A lot has happened with Solana since this article was written. We’ve published another article on the latest Solana updates here.
Solana ($SOL) is one of the hottest blockchains in 2021 – due to its incredible speed and extremely cheap transaction cost. This means Solana can support a huge number of decentralized applications without slowing down or having extremely high transaction costs (a problem currently plaguing the Ethereum ecosystem). Solana transactions can cost as little as $0.001 USD.
Solana is taking on one of the biggest challenges with existing blockchains- scalability. Designed from the ground up to be able to process over 50,000 transactions per second, Solana is built with scalability and speed in mind. This directly competes with other payment systems like Paypal or Visa. On top of this, Solana can achieve sub-second confirmation times, meaning users do not have to wait for their transactions to be confirmed. This makes Solana an idea blockchain for decentralized finance and trading – as traders demand near-instant trade times.
Solana achieves this incredible speed by solving how the blockchain tracks time and issue timestamps – using a mechanism called “proof of history“. Proof of history allows the Solana network to synchronize their individual clocks such that they are all in agreement with each other.
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.
Check out our video on what makes Solana so hot right now.
Anatoly Yakovenko founded Solana back in 2017. Yakovenko is a software engineer that formerly worked for Qualcomm and Dropbox with extensive experience in compression algorithms. He originally published the Solana white paper detailing Proof of History and how it can be used to speed up both proof of work and proof of stake-based blockchains.
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
Solana brings a total of 8 innovations that are exclusive to its system. The innovations revolve around how information is sent within a network – with the objective of making Solana as fast as how data transferred.
- 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 is 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 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.
Programming on Solana
Solana has support for smart contracts that allow developers to write decentralized applications on the network. This means it’s possible to run decentralized exchanges, lending platforms, and NFT marketplaces on Solana. The native language to program in Solana is RUST. RUST is a programming language that emphasizes performance and reliability over ease of use. This means that developing for Solana is harder than Ethereum (which uses solidity), but also can produce more reliable dapps.
Solana is fundamentally different in terms of programming language and network design – making it very different from Ethereum (which is arguably the biggest smart contract network today).
Solana allows users to mint, sell and trade NFTs on a larger scale. The marketplace hosts over 5.7m NFTs and the average mint cost is around US$1.5 per NFT.
Solana allows creators to host NFT marketplaces on the Solana ecosystem.
SolSea is Solana’s first ever NFT marketplace. SolSea offers creators tools for developing and managing their NFT collections. Other NFT marketplaces on Solana include Magic Eden, Solanart and Metaplex.
SOL Token ($SOL): What is it and what are its uses?
Solana’s native token or coin is known as $SOL. Currently, there is a circulating supply of 26 million SOL and it has a maximum supply of 489 million SOL.
Solana is a Proof-of-Stake (PoS) network with delegations. Validators process transactions on and run the network. Since validators are also chosen based on the amount of stake they hold in the network, the biggest staked validators are likely to be chosen to input transactions on the blockchain. And when they do this, they earn rewards. Therefore validators would want to entice delegators (i.e.non-validator SOL token holders) to allocate tokens to them to stake on their behalf. Validators do this by offering lower commissions, which delegators must pay to validators in the form of a fee representing a percentage of the rewards earned.
How to Stake SOL Tokens
Staking SOL tokens can also be a way for users to earn a profit if they are just holding their tokens.
- Transfer tokens. To stake SOL tokens, users have to first transfer their tokens in wallets that support staking. These are wallets like Ledger Nano X.
- Make a stake account. A stake account will have a different address from the supported wallet that you will link it with.
- Select a Validator. After creating a stake account, you can choose from Solana’s validators to determine who you’ll delegate your SOL to.
- Delegate your Stake. Once you have chosen a validator, you can use your wallet to delegate your stake account to them.
Solana partners with Serum ($SRM)
Serum is a new high-speed non-custodial spot and derivatives decentralized exchange (DEX) built on Solana. The reason why Serum wanted to build on Solana is that it wanted to enable the best of both the centralized and decentralized 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.
The best and most user-friendly wallet is Phantom wallet. This Web3 compatible wallet can be installed directly on your browser as a “Chrome Extention”, allow you to directly interact with websites in the Solana Ecosystem. Phantom wallet is non-custodial, meaning only you will have access to your cryptocurrencies. Phantom can also be used with Ledger Hardware wallets for additional security.
Solana can be staked on the FTX platform for 6% APR rewards. Rewards are given in the form of SOL. It is important to note that unstaking requires at least 7 days – with a 10% penalty for immediate unstaking.
Solana’s key difference with Ethereum is that it solves the scaling on layer 1 – instead of other workaround solutions. Solana was designed to be fast by improving network speed and communication between nodes. One key advantage of scaling in this manner is that it doesn’t break composability – the communication between different smart contracts. Ethereum 2.0 scales using “shards” – a technique that could potentially introduce communication issues between decentralized applications on different shards.
It is not possible to mine Solana as the blockchain is not based on proof of work consensus (unlike Bitcoin mining). Solana can only be purchased on exchanges or earned via staking mechanisms.
Solana is a Proof of Stake blockchain – requiring validators to stake SOL in order to participate in network consensus. Validators have an elected leader that broadcasts the transaction order and this action is replicated in other validators.
CEO of FTX exchange Sam Bankman-Fried (SBF) has stated in an interview with Fortune that SOL is the “most underrated token…at least as of a month ago [July 2022]”. Despite the recent Solana hack, SBF’s opinion on the SOL token remains unchanged. SBF believes that Solana has growth potential since it has worked through two-thirds of the technical issues already. He also added that, with reference to Solana, anytime the limits of what is possible are tested, is when you figure out what needs to be refined or improved. And that, “Any blockchain would have broken if it tried to do what Solana had done.”
As of early August 2022, Solana ($SOL) has been trading at around US$39. The all-time high price of SOL was $259.96 and the all-time low was $0.500801. Prices of SOL were unaffected by the recent Solana hack, much to the surprise of the cryptocurrency community. Sam Bankman-Fried, CEO of FTX exchange and Solana, Therefore, crypto analysts predict that SOL prices have the potential to continue rising to a range of not less than US$55 to potentially US$68 by the end of 2022.
Decentralised Finance (DeFi) series: tutorials, guides and more
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Tutorials and guides for the ESSENTIAL DEFI TOOLS:
- MetaMask Guide: How to set up an account? PLUS tips and hacks for advanced users
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