What is Solana(SOL)? The Latest Premier Guide 2024
What is Solana (SOL)?
Solana is a blockchain platform designed to host decentralized, scalable applications. Established in 2017, it is an open-source project currently operated by the Geneva-based Solana Foundation, while the blockchain is built by San Francisco-based Solana Labs.
Solana is much faster in processing transactions and charges much lower transaction fees compared to blockchains of competitors like Ethereum. The cryptocurrency running on the Solana blockchain, also called Solana (SOL), surged by nearly 12,000% in 2021, at one point exceeding a market cap of $75 billion, making it one of the largest cryptocurrencies by this measure at the time.
Despite its popularity, SOL did not escape the crypto crash of 2022. By December 29, 2022, SOL’s market cap had dropped to about $3.63 billion. A year later, it had recovered nearly half of its market cap loss.
Key Points
- Solana is a blockchain platform designed to host decentralized, scalable applications.
- Solana can process more transactions per second and charges lower transaction fees compared to blockchains of competitors like Ethereum.
- Solana is a proof of stake (PoS) blockchain but has been enhanced through a mechanism known as proof of history (PoH), which uses hash timestamps to verify when transactions occur.
History of Solana
Solana co-founder Anatoly Yakovenko’s previous experience working at leading tech companies like Qualcomm (QCOM) in the field of distributed systems design made him realize that a reliable clock could simplify network synchronization, which, when achieved, would exponentially increase the ultimate network speed, the only limit being its bandwidth.
Yakovenko speculated that using proof of history would greatly accelerate blockchain speed compared to blockchain systems without a clock, such as Bitcoin and Ethereum. These systems struggle to scale globally to 15 transactions per second (TPS), just a fraction of the throughput processed by centralized payment systems like Visa (V), which can peak at 65,000 TPS.
Yakovenko’s proof of history overcame this barrier, with every node in the network being able to rely on the recorded passage of time.
Proof of History Concept
In November 2017, Yakovenko published a white paper describing the proof of history (PoH) concept. PoH allows a blockchain to reach consensus by verifying the passage of time between events and is used to encode the passage of time into the ledger.
In the white paper, Yakovenko pointed out that public blockchains at the time did not rely on time, with every node in the network relying on its own local clock without knowing the clock of any other participant in the network. The lack of a trusted source of time (i.e., a standardized clock) meant that when using message timestamps to accept or reject messages, there was no guarantee that every other participant in the network would make the same choice.
Expansion
In 2018, Yakovenko recruited five others to co-found a project named Loom. However, to avoid confusion with a similarly named Ethereum-based project, they renamed the project “Solana,” after the seaside town near San Diego where one of the co-founders had lived.
In June 2018, the project expanded to run on a cloud-based network, and a month later, the company released a public testnet supporting bursts of 250,000 TPS.
As of March 4, 2024, Solana has processed over 27.39 billion transactions, with an average cost per transaction of $0.00025.
Solana’s Technology
Solana’s design uses algorithms to eliminate performance bottlenecks caused by blockchain software. This gives it scalability, security, and decentralization. Theoretically, its architecture allows for limits of 710,000 TPS on standard gigabit networks and 28.4 million TPS on 40 gigabit networks.
Solana’s blockchain runs on a proof of history (PoH) and proof of stake (PoS) consensus model. PoS allows validators (people who verify transactions added to the blockchain ledger) to verify transactions based on the number of coins or tokens they hold; PoH allows for the timestamping of these transactions and very rapid verification.
Solana vs. Ethereum
Solana’s rapidly expanding ecosystem and versatility inevitably draw comparisons to Ethereum, the leading blockchain for decentralized applications (dApps):
- Smart Contracts: Both Solana and Ethereum feature smart contract capabilities, crucial for running cutting-edge applications like decentralized finance (DeFi) and non-fungible tokens (NFTs).
- Consensus: Both Solana and Ethereum use proof of stake (PoS) consensus mechanisms, where validators stake their cryptocurrency as collateral to earn the privilege of aiding the blockchain in return for rewards. Solana enhances PoS by implementing PoH.
- Speed: Much of the discussion around Solana in 2021 centered on its apparent advantages over Ethereum in terms of transaction processing speed and transaction costs. Solana processes over 2,739 transactions per second (as of March 4, 2024), with an average cost per transaction of $0.00025. In contrast, Ethereum can process less than 15 TPS, with an average transaction fee of about $2.62.
Ethereum Upgrade
Ethereum, with its first-mover advantage and massive ecosystem, ranks second only to Bitcoin in market cap.
Ethereum’s 2022 upgrade, merging the beacon chain with the mainnet, provided its blockchain with a more scalable, secure, and sustainable framework. Future upgrades will introduce sharding, significantly reducing transaction times and easing network congestion. How Solana will respond to these improvements remains to be seen.
Does Solana’s SOL Token Offer Fractional Amounts?
SOL is available in fractional amounts, known as “lamports”; the value of a lamport is 0.000000001 SOL. Lamports are named after Solana’s biggest technical influence, Leslie Lamport, a computer scientist known for his work in distributed systems.
How Many SOL Tokens are in Circulation?
Solana has an infinite supply of SOL tokens. As of March 4, 2024, the circulation is 571 million SOL.
How is Solana Rated Among Cryptocurrency Companies?
By market cap, Solana is the fifth-largest cryptocurrency as of March 4, 2024. Its larger competitors include Bitcoin, Ethereum, Tether, and BNB.
Bottom Line
Solana is a blockchain with uses, use cases, and functionalities that can match (and potentially exceed) Ethereum. It is among the more popular blockchains, with its token SOL holding a significant share in the cryptocurrency market.
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