Launched in March 2020, Solana is a popular blockchain that has earned a reputation owing to its speed and ability. Since the platform has smart contract potential, it can be utilized by developers to create dApps.
Thanks to Solana’s phenomenal growth, it has emerged as a competitor to many leading blockchains like Cardano and Ethereum.
How does Solana work?
Developed for scalability, Solana does so via its exclusive hybrid protocol. Having said that, it uses the proof-of-stake consensus mechanism along with its proof-of-history algorithm.
PoS confirms blockchain transactions. Validators are selected on the basis of total crypto tokens they have staked. They get rewards upon confirming as well as adding new blocks of transactions to the blockchain.
PoH not only confirms the order of blockchain transactions but also the passage of time between them. As the timestamps on transactions are created in the blockchain, there’s no need for validator nodes to communicate with each other for the purpose of verifying transaction times.
The proof-of-history assists in optimizing the transaction process. By curtailing the work of validators, it helps with shorter processing times.
Solana’s Proof-of-History
In November 2017, Anatoly Yakovenko, Solana co-founder, published a whitepaper that explained the concept of proof-of-history.
PoH is defined as a proof for confirming order as well as passage of time between events. The white paper mentioned that publicly available blockchains at that time were not dependent on time.
Every single node was used to depend on its own personal local clock without knowing about the clocks of other participants. Since there was no genuine source of time, anytime a message timestamp was deployed to either accept or dismiss a message, it was not guaranteed that other participants in the network would opt for the same choice.
However, PoH overcomes this, as each node is capable of leaning on the recorded passage of time in the ledger.
Staking in Solana?
Validators are the computers that protect the network. Participants stake their SOL, Solana’s currency, to become a validator and earn a new SOL and a deduction in fees.
SOL also works like a governance token, which means owners can vote on matters like future updates and governance proposals submitted by the Solana community.
Technology behind Solana
The architecture of Solana intends to signify a set of software algorithms that, when merged with a blockchain, remove software as a barrier to performance.
This merge allows transaction output to scale. The combination enables transaction throughput to scale in proportion to the bandwidth of the network.
The architecture meets all three attributes meant for a blockchain- scalability, decentralization, and security. The theoretical upper limit is 710,000 TPS on a gigabit network, while it is 28.4 million TPS on a 40-gigabit network.
As already mentioned, the blockchain of Solana runs on both PoS and PoH.
Which applications operate on Solana?
As a computing platform, Solana interacts with smart contracts. A number of applications are powered by smart contracts, which range from DeFi to decentralized lotteries, NFT markets, and games.
Lending apps and DEX are among the most popular Solana applications. Moreover, assets worth billions of dollars are supported by the crypto app ecosystem.
A major reason for choosing Solana is its high speed and low congestion, which results in extremely low fees. Also, the blockchain is capable of supporting wrapped assets and stablecoins.
How is Solana unique?
Solana’s biggest strength includes superfast and affordable transactions. It can handle 65,000 transactions per second, with the average cost per transaction being $0.00025.
The reason behind is Solana using PoH. While most of the blockchains deploy PoS or PoW, Solana adopts a hybrid protocol that combines PoS and PoH. The latter leads to faster processing.
As Solana is an open-source blockchain, it can be used by developers in a number of ways. Solana ecosystems can be used for:
- Trading, minting and selling NFTs.
- Developing DeFi platforms like decentralized crypto exchanges.
- Developing blockchain-based games which includes Web3 games as well as collaborations with leading game companies.
Solana Pay is among the most exciting developments at Solana. Merchants can accept payments from customers via the Solana network. For the maintenance of a stable price, payments are done using stablecoins like USDC.
Businesses can keep away from hefty processing fees by using Solana Pay.
Partnerships
A few major partnerships of Solana’s are highlighted in the points below.
- Michael Jordan released his first NFT collection on Solana-based platform HEIR.
- OpenSea joined Solana to list NFTs based on Solana.
- Audius, an app that aims at creating a decentralized music community, has moved to Solana.
- Solana partnered with Arweave blockchain to permanently store huge data of Solana, which also includes NFT data files and transaction history.
- Google Cloud announced developing a block-producing Solana validator with an aim to not only take part in but also authenticate the network.
Use cases of Solana
Solana’s scalability and flexibility make it a home for multiple projects. Some major use cases related to it are:
DeFis
Decentralized financial institutions offer a combined range of financial solutions online without requiring you to depend on conventional banks.
Solana-based DEXs are Serum and Orca, which enable users to trade cryptos in a non-custodial process. Furthermore, Solana supports stablecoins like Saber.
Lending Protocols
Thanks to some developers who have developed systems that enable users to lend or deposit currencies over Solana, users can get interest as well as set up automated repayments.
NFT apps and marketplaces
Solana is used to create NFT applications that enable users to mint as well as trade digital artwork. By creating their NFT storefronts as well as tools, users can generate non-fungible tokens or can also incorporate them into other applications.
Metaplex and Solanart are some of the best examples of Solana NFT marketplaces.
Games
Many games with P2E systems belong to Solana. Such games allow players to earn NFTs and crypto when they play the game. Aurory and Naga Kingdom are the two best examples.
Web3 Apps
Apps that take advantage of up-to-date internet technologies are among the most exciting developments on Solana. Since these apps are decentralized, they are steady and available to every user on the internet.
The SOL token
Launched in March 2020, SOL is the native and utility token of Solana that acts as a medium of transferring value and providing blockchain security via staking. SOL has made significant efforts to secure a place among the leading 10 cryptocurrencies in terms of total market capitalization.
The SOL token operation scheme is similar to the one used on the Ethereum blockchain. Despite functioning similarly, the token owners of Solana stake the token to approve transactions via the PoS consensus mechanism.
The token is utilized to get rewards as well as pay transaction fees. SOL also allows users to be a part of the governance.
Solana founders and the Solana Foundation control over 60% of SOL tokens, and only 38% belong to the community.
The dark side of Solana
Apart from all the goodness, there are certain demerits that are part of Solana. Let’s discuss a few of them.
Despite having the potential to compete with standard blockchain projects, Solana is quite exposed to centralization owing to the lack of several blockchain validators. Though anyone who’s on the network can be a validator, it isn’t easy as ample computing resources are required.
According to the protocol, it is the mainnet’s beta version, which involves the possibility of errors and bugs.
Uneven power structure is also there in Solana’s validators and initial token distribution. Moreover, a large quantity of tokens are allocated to Solana’s early insiders, which include the company, its team, as well as venture capital firms.
Since Solana has become promising, disruptions are a matter of concern too. In 2021 and 2022, several disruptions were experienced by the Solana network. This included a 48-hour outage that took place in January 2022 and liquidated multiple users of Solend.
Conclusion
There’s no fundamental asset support for Solana, just like many other cryptocurrencies. It is growing based on the positive approach as well as the beliefs of traders.
However, there’s no denying that Solana provides fast and scalable services that allow both developers and traders to offer various solutions to users on a global level.
Only time will tell what is exactly in store for Solana’s future, which makes investment related decisions to be taken cautiously.
