What Is Solana (SOL) and How Does SOL Crypto Work?

Solana is a blockchain that is supposed to work for building fast, scalable, and cheap decentralized applications (dApps). It uses a unique consensus mechanism called Proof-of-History (PoH). Solana is trying to solve the scalability issue.

Table of contents

1. Key Features of Solana
2. The History of Solana
3. How Solana Works
4. Solana Ecosystem
5. The SOL Coin: Use Cases and Functions
6. Advantages and Disadvantages of Solana
7. The Future of Solana

The Solana blockchain can handle thousands of transactions per second. The blockchain fees are very low. This is why Solana is considered one of the most efficient blockchains.

The Solana blockchain supports smart contracts and decentralized applications. It offers developers an ecosystem that is characterized by high throughput and low latency. Solana is one of the main competitors of Ethereum and other similar blockchains.

‍

Key Features of Solana

The main features of Solana are:

• High-speed transactions – This blockchain can process over 65,000 TPS.
• Low transaction fees – The fees on Solana are much lower than fees on Ethereum. 
• Scalability – The network is known for its high scalability, and it doesn’t rely on L2 solutions. 
• Energy-efficient – The blockchain doesn’t require mining, and PoH reduces the computational load that is needed for transaction validation.
• Developer-friendly – Solana offers all the tools and support to developers who are building on the blockchain. 

The History of Solana

Solana was designed to address the limitations of blockchains that already existed at that time. It is supposed to be a fast and cheap blockchain. 

The project founded by Anatoly Yakovenko, a former Qualcomm engineer. He wanted to build a blockchain capable of processing transactions at the speed that can be compared to traditional financial systems. Among other founders, you can see such names as Greg Fitzgerald who is responsible for Solana’s core technology, and Raj Gokal who is responsible for business development.  

Solana’s development began in 2017.  Yakovenko published a whitepaper where he outlined the Proof-of-History (PoH) concept. This new approach attracted the attention of developers and investors. In 2018, Solana Labs was launched. This is the company that is responsible for advancing the blockchain’s development. 

In 2019, Solana raised funding from main investors and started developing rapidly. In 202, the Solan amainnet beta was launched. This was an important achievement in the ecosystem’s development. By 2021, Solana became one of the most widely used blockchains for DeFi, dApps, and NFTs.

How Solana Works

Solana uses a unique consensus mechanism. It is called the proof-of-History (PoH). This is a cryptographic technique that timestamps transactions before they are recorded on the blockchain. This allows the network to confirm transactions faster because one doesn’t need to wait for the block confirmation. This is how Solana achieves a very high throughput and manages to preserve decentralization and security. 

‍

Differences Between Solana and Other Blockchains

Solana has some features that make it different from other important blockchains.

So, Solana offers faster transaction confirmation time than Ethereum. Blockchain fees on Solana are also much lower. This blockchain doesn’t rely on Layer-2 solutions, unlike Ethereum.

Unlike proof-of-work blockchains, such as Bitcoin, Solana doesn’t need mining. This is why it is more energy-efficient.

Compared to Binance Smart Chain, Solana is more scalable. However, both blockchains are fast and cost-effective.

‍

Solana Ecosystem

The Solana ecosystem is growing rapidly. An increasing number of projects appear on this blockchain, including coins, gaming projects, and all types of other Web3 applications. The following projects are among the most popular that build on Solana: 

• Serum, a decentralized exchange that offers low-cost trading.
• Raydium, an automated market maker that provides liquidity for DeFi projects that run on Solana.
• Magic Eden, an NFT marketplace.
• Audius, a decentralized music streaming platform.

Along with them, Solana supports a lot of decentralized applications and NFT projects. 

‍

The SOL Coin: Use Cases and Functions

The SOL coin is the native coin of the Solana blockchain. It performs the following functions in the ecosystem:

• It is used for paying transaction fees. Solana fees are around $0.01, which are among the lowest in the industry. This is why this blockchain is convenient to use for microtransactions.
• SOL is needed to deploy smart contracts and interact with them.
• The coin allows to participate in the blockchain governance and vote on the protocol upgrades.

The SOL holders can stake the coin and earn rewards. Normally, holders delegate SOL to validators, and they process transactions and maintain the blockchain. Users get staking rewards in return.

‍

Advantages and Disadvantages of Solana

Solana has benefits and drawbacks. 

The main advantages are:

• High speed: This blockchain can process thousands of transactions per second. It is one of the fastest blockchains.
• Low fees: The transaction costs are very low and vary around $0.01.  
• Scalability: The Solana blockchain can scale rapidly. It doesn’t rely on additional layers, sharding, or other complementary mechanisms.
• Eco-friendly: Solana doesn’t use mining to confirm transactions. This is why this blockchain is energy-efficient.

However, the Solana blockchain is also heavily criticised. For example, the network of validators is more centralized than the validator network of the Ethereum blockchain. It means that a good part of staking power is controlled by a couple of big validators, and it raises concerns about the governance of the network.

Another problem is that Solana has experienced outages. In some cases, these outages resulted in network congestion and spam attacks. This is why some specialists raise concerns about the network stability and reliability. 

‍

The Future of Solana

Even though Solana faced some issues, it is still attractive for developers and projects. The blockchain performs constant upgrades and improvements to solve the issues and improve scalability.

Even though Solana is expanding, Ethereum still is the dominant blockchain for smart contracts. After its upgrades such as Ethereum 2.0 and the introduction of sharding, it may strengthen its positions in the market even more. 

‍