Solana ($SOL) is taking on one of the biggest challenges with existing blockchains- scalability. This problem has always been the bane of cryptocurrency mass adoption. With low transaction throughput, cryptocurrency cannot fully compete with payment systems like Paypal or Visa. And this is the reason why Solana was developed. With the capacity to process more than 50,000 transactions per second, Solana has attracted several crypto proponents including FTX exchange. But what exactly is Solana and how does it work?
Anatoly Yakovenko founded Solana back in 2017. Yakovenko formerly worked for Qualcomm. He also has experience with compression algorithms after previously working at Dropbox as a Software Engineer.
Along with Greg Fitzgerald, Solana’s CTO, as well as Eric Williams, they conceptualized a new way of dealing with the throughput problems that were present in both the Bitcoin and Ethereum blockchains. They envisioned a trustless and distributed protocol that allows for greater scalability, which was how Solana was born.
What is Solana? Key Innovations
- Proof of History (POH) – Cryptographic clock for the blockchain.
- Tower BFT – Solana’s version of the Practical Byzantine Fault Toleration (PBFT) system
- Turbine – Blockchain broadcasting protocol.
- Gulf Stream – Forwarding protocol without mempools.
- Sealevel – Solana’s parallel smart contracts.
- Pipelining – Transaction Processing Unit.
- Cloudbreak – Accounts database.
- Archivers – Storage of blockchain history.
Let’s take a look at these key innovations in turn.
Proof of History
Solana took to the community a new solution to make a blockchain more decentralized. The PoH system embeds historical records of blockchain transactions in order to prove that transactions indeed happened before they are included in the distributed ledger.
This is done by what Solana calls the ‘Verifiable Delay Function.’ On the Solana blockchain, transactions are embedded with timestamps that help establish the sequence of events that were processed before the latest state of the blockchain is broadcasted to the whole network.
Transactions are entered into blocks through Solana’s sequential preimage resistant hash, simply referring to hashes that cannot be altered. These hashes are then used as an input to the next transaction. Then, these entries are timestamped to record their actual sequence and eventually, save time on having to revalidate each hash function altogether.
TowerBFT is Solana’s version of the PBFT system. The consensus algorithm uses PoH as its cryptographic clock in order to reach blockchain consensus without incurring massive messaging overhead and transaction latency.
Before the state of the ledger is finalized, validators vote on which version of the ledger is accurate. Then, their vote is locked-out. This means that they are prohibited from making a different vote on a future version of the blockchain that does not show that the record of the previous votes on it.
Solana makes it easier for data to be transmitted to every blockchain node by dividing them into smaller packets. This helps Solana address bandwidth issues and increase its capacity to settle transactions faster.
Solana can achieve a network throughput of 50,000 transactions per second by easing the process of block confirmation. Gulf Stream facilitates the process of transaction catching and forwarding even before the next set of blocks for confirmation are finalized.
Thousands of smart contracts run in parallel with each other to achieve a more efficient runtime for Solana. Transactions that are in the same state of the blockchain can run concurrently.
A set of blocks that contain transaction information is quickly validated and replicated across all nodes in the network. Solana does this by assigning a stream of input data onto different hardware that are responsible for each of them.
Solana achieves scalability with no risk of sharding by organizing a database that simultaneously reads and writes transaction input. Cloudbreak establishes a data structure where transactions are processed in a software that utilizes every hardware responsible for indexing data.
Solana’s network allows every node to replicate information from the blockchain according to the space available on their hardware. Archivers download their respective data from validators, and this data is accessible to the network.
SOL Token ($SOL): What is it and what are its uses?
Solana’s native token is $SOL. Currently, there is a circulating supply of 26 million SOL and it has a maximum supply of 489 million SOL.
Solana is a Proof-of-Stake (PoS) network with delegations. Validators process transactions on, and run the network. Since validators are also chosen based on the amount of stake they hold in the network, the biggest staked validators are likely to be chosen to input transactions on the blockchain. And when they do this, they earn rewards. Therefore validators would want to entice delegators (i.e.non-validator SOL token holders) to allocate tokens to them to stake on their behalf. Validators do this by offering lower commissions, which delegators must pay to validators in the form of a fee representing a percentage of the rewards earned.
How to Stake SOL Tokens
Staking SOL tokens can also be a way for users to earn profit if they are just holding their tokens.
- Transfer tokens. To stake SOL tokens, users have to first transfer their tokens in wallets that support staking. These are wallets like Ledger Nano X.
- Make a stake account. A stake account will have a different address from the supported wallet that you will link it with.
- Select a Validator. After creating a stake account, you can choose from Solana’s validators to determine who you’ll delegate your SOL to.
- Delegate your Stake. Once you have chosen a validator, you can use your wallet to delegate your stake account to them.
Solana partners with Serum ($SRM)
Serum is a new high-speed non-custodial spot and derivatives decentralised exchange (DEX) built on Solana. The reason why Serum wanted to build on Solana is because it wanted to enable the best of both the centralised and decentralised worlds, that is, an exchange that is able to be resistant to censorship and non-custodial, yet fast, inexpensive and highly liquid. And this is only achievable because Solana enables Serum to run on an on-chain central limit order book (CLOB) that updates every 400 milliseconds.
What does this mean for cryptocurrency and DeFi traders? It means that Serum will have the lowest latency and gas costs.
The common problem with the earlier blockchains are issues concerning transaction settlement speed and bandwidth. With Solana’s new architecture powered by a new way to verify transactions and coupled with an efficient PoS mechanism, it can definitely be a strong candidate for platforms that could compete with Bitcoin and Ethereum.
Decentralised Finance (DeFi) series: tutorials, guides and more
With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. We also take a deep dive into popular DeFi topics such as Yearn.finance ($YFI), Balancer ($BAL) and ($COMP).
The DeFi series on this website also covers topics not explored in YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency
Learn about Yearn.finance ($YFI) and all its various hard forks and iterations:
- Yearn.finance ($YFI) farming with yEarn Pool
- YFII Yield Farming- the controversial $YFI Fork
- YFFI Yield Farming – Another fork of the popular yield farming Dapp
- Andre Cronje, Founder of yEarn.Finance ($YFI) talks DeFi with FTX
For in-depth information other specific DeFi projects, check out our DeFi token guides:
- 0x ($ZRX) guide: The future of cryptocurrency exchanges?
- AAVE ($LEND)
- Ampleforth ($AMPL) review: The essential guide to this DeFi protocol
- Bella Protocol ($BEL): One-click crypto banking
- Balancer Finance Guide and Review ($BAL)
- ChainLink ($LINK) guide: A key link in the DeFi space
- Compound Finance ($COMP)? A guide to hacks and tips on the latest DeFi platform
- Cream Finance ($CREAM): What is it?
- Curve Finance ($CRV) guide
- DeFi Money Market and DMM Governance ($DMG) guide
- FalconSwap ($FSW) Guide
- Fuse Network ($FUSE): What is it?
- Hedget ($HGET): Does it live up to the hype?
- Kusama ($KSM): How is it Polkadot’s wild cousin?
- Linear Finance ($LINA): The future of synthetic exchange platforms?
- Mantra DAO ($OM): The DeFi project that’s all about community
- OIN Finance ($OIN): DeFi’s first foray into Ontology
- Orion Protocol ($ORN) explained
- Polkadot ($DOT): Everything you need to know about the DeFi darling of China
- RAMP DeFi: How does it unlock the value of staked assets?
- Rio DeFi ($RFUEL): The next frontier of finance?
- Serum ($SRM): First look at FTX’s new DEX for the DeFi wave
- Solana ($SOL) explained
- SushiSwap ($SUSHI) explained
- Synthetix ($SNX): Everything you need to know about this top DeFi project
- THORChain ($RUNE) information and guide
- Trustswap ($SWAP) explained- Next generation of DeFi transactions
- YF Link ($YFL): Combining the best of ChainLink ($LINK) and Yearn Finance ($YFI)?
- YFV Finance Yield Farming
Tutorials and guides for the ESSENTIAL DEFI TOOLS:
- MetaMask Guide: How to set up an account? PLUS tips and hacks for advanced users
- Uniswap review and tutorial: Beginners guide and advanced tips and tricks
More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel and (for now) FREE weekly newsletter so you can be notified as soon as they come out!
The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.