solana has proven that it has an integral role in the blockchain ecosystem, providing a more user-friendly, cost-efficient, and scalable alternative to Ethereum at the cost of some decentralization and reliability (uptime).
Looking to gain exposure to Solana? Head to VALR to trade SOL!
Frequently Asked Questions (FAQ)
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While Ethereum puts the main emphasis on security and decentralization, Solana's primary focus centers around scalability.
This way, Solana provides users with enhanced throughput with inexpensive transaction fees and instantaneous transactions at the cost of some decentralization and reliability.
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Proof-of-History (PoH) is one of the core innovations of the Solana blockchain. It is a cryptographic clock that assigns a timestamp to each transaction that occurs in the network, allowing validators to process blocks before waiting for other validators to verify them.
PoH plays a crucial role in Solana's Tower BFT consensus mechanism and ensures the blockchain's high throughput and a rapid 0.4-second block time.
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Theoretically, Solana can process up to 65,000 transactions per second (TPS).
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Solana's Tower BFT consensus mechanism is based on the Proof-of-Stake (PoS) algorithm, meaning you can stake SOL to secure the network and generate a passive income. One of the easiest ways to stake SOL is through VALR, where you can earn high APRs with flexible terms. Learn more about Solana staking here!
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Solana is trying to solve the issues of high transaction fees and slow transaction speeds found in other blockchains. It aims to provide high scalability, rapid block times, and low costs to promote the mass adoption of blockchain technology.
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No, Solana is not a meme coin. It is a high-throughput Layer 1 blockchain designed for scalability and rapid transaction processing, competing with Ethereum in the field of smart contracts, DeFi, NFTs, and GameFi.
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Solana is used for a variety of applications including DeFi, NFTs, GameFi, and other decentralized applications. It supports smart contracts and provides a platform for building scalable and rapid decentralized solutions.
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Several cryptocurrencies and projects are based on Solana, including Serum (a decentralized exchange), Raydium (an automated market maker), and various NFTs and DeFi projects that leverage Solana's high throughput and low transaction costs.
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No, Solana does not pay dividends. However, you can stake SOL tokens to earn rewards, which provides a form of passive income.
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You can develop decentralized applications (dApps) on Solana, including DeFi platforms, NFT marketplaces, GameFi applications, and other blockchain-based solutions that require high scalability and fast transaction processing.
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Solana was co-founded by Anatoly Yakovenko and Raj Gokal in 2018.
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate. VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).
Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
