Solana is an affordable and highly scalable Layer 1 blockchain for developing smart contracts and decentralised applications. The SOL cryptocurrency in 2021 alone went from a price of $1.85 in January to a high of $260 in November. Here is, in detail, what Solana is and why it has been so successful.
How was Solana born?
The story of Solana begins near the Californian beach of the same name in 2017. It is there that Anatoly Yakovenko, awake at 4 a.m. from too much coffee, has a vision.
The idea that will change his life forever involves the SHA256 function, the same one used to encrypt Bitcoin blocks. Yakovenko realises that it can also be exploited to speed up the execution of transactions. How? We will find out later by discovering how Solana works.
The blockchain creator, a senior developer at Qualcomm at the time, gathered several developers from major companies such as Google, Microsoft and Apple in San Diego in the days that followed the insight. The goal? To found the organisation that, to this day, oversees blockchain development. Thus, Solana Labs was born.
In 2019, the stellar team built by Anatoly began receiving massive funding through 4 private SOL token sales and a public ICO on Coinlist. In 2021, the amount of money raised by Solana Labs exceeded $500 million.
How does Solana work?
Solana is a Layer-1 blockchain, i.e. an autonomous blockchain based on its protocol and core technology. The network’s main cryptocurrency is SOL, used for:
- The payment of transaction fees.
- Staking can be done as validators or by any user delegating it to them.
To understand what Solana is and how it works, it is necessary to know that, unlike Polkadot or Ethereum, this blockchain does not base its scalability on shards or parachains, or any other Layer 2. What makes it highly scalable are the 8 technological elements that underpin its infrastructure. For simplicity, we will only explain the first and most innovative one.
Solana’s consensus mechanism is called Tower BFT and is a type of Delegate Proof of Stake, also called proof of history. Let us see in detail how it works.
What is Proof-of-History?
Knowing what SoIana is also means being familiar with the operation of the Proof-of-History consensus mechanism, which assigns a cryptographic timestamp, i.e. a time stamp, to each transaction. This is because one of the biggest problems in decentralised systems is time.
Since blockchain networks are scattered worldwide, each will have its time zone. Deciding which time zone to adapt to is an arbitrary choice, to the detriment of most of the network. On the other hand, adjusting to a third party’s time would mean giving it control of the network.
To get around this problem, public blockchains implement slow and complex systems. On the other hand, Solana has found a way to assign a timestamp instantaneously without needing a unique time stamp. It is a ‘cryptographic clock’ that ‘runs’ and provides a timestamp to transactions even before a consensus is reached on their validity. This cryptographic clock is created by the hash function ‘SHA-256’, which we know from Bitcoin.
On Solana, the SHA-256 function infinitely repeats different outputs (every 400 milliseconds currently). These outputs, in the form of cryptographic codes, mark time. Proof-of-History, therefore, allows validators not to agree on the chronological order of transactions, as they already receive them with a defined timestamp.
Pros and cons of Solana
Answering the question ‘What is Solana and how does it work?’ also means analysing the strengths and weaknesses of this network and comparing it to other existing networks. Here are the main ‘pros’ of this blockchain:
- Up to 50,000 transactions per second (TPS)
- 2900 validator nodes
- Cost per transaction < $0.01
- 125 DeFi protocols
- Carbon neutral
Indeed, Bitcoin has about 9000 nodes, while Ethereum has about 5400 nodes and currently manages to process 15-45 transactions per second without experiencing congestion or a rise in fees.
As far as costs are concerned, only on some Ethereum layer-2 blockchains can we find similar prices, certainly not with Ethereum. In addition, Solana requires minimal electricity consumption (1939 joules), which it compensates for with emission offsetting methods.
However, Solana experienced several events that could have improved its performance. The most severe interruptions occurred on 14 September 2021, 1 May and 1 October 2022.
Solana later published several reports on the incident, and his large team of developers set to work to ensure that these bugs would not be repeated. This work bore fruit, as the blockchain has not suffered any disruptions since then.
Saga: Solana’s smartphone
Solana has also jumped into a market still unexplored by blockchain companies: that of smartphones. The Saga is an Android mobile phone designed to make access to Web3 more accessible and more immediate as it contains the first dapp store in history. Solana has also sought to simplify the work of its developers, thanks to the Mobile Stuck, a toolkit for building decentralised applications compatible with Android that is offered for sale directly in the Saga’s store.
The Solana Saga was also a success thanks to the airdrops of some ecosystem projects. For this reason, the smartphone’s price on the secondary market skyrocketed to $5,000 for a while, five times higher than its original value.
Applications on Solana
Due to its inherent characteristics, developing and using dapps on this blockchain is relatively easy. To understand what Solana is and how it works, it may be helpful to analyse, in brief, the native decentralised applications. Here are the most popular and used ones:
- Marinade is the most widely used platform for liquid staking on Solana.
- Orca is an easy-to-use DEX with a liquidity pool. It’s similar to UniSwap but on Solana and based on the ORCA token.
- Solend is a decentralised lending protocol.
- Drift Protocol is a DEX for trading perpetual futures, i.e., futures without a predetermined maturity.
- Magic Eden is one of the most popular NFT marketplaces on Web 3, native to Solana.
Solana: the latest updates
Our journey to discover what Solana is and how it works concludes with a section on the latest updates. The developer community of this network is among the most active around and periodically churns out new features and additions.
- State Compression – an integration implemented in 2023 that significantly reduces the space required to store data on the network. In other words, it allows Solana’s applications to securely store large amounts of data off-chain while retaining verifiable evidence of it on-chain, improving efficiency and reducing costs.
- Integration of artificial intelligence – in 2023, Solana Labs developed a plugin that allows AI to interact with its blockchain. This will enable automating specific actions (such as transferring or purchasing tokens) that today can only be done manually.
- Expansion of the Software Development Kit (SDK) – the development framework for this network was also affected by some updates. Thanks to these updates, it is now easier for developers to build applications in non-native programming languages such as TypeScript, Python and Java.
- Collaboration with large companies – Mastercard and Visa have partnered with the network created by Anatoly Yakovenko
Now that you know how Solana works and what it can do, thanks to its high scalability and the convenience of its transactions, you can assess whether it has what it takes to be a competitor to Ethereum.