Solana is an integrated, open-source blockchain network that is designed to synchronize information around the world at the speed of light. The network is geared towards fast transactions and high throughput to encourage consumers to use blockchain technology en masse. The Solana network is optimized for latency and performance. It aims to do this through features such as a novel timestamp mechanism called Proof of History (PoH), the Turbine block propagation protocol, and parallel transaction processing. Since the mainnet launch in March 2020, several network upgrades have continued to be agile and resilient, including m.in. QUIC, Stake-weighted Quality of Service (QoS), and local fee markets.
What should you know?
Users can settle transaction fees and interact with smart contracts using SOL, the network’s native token. Another innovation is Token Extensions, a set of rich functions natively built into the token program that enables complex behaviors, such as confidential transfers.
Scalability is one of the biggest challenges of blockchain technology. As the network grows, they often run into limitations in terms of transaction speed and confirmation time. Since the Solana network is built on a new architecture, it handles these limitations without compromising security or decentralization.
Founded in 2017 by Anatoly Yakovenko of Solana Labs, the Solana blockchain network is now one of the most widely used blockchain networks in the world. Solana has a number of innovations, such as PoH and parallelization, so it efficiently processes tens of thousands of transactions per second (TPS) in a single global state machine.
How does Solana work?
Solana is a third-generation Proof of Stake (PoS) blockchain network that is deploying a number of unique innovations that are designed to deliver high performance, fast transactions, and low fees:
- Parallelism: The ability to process more than one transaction at a time.
- Proof of History (PoH): A method of time verification, without the need for a conventional timestamp.
- Tower Byzantine Fault Tolerance (BFT): A PoH-optimized version of the Practical BFT.
- Turbine: A block propagation protocol that ensures network synchronization.
- Gulf Stream: A protocol for passing transactions without memory.
- Solana Virtual Machine: A parallel environment for processing smart contracts.
SOL holders can stake their tokens as part of the blockchain’s consensus mechanism, which is PoS. Using a compatible crypto wallet, you can stake your tokens with validators who process transactions on the network. A successful validator can share a portion of the reward with those who staked their tokens. This reward mechanism incentivizes validators and delegators to act for the benefit of the network.
As of January 2024, Solana has 2145 validators and a Nakamoto rate of 31.
Proof of History
Keeping track of the order of transactions is significant for cryptocurrencies. Bitcoin does this by combining transactions into blocks, each with a timestamp. Each node must verify a given block, in consultation with other nodes. However, this process results in a significant wait time for the block to be confirmed by nodes across the network. Solana uses a different approach, called Proof of History (PoH).
All Solana events and transactions are hashed using the SHA256 hash function, which takes inputs and produces unique and extremely difficult to predict outputs. Solana takes the output from the transaction and uses it as input for the next hash, so the order of the transactions is now built into the hashed output.
This hashing process creates a long, uninterrupted chain of hashed transactions. This ensures that transactions are arranged in a clear, verifiable order that the validator adds to the block, without the need for a conventional timestamp.
The hashing process also requires a certain amount of time, making it easy for validators to verify how much time has passed. By arranging transactions into a chain of hashes, validators process and transmit less information in each block. Using a hashed version of the last state of a transaction significantly reduces the time it takes to confirm a new block.
PoH is not a consensus mechanism, but instead, a way to reduce the time it takes to confirm the order of transactions. Combined with PoS, choosing the next validator for a block is much easier. Nodes take less time to validate the order of transactions, which means that the network selects a new validator much faster.
Lower costs
Solana has extremely low fees, with an average transaction costing $0.00025. Low fees can remove some of the biggest barriers to entry in the Web3 market, as gas fees on other networks can significantly increase costs for a single purchase.
Because Solana network nodes don’t need to have as much time and resources to validate transactions — and because there’s no mining effort like with Proof of Work (PoW) networks — the network has become one of the most energy-efficient blockchain networks.
The Solana Foundation, a non-profit organization dedicated to securing and supporting the Solana network, publishes regular external audits on the impact of the Solana network on energy, as well as how it compares to other blockchain projects and their average household usage. The latest report, published in December 2023, shows that energy consumption per transaction decreased by 25%, from 0.879 thousand J to 0.658 thousand J.
What is SOL?
SOL is Solana’s native utility token, which the network burns as part of its deflationary model. Users use SOL to pay for transactions when making transfers and interacting with smart contracts. SOL holders can also become network validators. Similar to Ethereum, Solana allows developers to build smart contracts and create blockchain-based projects.
SOL uses the SPL protocol; SPL is a token standard on the Solana blockchain, similar to ERC-20 on Ethereum. The SOL token has two main uses:
- Paying transaction fees when using the network or smart contracts.
- Staking tokens as part of the Proof of Stake consensus mechanism.
- Decentralized applications (DApps) built on Solana create new use cases for SOL and other tokens built using the SPL standard.
Solana ecosystem
The Solana ecosystem has grown significantly since the launch of the mainnet beta in 2020. As of January 2024, there are over 2500 developers working on Solana projects, and there are over a million active wallets on the Solana network.
Integration with Solana has also been announced by traditional economic giants. These include Discord (which allows users to link their profiles and Solana wallets) and ASICS (which used the Solana Pay payment rail to allow customers to purchase a limited-edition shoe design).
Solana’s fast transactions and high throughput have made it the network of choice for several Web3 use cases, such as:
Decentralized physical infrastructure networks (DePINs): Real-world networks with token-incentivized incentives, such as the decentralized mapping protocol Hivemapper, are made possible by the fact that transactions can be processed at extremely high speeds.
Next-generation NFTs: New non-fungible token standards are emerging in the Solana ecosystem that enable the creation of new use cases through the network’s scalability. Coral’s executable NFTs (xNFTs) are NFTs that are capable of running a program, which carries the promise of a network-application stack that will function entirely on the wallet. Compressed NFTs (cNFTs) thanks to hash trees dramatically reduce the cost of on-chain storage and reduce the cost of minting a million NFTs from millions to hundreds of dollars.
Payments: The Solana Pay protocol powers an ecosystem of seamless, permissionless payment structures that are able to settle payments in seconds in business operations.