What is Solana?

If you know anything about crypto, you’ve probably heard of Ethereum, and that’s no surprise. It is the most widely used blockchain network for DeFi (decentralized finance) projects and NFTs since it pioneered smart contracts and dApps. 

However, Ethereum’s popularity also causes problems: the more users on the network, the slower and more expensive its transactions become. To handle the amount of data needed to run blockchain apps effectively, blockchain networks must evolve. 

One network tackling these issues head-on is Solana. In short, it aims to provide a fast and efficient foundation for blockchain apps to thrive. 

Let’s see how it works:

What is the Solana Blockchain?

Proposed in 2017 and launched in 2020 by the Solana Foundation, Solana marketed itself as the answer to Ethereum’s scalability issues. Despite its origins, it’s now much more than an alternative to Ethereum. Instead, it’s a respected network in its own right, boasting an ecosystem of popular platforms.

Specifically, Solana was designed to support decentralized and scalable applications with its fast and low-cost transactions. As such, the network supports countless decentralized applications (DApps) spanning decentralized finance (DeFi), non-fungible token (NFT) marketplaces, and gaming ecosystems. 

What is Solana’s native coin (SOL)

The Solana network is powered by its native coin, SOL. SOL is the coin used for any action in the ecosystem, from paying for services to paying transaction fees to staking Solana in return for rewards. SOL is also divisible into smaller denominations called lamports, named after computer scientist Leslie Lamport. Each Lamport is equivalent to 0.000000001 SOL. Today, it’s the 5th largest cryptocurrency with a market cap of $59B (at the time of writing). 

Staking Solana

Since Solana uses a variation of the proof-of-stake mechanism, you can also stake your SOL to earn rewards. You have a couple of choices too: either you can become a validator yourself or delegate your SOL to an existing validator who will process transactions for you. In return for staking and validating transactions, the network rewards validators. But of course, it can also punish them, removing any rewards validators have accrued for bad behavior. This mechanism guarantees participants have the network’s best intentions in mind: validators are incentivized by lucrative rewards.   

How does Solana work?

Solana owes its super fast and cheap transactions to its unique method of tackling consensus. To explain, Solana uses a combination of delegated proof-of-stake (an existing consensus mechanism) and Proof-of History (POH), an invention of its own. 

Let’s see how each of these mechanisms helps Solana operate:

Delegated Proof of Stake

Delegated proof of stake (dpos) is a variant of the proof-of-stake mechanism. Like traditional Proof of Stake, it relies on validators who lock up an amount of Solana as collateral, also called staking. This is in contrast with proof-of-work networks like Bitcoin which rely on miners who solve complex computational problems. Using a staking mechanism allows Solana to process transactions in a more energy-efficient and environmentally friendly manner than its proof-of-work counterparts.

Where delegated proof of stake differs from traditional proof of stake is that it also introduces a voting mechanism. This makes the process of verifying transactions more democratic which stops validators from gaining too much influence over the system.

Proof of History (PoH)

Proof-of-history (PoH) is a unique consensus mechanism originally proposed in Solana’s whitepaper. In short, it introduces a timestamp for transactions. To explain how it works, let’s imagine a sprint race. Like any race, each runner in the race receives a final timestamp at the exact moment they cross the finish line. In this example, PoH is like a stopwatch: it records the timestamps of transactions, allowing them to be processed in order.

In both PoW and traditional PoS networks, validators can pick and choose whichever transactions offer the highest rewards. On the Solana network, this isn’t possible, making the system fairer and faster. 

Thanks to its fair mechanism of choosing validators and method of ensuring transactions are executed in order, Solana is capable of processing a lot more transactions than its competitors. While its whitepaper boasts a TPS of 50,000, practically, it handles a lot less. Despite that, Solana processes an average of 300-1,000 TPS, outperforming most EVM chains including Polygon.

Solana: What does the Future Hold?

Solana tackles some of the biggest issues blockchains struggle with today: speed, security, and scalability. That said, it hasn’t all been smooth sailing for the chain. Unfortunately, Solana has experienced eleven outages in the last two years. In February 2024, the network went down for five hours, raising alarm in the community. However despite these hiccups, Solana has one of the most enthusiastic followings in the crypto scene, with its NFT and DeFi ecosystem still growing in popularity. 

So what are you waiting for? Get yourself a Ledger device  and start managing your SOL with the benefit of security and self-custody. With Ledger, you can explore the growing SOL ecosystem with peace of mind.