What is Solana and How Does it Work?
Solana is a rapidly-growing Proof of Stake cryptocurrency and blockchain network designed to facilitate extremely fast transaction speeds and scalability.
As a third-generation blockchain, Solana addresses many of the problems that prevent the widespread adoption of blockchain technology and has emerged as the most significant competitor to Ethereum (ETH).
Today, Solana is one of the most successful blockchain networks and is capable of executing transactions faster and at a larger scale than Ethereum and other cryptocurrencies. What is Solana, however, and how does it work?
A Brief History of Solana
Solana was designed by former Qualcomm Anatoly Yakovenko in 2017, who created the Solana network in order to solve a number of significant obstacles faced by the blockchain industry.
The Solana whitepaper outlines a new means of blockchain consensus called Proof of History that, unlike the Proof of Work consensus method used in many contemporary blockchain networks, doesn’t require the expenditure of significant energy resources and is capable of executing transactions at scale.
Solana Labs, the technology company responsible for the launch of the open-source Solana project, raised $20 million in private token sale funding rounds between 2018 and 2019, followed by a series A.
The Solana network first went live in February 2020 with the launch of the first Solana testnet. Today, Solana Labs operates as a major contributor to the Solana project, and is supported by team members that include professionals with industry experience ranges across Microsoft, Twitter, Apple, Google, and Intel.
How Does Solana Work & How is it Different From Ethereum?
Solana, like Ethereum, operates as a blockchain ecosystem through which smart contracts and decentralized applications, or dApps, can be deployed and interacted with.
Unlike Ethereum, however, Solana is able to execute transactions at a far greater scale. The Ethereum blockchain currently uses a Proof of Work consensus mechanism that limits the total amount of transactions that can be executed on it to roughly 15 transactions per second.
Solana, however, uses a unique hybrid consensus method that is able to execute a theoretical maximum of 65,000 transactions per second. To achieve this, Solana uses a combination of both Proof of Stake and “Proof of History” consensus methods.
Proof of Stake consensus, unlike Proof of Work, doesn’t involve the use of energy resources in order to disincentivize bad actors and reward contributors. Instead, a Proof of Stake model requires that participants lock up, or “stake” assets in order to contribute to the maintenance of the network.
Solana uses Proof of State to facilitate transaction processing and encourage the decentralization of the network — network participants are rewarded for their contribution and dedication to the blockchain.
The unique Proof of History element of Solana’s consensus mechanism is one of the most significant differences between Solana and Ethereum. Proof of History is a method of validating transactions and ensuring that they are executed in the correct order.
Solana uses a Proof of Stake model to identify the next network participant that will find the next block, while Proof of History assigns contributor roles to the next validating participant ahead of time, streamlining transaction processing.
Solana offers similar features to Ethereum, such as the ability to create and deploy complex smart contracts and decentralized applications or mint NFTs, but is able to do so at a far higher speed and lower cost when compared to the Ethereum network.
What Are Smart Contracts & Dapps?
Solana is designed to operate as a smart contract and dapp ecosystem. The smart contract and dapp functionality of Solana is highly similar to that of Ethereum, allowing anybody to create a smart contract or decentralized applications.
Smart contracts on Solana allow users to create agreements enforced by code — rather than rely on the authority of a third party arbitrator, smart contracts eliminate counterparty risk and enforce rules automatically.
Solana smart contracts can be used to create NFT minting and trading ecosystem, support the creation and development of blockchain-based games, or can be used to establish decentralized finance (DeFi) protocols. In short, Solana smart contracts offer the same use cases as Ethereum smart contracts, but are currently significantly more efficient with regard to on-chain operation.
Decentralized applications, or dapps, are blockchain-based apps that provide similar functionality to the apps and services that operate on smartphones or web browsers. Unlike traditional apps, however, dapps operate on the blockchain and are completely decentralized.
The decentralized app ecosystem active on the Solana blockchain is one of the most popular use cases of Solana. Solana is home to a massive network of decentralized applications that include blockchain-based play-to-earn games, decentralized finance platforms, NFT marketplaces, and more.
Solana as an Investment
Solana is widely considered a direct competitor to Ethereum, and is driven by the SOL token. SOL is used as the native token of the Solana platform and can be staked in order to participate in the maintenance of the Solana network.
While Solana is a next-generation blockchain that offers a number of significant advantages over contemporary blockchain networks, it’s still in the development stage — many of Solana’s most exciting features are yet to be implemented.
Blockchain maximalists that see smart contracts and decentralized applications as the future of blockchain technology typically support Solana as a strong example of the potential of smart contract technology.
Today, Solana represents an in-development network that allows Solana holders to participate and invest in the development of a potential competitor to the $217 billion Ethereum ecosystem.
What Does the Future of Solana Look Like?
Solana is rapidly emerging as one of the most popular platforms for NFTs, opening the doors to the multi-billion dollar NFT marketplace. While the Solana network is currently in development, significant partnerships with Tether (USDT), Chainlink (LINK), and integration with the Brave Browser make Solana a rapidly-growing high-potential blockchain network.
Solana (SOL) is currently available to trade alongside over 40 digital assets via the Firstrade Crypto trading platform.