Many crypto projects have tried to compete with Ethereum for the Layer 1 niche but few have come as close as Solana today. In more specific areas, like the NFT market, it is even occasionally ahead of the main competition. Solana achieved this thanks to its breakneck speed and virtually free gas. In this guide, dive deep into all things Solana, from the native currency SOL to use cases, with the ChangeHero team.
Key Takeaways
- Solana is a unique decentralized protocol for distributed computing, suitable for building smart contracts and decentralized applications (dApps). Its main advantage is the ability to scale up to 65,000 transactions per second;
- The Solana blockchain combines the original Proof-of-History protocol on the processing layer with the Proof-of-Stake consensus mechanism, which makes it faster and more energy efficient;
- The Solana ecosystem has millions of active users thanks to the wide choice of apps and products.
What is Solana?
At its core, the value proposition of the Solana blockchain is not very different from Ethereum’s. It is a public base-layer blockchain protocol, also referred to as layer one (L1), best suited for decentralized computing and creating decentralized applications (dApps).
Why build Solana, then? By design, this protocol is near-perfectly optimized for scalability. As a result, smart contract developers and dApp devs do not need to design around performance bottlenecks.
This is achieved by combining a Proof-of-Stake (PoS) consensus algorithm with a novel Proof-of-History (PoH) timestamp system.
Proof-of-History (PoH)
Thanks to Proof-of-History, with Solana, automatically ordered transactions and sub-second settlements become real. How does this innovation of Solana work?
Solana hashes all transactions with Bitcoin’s SHA256 mining algorithm. The output of each transaction is the input for the next one, and since hashing takes a set amount of time, it is used instead of timestamps.
The problem with the timestamps in blockchains like Bitcoin is that every miner uses local time or even inaccurate time. To avoid reorganization, Solana uses hashes that link the blocks in a cryptographically verified succession.
In a very short amount of time, every 400 ms, validators vote on the inclusion of transactions in slots. Each subsequent vote doubles the amount of time needed to roll the vote back.
While Proof-of-History is responsible for processing transactions, Proof-of-Stake (in Solana’s case, the Tower BFT algorithm) handles consensus. To reach it, at least two-thirds of all nodes have to agree with each other. Proof-of-history complements PoS as an additional securing mechanism that prevents rollbacks.
History of Solana and the Team
In 2017, Qualcomm engineer Anatoly Yakovenko published the Proof-of-History whitepaper. With his colleagues, Greg Fitzgerald and Stephen Akridge, they built a prototype testnet in 2018 and founded Solana Labs.
The team was joined by Raj Gokal, who became the company’s COO. From 2018 to 2019, the team was fundraising and building the protocol in parallel. By March 2020, Solana Labs was ready to launch the Solana blockchain mainnet, shortly after a Solana token auction that raised $2.4 million.
Solana Labs, which is still the major contributor to the development, itself is based in San Francisco, California. Solana Foundation is a non-profit working on promoting and supporting the project, based in Switzerland. The team members can be found on every continent.
What is Cryptocurrency Solana (SOL)?
It is impossible to give a full picture of Solana while leaving Solana’s native SOL cryptocurrency without a proper introduction.
Just like ETH, a cryptocurrency with the ticker SOL is the lifeblood of the Solana blockchain. The ledger keeps a record of transactions that are denominated in it or in the SOL-based tokens, fungible and NFTs alike.
The Solana coin is inflationary but the rate of issuance is designed to be decreasing. The current rate is 4.956% but in the long term, it is programmed to have about 1.5% annual inflation rate. According to Coingecko, the current circulating supply of SOL is 470,027,636.
What is the purpose of the Solana coin?
Low transaction costs and throughput of about 65 thousand transactions per second have made the Solana blockchain a serious competitor to Ethereum.
A popular option to put SOL to work is staking. Anyone can become a validator, but the hardware and bandwidth requirements of running a node are rather high. In case you cannot afford to run a node, a stake can be delegated to a validator, of which there are 1,414 at the time of writing.
Staked and delegated SOL are set aside to secure the network but if you do not want to keep them stashed without use, liquid staking is also available. The most popular providers for SOL are Jito, Marinade, BlazeStake, and MarginFi.
SOL is also a gas token on the network, so transactions with it or Solana-based tokens require it in small amounts. After projects like Pump.fun have blown up, flipping tokens on the Solana blockchain has never been hotter. Users can trade on decentralized exchanges such as Raydium and Jupiter or lend and borrow assets with Save or LULO. The volume of decentralized finance (DeFi) activity on Solana has steadily been on the rise:
Solana Pay is a product that enables a real-world use case for SOL tokens: fast, cheap, and secure digital payments. It mainly uses stablecoins, so the experience is not reliant on the Solana price.
Comparison with Similar Projects
The first competitor that comes to mind is Ethereum, whose issues Solana set out to solve. Ethereum has a throughput of about 16 tps and can realistically scale only with second-layer solutions until its developers implement any scaling solution on the base layer.
BNB Smart Chain, the second most popular DeFi platform, can handle more load but is often criticized for being centralized.
There have been other projects with premises and scaling capabilities similar to Solana. Marlin is an open protocol that provides a high-performance programmable network infrastructure for DeFi and Web 3.0. However, unlike Solana, Marlin runs on top of Ethereum.
What is Solana Criticized For?
Solana has often been criticized for being rather unstable. There have been eight major and ten partial outages in the network, with some lasting up to 17 hours. Each has been addressed on a case-by-case basis as well as with upgrades for the network as a whole.
As previously mentioned, bandwidth and hardware requirements of running a validator are rather high: 12 core CPU, 128 GB of RAM, and 300 MBit/s connection are recommended. This limits the number of possible validators and stifles decentralization.
In 2023, Solana released the first crypto-centric mobile phone Saga, to mixed reviews and reactions from the community. Despite that, by December 2023, it sold out, and in January 2024 a new wave of preorders for Chapter 2 began. Most recently, a newer model under the name Seeker has been revealed, addressing both capabilities and the price tag.
Partnerships and Future Plans
The Solana ecosystem has grown into a thriving niche of the crypto space with millions of active participants. One of its highlights is the NFT market, which outshines even Ethereum and Bitcoin in most metrics (users, royalties, collections, etc.).
As previously mentioned, DeFi is not falling too far behind. Multi-chain projects made possible thanks to the Solang stack that enables easy migration of contracts written in Solidity, are well-represented. However, Solana originals are in the lead.
2024 saw the institutional investment narrative return with a vengeance after the spot BTC ETFs were approved in the US. As a crypto asset from the top five, Solana is definitely in the line to become the next pick-up. In the European markets, Solana-backed exchange-traded products already see impressive results. The US, however, might have to wait because the Securities and Exchange Commission has not yielded from its stance that, unlike Bitcoin or Ethereum, Solana falls under the definition of a security.
Wallets for Solana token SOL
If you need to choose a Solana wallet exclusively for SOL, take a look at Solflare or Sollet. They support Solana-based tokens and provide access to some dApps.
However, most crypto users own more than one currency. You can check out the software Math Wallet and Trezor or Ledger for cold storage.
For more convenience and frequent use, check out Exodus or Edge Wallet. You can delegate a stake and exchange SOL right in the wallet app.
How to Exchange SOL?
Solana can be traded on some crypto exchanges but trading on an exchange comes with some hassles. You have to create an account and deposit funds into the exchange’s custody. It takes time and your trust in the platform.
ChangeHero is an alternative way. It’s extremely easy to trade SOL against any currency supported by the service. ChangeHero is a non-custodial instant cryptocurrency exchange, so you won’t have to worry about setting up an account or deposits.
- Choose the currencies on the home page, amounts, and the type of exchange. Provide your wallet address in the next step and check the amounts;
- Double-check the provided information, read and accept the Terms of Use and Privacy Policy;
- Send in a single transaction the sum of the cryptocurrency you will be exchanging. Fixed Rate transactions have a 15-minute limit;
- All done? Now we are doing all the work: checking the incoming transaction and doing the exchange as soon as it arrives;
- As soon as the exchange has been processed, your SOL is on the way to your wallet.
Our customer support is available round the clock in the chat on the website or through the email: [email protected].
On our website, you can also buy SOL and sell it with a bank card for fiat currencies through our partner’s widget. Check out the full instructions to learn how!
Conclusion
Even if you missed getting into Solana early, it is still the place to be if you want to dive deeper into the crypto world. In some departments, such as costs and certain markets, Ethereum wishes it was as good!
If you enjoyed the Solana guide, do check out more guides and digests in our blog! The updates are regularly posted to X, Facebook, and Telegram, so don’t forget to subscribe.
Frequently Asked Questions
What does Solana actually do?
The Solana network supports dozens of applications for use cases which include stablecoins, DeFi, non-fungible tokens, and play-to-earn games. Apps like Solana Pay power cheap and fast digital payments for online shopping.
What is Solana cryptocurrency?
The Solana coin is SOL, utilized to transfer value or pay gas fees. Solana’s Proof-of-stake mechanism also makes SOL tokens usable in staking.
Is Solana better than Ethereum?
The Solana blockchain has a one-layer scalable architecture and can achieve 65 thousand transactions per second. It is an arguably better platform for building scalable crypto apps with enterprise-grade security, designed so that blockchain remains low-cost and fast.
How is Solana useful?
In addition to being fast and scalable, the Solana network has fee mechanisms that keep them low. Developers are more often looking to build on Solana than Ethereum, so the ecosystem of the platform is growing. Solana boasts a maximum throughput of 50,000 transactions a second and its architecture is censorship-resistant.
Can Solana be staked?
Yes, the Solana blockchain runs on a Delegated Proof-of-Stake consensus algorithm, which means the SOL token is stakable. Read a more detailed description with instructions in our guide!
Disclaimer
This article is not financial or investment advice. When dealing with cryptocurrencies, remember that they are extremely volatile and thus, a high-risk investment. Always make sure to stay informed and be aware of those risks. Consider investing in cryptocurrencies only after careful consideration and analysis of your own research and at your own risk.
