In 2021, Solana’s price skyrocketed, but it fell sharply in 2023 due to its connection to the FTX fraud, garnering significant media attention. Naturally, many people started wondering, “What is Solana?”. Some people called it the “Ethereum destroyer” of epic proportions. It’s obvious that Solana will be a hot topic for years ahead. It draws numerous developers because of its exceptional speed and affordable transaction costs. And, of course, the more developers it attracts, the faster blockchain develops. In this hybrid “proof-of-stake/proof-of-history” hybrid chain, there are already many decentralized apps, NFTs, SPL tokens, and DeFi protocols, and new projects are launched every week.
Naturally, if you are thinking about developing for blockchain, you probably already consider Solana quite seriously. It’s much simpler than you may have imagined if you have the correct tools. But first, you should get to know out everything about Solana. And you are in the right place! Here we will answer the question, “what is Solana?” in detail.
After reading this article, you will know exactly the benefits, drawbacks, possibilities, and tools this blockchain has to offer. Moreover, you will know exactly where to start. Finding the response to the question, “What is Solana?” you’ll learn more and gain the power to make the right call whether you should become a Solana developer or not.
What is Solana?
Solana is a public, open-source, programmable blockchain. It allows the creation of a variety of decentralized apps as well as fungible and non-fungible tokens (NFTs) as it supports Web3 contracts, which are a crucial component of blockchain growth. Solana has its own coin called “SOL” which plays two roles. First of all, through the hybrid staking consensus, it ensures chain security. Secondly, it also acts as a means of value transmission on the chain.
Raj Gokal and Anatoly Yakovenko introduced the blockchain in 2017. With Yakovenko serving as the company’s current CEO and Gokal serving as the COO, they are both still very much active with Solana Labs. Solana belongs to the class of blockchains that use proof-of-stake (PoS). Currently, Solana can in theory handle up to 65,000 transactions per second. Besides, it charges the minimal transaction fees – under $0.01. In contrast, Ethereum, the pioneer of programmable blockchains, has fees that can reach hundreds of dollars. All of this eloquently explains why blockchain developers prefer to build dapps on Solana. Nevertheless, there are still many people that question Solana’s degree of decentralization.
What is Solana: Let’s delve deeper!
In the section above, we gave you a general notion of Solana, but as we’ve already indicated, our goal is to not only answer the question “what is Solana?” but also explain how it works so you can start using it having the whole picture. Further, we’ll examine the Solana’s fundamental protocols in more detail. We’ll also talk about what makes this blockchain unique and also briefly discuss SOL, the native token of Solana, and its tokenomics. Then, we’ll talk about Solana’s benefits and drawbacks.
What is the Solana Blockchain?
As was said before, Solana uses a hybrid protocol to make minimal transaction fees possible. One of them is the PoS protocol in which staked SOL performs the “mining.” It guarantees that valid data is maintained in all nodes of the chain. The second protocol is the unique Solana’s “proof-of-history” (PoH) protocol. These two protocols are crucial to understanding for the features Solana has to offer, so let’s examine them.
Solana’s PoS Overview
A popular substitute for the proof-of-work (PoW) protocol is PoS. The main difference is that PoS guarantees safety and verification of transactions based on staked coins while PoW does the same through computing power. Staked coins are SOLs of users who pledged them to a validator, a node that is running Solana’s software with the chain’s most recent copy. Basically, validators for PoS play the same role as miners do for PoW. Solana’s validators add the subsequent block to the blockchain based on the specifics of their staking. These specifics include the sum and duration of the validators’ SOL stakes, among other parameters.
Basically, PoS is about the willingness of egagement of blockchain users to stake their tokens. Naturally, they do it to get rewards the size of which depends on users contribution and time of commitment. However, the other aspect of this protocol is that the degree of decentralization vastly depends on the number and distribution of validators who stake their coins. This is where the SOL tokenomics begins.
Solana’s Proof-of-History Overview
We think exploring the “what is Solana” topic is impossible without examining one of its key innovations more closely. Solana’s proof-of-history protocol is a version of the use of the PoS idea. The PoH approach ensures the correct sequence of transactions. Additionally, the corresponding “leader” must be able to find transactions. To better understand this concept, it should be mentioned that the Solana chain is divided into time slots. Precisely within these slots, the validators process transactions and build new blocks. The so-called “leaders” are also chosen beforehand for each position for timesaving. They are selected based on their PoS protocol. This is essentially done by taking into account the amount of staked SOL. Rach leader is responsible for keeping track of the passing of time (a.k.a. the proof-of-history sequence). Leaders are also in charge of counting the subsequent block of transactions for their slot. We suggest reading Solana’s documentation if you want to know more regarding Solana’s PoH mechanism.
The PoH protocol execution allows improving chain capacity and reducing delays. This is accomplished by enabling leaders to feed transactions in real-time to other validators. In this manner, leaders can send a block forth without having to wait for it to be fully filled with transactions. Additionally, other validators are able to validate transactions as they come in, thanks to the PoH values (timestamps).
How is Solana Different from Other Blockchains?
Although the main goal of this post is to explain what Solana is, it would be useful to compare Solana to other blockchains. The main distinction between Solana and other PoS chains, besides SOL’s tokenomics, is its consensus. Here again, the center of gravity is once more the PoH protocol mentioned above. PoH speeds up processes. However, there are certain drawbacks, specifically in relation to Solana’s voting process, which is considered by some experts a cause of a certain degree of centralization.
The next block of transactions is picked by nodes or validators in a typical PoS blockchain. Once a block has been created, the selected node broadcasts the information to the entire network of nodes. The most recent block is then examined by these nodes by comparing the new block and their copy of the ledger to that of all other nodes. In the end, each node must agree on whether or not the new block is valid. If the block is deemed valid by most validators, it is added to the blockchain.
This contrasts with Solana’s PoH approach in that their nodes validate transactions prior to completely filling a block with transactions. Additionally, the nodes of Solana vote on whether the block is valid by sending votes to the leader. The leader is thereafter solely in charge of counting the votes. As a result, it becomes unclear if the current amount of decentralization is adequate or not. It’s up to you to dig deeper on this topic and decide for yourself.
SOL and Solana Tokenomics
The information on Solana tokenomics can be found on CoinMarketCap or in Solana’s whitepaper. We have already said that SOL, Solana’s token, is used for staking and value transfers. The payment of transaction fees for smart contracts on Solana and other transactions is also included in the term “transfer value”. We must also emphasize that Solana’s validators are compensated depending on inflation. Solana does this by comparing the number of total staked SOL tokens to the stake made by each individual validator. Additionally, the total SOL amount staked is compared to the total token supply to determine yield.
Here are the key Solana metrics:
- Total supply of SOL: 511,616,946
- The maximum supply of SOL: not defined
- The current circulating supply of SOL: 326,352,527.93
- Annual inflation rate at the time of Solana’s launch: 8%
- Promised inflation rate decline: a yearly amount of 15%
- Target annual inflation rate: 1.5%
It is evident that insiders received approximately half of Solana’s initial token distribution. Thus, a sizable portion of SOL tokens is in the hands of whales and venture capital groups. As a result, just a small portion of SOL was accessible to the general public, which raises justified concerns about Solana’s decentralization.
Let’s go on to the last part of our article on “what is Solana?” and examine the advantages and disadvantages of Solana.
Solana Pros and Cons
As you can see, Solana has its pros and cons, just like other things. So let’s mention them here so you can refer to them when choosing whether or not to build on Solana.
Solana’s Pros
- Best speed. At the moment, Solana is one of the quickest blockchains as its capacity reaches 65,000 transactions per second.
- Minimal transaction fees. The average transaction fee on Solana is $0.00025. The scalability of the blockchain also guarantees that in the future, the fee will not exceed $0.01.
- Scaling Solution. Solana’s scalability solution guarantees the composability of all projects within the network. It ensures the maintenance of the global order as the blockchain grows.
- Fast-Growing Network. The undoubted advantages of Solana attract new developers and users, which accordingly greatly promotes the fast growth of the ecosystem. Blockchain developers from all over the world have already created on Solana numerous NFT projects, decentralized apps, and DeFi protocols.
Solana’s Cons
- SOL Supply. SOL supply isn’t limited. This fact alone is a con. Besides, hot debates occured when in 2021 Solana allegedly lent market makers more than 10 million SOLs without making that information public.
- Insufficient decentralizaion. As was mentioned before, Solana has certain centralized elements. We are talking about an unequal distribution of nodes and a partly centralized staking system. So, if decentralization is your main priority, you should look into this topic more to make your decision.
- Solana’s Outages. Solana has already encountered a lot of network problems. Shutdowns of the entire network were among some of them. For instance, Solana was unavailable for 17 hours in September 2021.
- The connection between Solana and FTX. It was thus multifaceted, encompassing financial investment, platform integration, and collaborative development efforts, making them key partners in the blockchain and cryptocurrency space.
What is Solana? – Roundup
During our “what is Solana?” quest, you learned a lot about Solana, and you are now well-equipped to decide whether or not it is worthy of your attention. In our view, its popularity, affordability, and speed make it a competitive choice. Solana dapp development and creation of SLP tokens provide you with a wealth of opportunities.