Solana (SOL) is a cryptocurrency that aims to be similar to and improve upon Ethereum. Named after a small coastal city in Southern California, Solana is the brainchild of software developer Anatoly Yakovenko.
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【Yakovenko】 first proposed this innovative blockchain in 2017, and Solana was launched in March 2020. Today, SOL has become a popular cryptocurrency, ranking 4th by total market capitalization.
What is Solana?
Solana is a blockchain that bears striking similarities to Ethereum — in fact, it’s often referred to as the “Ethereum Killer.” Like Ethereum (ETH), SOL tokens can be purchased on most major exchanges. The real value of the tokens lies in trading them on the Solana network, which offers unique advantages.
The Solana blockchain uses a Proof of History consensus mechanism. This algorithm uses timestamps to define the next block in the Solana chain. Most early cryptocurrencies, such as Bitcoin (BTC) and Litecoin (LTC), use a Proof of Work algorithm to define blocks in their chains. Proof of Work uses a consensus mechanism that relies on miners to determine what the next block will be.
However, this proof-of-work system is slow and resource-intensive, resulting in a lot of energy usage. This is one of the reasons why Ethereum switched to a proof-of-stake system, which reduces energy consumption by 99.9%.
Unlike the earlier proof-of-work mechanism, proof-of-stake uses staking to define the next block. The staked tokens are held by the blockchain as collateral until validators reach consensus on the next block of the chain.
SOL Token Market Status
One of Solana’s major breakthroughs occurred in August 2021, more than a year after Solana launched, when Degenerate Ape Academy became the first major NFT project on the Solana NFT marketplace.
In the first three weeks of the month, Solana’s price jumped from around $30 to $75. Solana’s all-time high was in November 2021, when it peaked at nearly $260 at the height of the cryptocurrency bull run.
As of now, the latest market price of SOL token is around US$148. In the past 24 hours, the SOL token has increased by about 4%. The current market value is US$68.212 billion, ranking fourth among cryptocurrencies and third in popularity!
Solana’s Delegated Proof of Stake
Konstantin Anissimov, COO of cryptocurrency exchange CEX.IO, said Solana uses “a hybrid of time-tested crypto strategies and fresh innovations to address the shortcomings of crypto’s first wave of solutions.”
Powered by its unique combination of Proof of History and so-called Delegated Proof of Stake algorithms, the main problem Solana is trying to solve is Ethereum’s scalability problem. Delegated Proof of Stake is a variation of the more traditional Proof of Stake algorithm. For those who need a refresher, the Proof of Stake mechanism is a transaction process that uses a system of validators to create new blocks in the blockchain.
Solana brings several advantages to users through its delegated proof-of-stake mechanism. Christian Hazim, an analyst at ETF provider Global X, said the historical algorithm adds a layer of security to the network.
Essentially, Solana solves two of the three problems identified by Ethereum co-founder Vitalik Buterin in his blockchain trilemma of scalability, security, and decentralization.
Although Buterin initially claimed that Ethereum would solve all three aspects of this trilemma, most experts believe that the network has only solved two factors: security and decentralization.
However, Solana aims to solve both parts of the trilemma: security and scalability. SOL’s proof-of-history algorithm provides unique security for the network. And the speed at which the Solana platform performs calculations allows for improved scalability.
How does Solana work?
Solana combines the Proof of History and Delegated Proof of Stake protocols.
Solana is trying to “process a lot of transactions very quickly,” said Bryan Routledge, associate professor of finance at Carnegie Mellon University’s Tepper School of Business.
Routledge noted that trying to process transactions quickly often requires centralization. Visa, for example, uses a vast network of computers to maintain its processing speed. Bitcoin, on the other hand, “processes transactions very slowly” in order to remain decentralized, Routledge said.
Since the whole point of blockchain technology is to provide a decentralized system, Solana seeks to process transactions at speeds similar to large centralized companies like Visa while maintaining the decentralization of Bitcoin. This speed allows for increased scalability because the environmental and monetary costs of the Solana system are lower.
The speed at which blocks are added to the Solana blockchain requires an additional level of security for the blockchain. This is where Solana’s Proof of History algorithm comes into play. The algorithm timestamps each block in a way that maintains the security of the system. Solana’s SOL tokens are then staked and used as collateral to process transactions on the network. These transactions include everything from validating smart contracts to using Solana as a marketplace for non-fungible tokens (NFTs).
Solana and Ethereum
Solana and Ethereum have some things in common, but they also have distinct differences.
Additionally, Hazim mentioned that it is important to note that Solana’s technology company, Solana Labs, is developing several interesting products. These include Solana Pay, which allows for cheaper, safer, and faster transactions.
Solana Labs also launched the Solana Mobile Stack. This Android toolkit opens up possibilities for mobile expansion.
What makes Solana unique?
Anissimov said Solana offers much faster transaction speeds than its closest competitors Ethereum and Cardano (ADA) at a fraction of the cost, by using a unique combination of Proof of History and Delegated Proof of Stake.
Unlike Proof of Work, which uses miners themselves to define the next block in the chain, or Proof of Stake, which uses staked tokens to define the next block, Proof of History uses timestamps when defining blocks for the Solana chain.
This innovative system allows validators on the blockchain to vote on the timestamps of different blocks in the chain. This keeps the chain relatively decentralized while allowing for faster and more secure computations.
