Oct 4, 2022
What Is Solana?
Solana is a blockchain and cryptocurrency network designed to host scalable decentralized applications. It is a fast-growing blockchain with many similarities to Ethereum. Both the blockchain and the cryptocurrency it supports are called Solana, or SOL on crypto exchanges. The Solana blockchain relies on a hybrid proof-of-history consensus mechanism that uses timestamps to define the next block in the chain.
In this article, we’ll cover:
History of Solana
Founded in 2017 by Anatoly Yakovenko, Solana is named after the small northern California town of Solana Beach. Solana was designed to speed transaction times without needing any scaling solutions due to its unique hybrid consensus model. In general, developers face three primary challenges when building blockchains: decentralization, scalability, and security. Developers are usually able to prioritize only two of these three; Yakovenko opted to sacrifice some decentralization when creating the Solana blockchain, which resulted in a secure platform with faster transaction times and greater scalability than some other crypto platforms.
How does Solana work?
Like other cryptos, Solana is built on blockchain technology: a distributed database, or ledger, that is shared among many individual nodes of a computer network. The blockchain stores digital information in groups called blocks, and strings them together to form a chain of digital information. All this information can be distributed and recorded, but not edited after it is initially created. Each time a transaction is made, a validator ensures the information is accurate and adds the data to the blockchain. Users can buy and sell Solana’s tokens on a crypto exchange, and they store the keys to access their crypto in a crypto wallet. Similar to other cryptocurrencies, Solana also supports smart contracts, or programs stored on a blockchain that run when predetermined conditions are met.
What makes Solana unique is the use of a hybrid proof-of-stake and proof-of-history verification model that relies on a standardized clock to speed up the process of verifying transactions. Another unusual feature of Solana is that the Solana Foundation is the only entity developing core nodes on its blockchain; some in the crypto world see this concentration of control as leading to a less decentralized model.
Proof of history
Most altcoins operate under a proof-of-stake algorithm that requires validators to pledge a “stake” of digital currency before they can validate transactions. Solana has created a hybrid approach to validation that uses proof of stake, plus a proof-of-history algorithm that adds timestamps to the blocks to prove the date and time the block was created. This ensures a reliable ordering of transactions based on a standardized clock. Proof of history allows nodes to bypass the time-consuming step of validating timing and sequences, thereby improving transaction speeds.
SOL token: Solana’s native crypto
Solona’s native crypto coin, SOL, fuels the Solana network. Transaction fees are paid to validators in SOL, and anyone can trade the cryptocurrency, execute smart contracts, share NFTs, participate in decentralized finance, and run other digital applications on the Solana blockchain. A proof-of-stake system is used to verify transactions, manage coin supply, and create new coins. SOL is limited to a total of 489 million tokens, with more than 350 million currently in circulation.
Solana vs. Ethereum
While the blockchains are similar in construction, Solana was built with the intention of improving on Ethereum. Solana’s cheaper fees and faster transactions have caused some in the crypto world to describe it as the “Ethereum killer.” However, Ethereum remains the more popular platform, second only to Bitcoin, and transaction times are expected to improve with Ethereum’s recent transition to a proof-of-stake model.
|Hybrid proof of stake/proof of history||Proof of stake|
|Low transaction fees||Higher transaction fees|
|Lower market cap||Higher market cap|
|Launched in 2020||Launched in 2015|
|Enhanced scalability||Less scalable|
Pros and cons of Solana
As with all potential crypto investments, Solana has pros and cons in the realms of efficiency, reliability, security, and scalability.
Pros of Solana:
- Decentralized blockchain: Each member in the blockchain network has a copy of the same data in the form of a distributed ledger instead of relying on a central authority to own the data.
- Permissionless: There are no gatekeepers. Anyone can participate in validating and mining transactions and use the system to buy, sell, and trade assets.
- Highly efficient: The proof-of-history model bypasses the time-consuming step of validating timing and sequences, thereby improving transaction speeds and reducing fees.
Cons of Solana:
- Limits to decentralization: Solana has been criticized for not being as decentralized as other altcoins because the Solana Foundation acts as a central point of control.
- Reliability concerns: Several outage incidents in 2022, including a 17-hour complete network shutdown, have undermined some investors’ confidence in Solana’s dependability.
- Less secure: The Solana Foundation is the only entity developing core nodes on the blockchain itself, so there’s nowhere to move data in the case of an attack.
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1. What is Solana being used for?
In addition to Solana’s native currency, SOL, the Solana blockchain is used by developers for a wide range of projects, including decentralized finance, lending protocols, NFT marketplaces, Web3 apps, and more.
2. Is Solana a good investment?
As with any crypto investing, Solana can carry significant risks, including volatility and a lack of regulation. That said, its rapid growth and scalability have made it attractive to many investors.
3. Is Solana better than Ethereum?
It depends on what you value in a cryptocurrency. Solana is known for having faster transactions and lower fees than Ethereum. However, Ethereum has a higher market cap and remains more popular.
4. Is Solana a coin or token?
Solana’s native cryptocurrency, SOL, is a coin native to the Solana network. Digital tokens, such as NFTs, can also be built on the Solana blockchain.
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