What Is Solana (SOL)?& Ethereum’s Growing Rival

Solana (SOL) has become popular in the NFT and DeFi spaces as Ethereum users seek out new platforms with faster and cheaper transactions

What is Solana?

Solana is a public, open-source blockchain that supports smart contracts, including non-fungible tokens (NFTs) and a variety of decentralized applications (dApps). Native to Solana’s blockchain is the SOL token which provides network security through staking as well as a means of transferring value.

Solana was created in 2017 by Anatoly Yakovenko alongside current Solana board member and Chief Operations Officer Raj Gokal. Yakovenko, now Solana Lab’s CEO, came from a background in system design and wanted to apply his knowledge toward a new blockchain paradigm that enabled faster processing speeds. 

Quick facts:

• Solana is a proof-of-stake cryptocurrency with smart contract capabilities including DeFi dApps and NFTs.
• Solana boasts a theoretical throughput of 65,000 transactions a second with near zero fees.
• The boom in the DeFi and NFT spaces have pushed fees on Ethereum extremely high causing crypto users to seek other options like Solana.
• Solana has been at the center of controversy in the crypto industry as skeptics claim its transaction speed are only possible because the chain has sacrificed decentralization.

The founders aimed to create a brand new blockchain that could scale to global adoption. At the time, blockchain transaction speeds were limited to around 15 per second, a throughput that paled in comparison to Visa and Mastercard’s ability to process roughly 65,000 transactions per second. Yakovenko and Gokal sought to make a new blockchain that could meet demand at a global scale.

Solana now boasts a theoretical peak capacity of 65,000 transactions per second and has become one of the most highly used blockchains today due to its speed and cheap transaction costs.

Like almost any blockchain system today, Solana is still very new and not without controversy. 

Solana’s blockchain

Solana runs on a hybrid protocol of proof-of-stake (PoS) and a concept Solana calls proof-of-history (PoH). Proof-of-stake is an algorithm that lets a blockchain maintain accurate information across all of its participants.

Proof-of-stake

With Proof-of-Stake, cryptocurrency owners pledge, or “stake,” their coins to a validator.

A validator is a computer running the blockchains software with its own copy of the blockchain. These validators are the equivalent of miners in a proof-of-work blockchain like Bitcoin’s.

Instead of competing with other computers to complete complex puzzles like in Proof-of-work, validators are chosen to add the next block of transactions based on how large their stake is (how many coins they have pledged to the network), how long they have staked for and a number of other criteria.

The idea is to measure the level of commitment network participants have and reward them for their dedication. The larger the stake relative to circulating supply, the more decentralized and secure the network becomes.

What makes Solana different?

Solana parts ways with other blockchains in the way consensus is formed among the nodes. While proof-of-history has its benefits, there are some concerns around Solana’s voting mechanism and whether or not it causes centralization.

With Solana, nodes must vote on blocks and their transactions’ legitimacy in order for them to become part of the chain. Nodes send votes to the leader and the leader is then responsible for tallying the votes themselves and signing off on the block.

In a typical blockchain, validators are chosen via proof-of-stake. They then create the next block of transactions and broadcast this to all the other nodes in the network. The rest of the network then audits the new block against their version of the ledger. Each node then checks its version of the ledger and the new block against all other nodes in the network. From here, nodes individually choose whether to agree that this new block is legitimate or not. 

The process continues until a majority of nodes have agreed on one new version of the chain. While it is time-consuming, letting nodes come to an agreement without an intermediary tallying votes has been core to decentralized blockchains since Bitcoin was created.

What makes Solana different?

Solana parts ways with other blockchains in the way consensus is formed among the nodes. While proof-of-history has its benefits, there are some concerns around Solana’s voting mechanism and whether or not it causes centralization.

With Solana, nodes must vote on blocks and their transactions’ legitimacy in order for them to become part of the chain. Nodes send votes to the leader and the leader is then responsible for tallying the votes themselves and signing off on the block.

In a typical blockchain, validators are chosen via proof-of-stake. They then create the next block of transactions and broadcast this to all the other nodes in the network. The rest of the network then audits the new block against their version of the ledger. Each node then checks its version of the ledger and the new block against all other nodes in the network. From here, nodes individually choose whether to agree that this new block is legitimate or not. 

The process continues until a majority of nodes have agreed on one new version of the chain. While it is time-consuming, letting nodes come to an agreement without an intermediary tallying votes has been core to decentralized blockchains since Bitcoin was created.

Solana network statistics

Solana’s network allows for a theoretical throughput of 65,000 transactions per second, a significant jump from Bitcoin’s seven transactions per second and Ethereum’s 15 transactions per second. (TPS). Combined with high gas fees on ETH’s blockchain, Solana offers a much lower barrier to entry, helping to increase its user base rapidly. 

Transactions on Solana cost a fraction of the price of other blockchains, averaging at $0.00025. Solana attracts users worldwide due to its low costs and increased throughput capability. 

Solana currently has 1,469 nodes in its ecosystem, with over 74% of the tokens circulating supply staked to the network generating rewards. 

Solana’s DeFi

Solana’s (decentralized finance) DeFi ecosystem currently has over $8.6 billion in total value locked among its various platforms. This puts Solana in sixth place behind other chains like Ethereum, Terra, Avalanche and Fantom. 

Solana’s leading platforms are the decentralized exchange Serum, the open liquidity mining platform Quarry and the Solana staking platform Marinade Finance.

Solana’s praises

As DeFi and non-fungible token (NFT) ecosystems have boomed in the last two years, Ethereum’s network has become overwhelmed and extremely expensive to use. Solana’s chain offers what Ethereum's base layer currently cannot – fast transactions at little to no cost. 

For this reason, activity on Solana’s chain has quickly grown in both the creation of decentralized applications (dApps) and transactions. While Ethereum still has over $125 billion locked within its ocean of dApps, Solana is growing exponentially.

Since its creation in 2017, Solana has become the sixth most used DeFi platform in value locked. There is currently almost $8.6 billion locked in various DeFi dApps on Solana, most of which accrued in 2021 alone.

Solana’s speed and low cost make it easy to use compared to other blockchains, adding to its appeal to both beginner and advanced crypto users.