In the ever-expanding world of cryptocurrencies, Solana stands out as a rising star.
Launched in 2020, it has quickly gained attention for its lightning-fast transaction speeds, scalability, and innovative approach to blockchain technology.
In our Solana 101 guide, we will talk about Solana's main characteristics and what makes it stand out from the crowd.
Named after "Solana Beach," a coastal city in California, USA, Solana (SOL) was launched in March 2020 by Solana Labs. Solana Labs was founded by Anatoly Yakovenko and Raj Gokal in 2018.
Solana Labs and the Solana Foundation are two separate entities. They play crucial roles in the development and promotion of the Solana blockchain.
Solana Labs is the company that builds products and tools that can be used on the Solana blockchain.
The blockchain itself enables integrations from companies from all over the world.
The Solana Foundation, on the other hand, is a non-profit foundation based in Switzerland. It is dedicated to the decentralization, adoption, and security of the Solana ecosystem.
It also runs a funding program that connects developers, creators, and founders with the best funding opportunities for their projects.
Blockchain systems verify and secure transactions on the network through consensus mechanisms. The consensus mechanism allows the network to choose a block validator who gets rewarded after validating and adding blocks to the blockchain.
There are several different consensus mechanisms that different blockchain systems utilize.
In the case of the Proof of Work consensus mechanism, used by the Bitcoin blockchain, for example, the first user who solves the cryptographic puzzle adds the new block to the blockchain and gets rewarded a certain amount of BTC for the work they have done.
The latest Bitcoin halving event from April 2024 reduced the 6.25 BTC reward to 3.125 BTC.
The process above is known as “mining” and is time and energy-consuming. In general, that translates into a slow blockchain network with low and costly transaction validation times.
The Proof of Stake consensus mechanism used by the Ethereum 2.0 blockchain network selects validators based on how much of the token they are ready to lock up or stake in case the network agrees to choose them to be the validator.
In turn, in addition to rewards in Ether, validators receive interest on their staked coins and transaction fees.
The main difference between the PoW and PoS consensus mechanisms is that the latter is not as energy-consuming. Both, however, require significant investment.
While at the heart of Solana lies the Proof of Stake consensus mechanism, Solana also uses the Proof of History mechanism that provides a clear record of previous events on the blockchain.
Proof of History (PoH) is a novel technique that acts as a cryptographic timestamp that verifies the time and order of events. Each new event/transaction is linked to the previous one, forming a chain.
The state of the blockchain is hashed at regular intervals and transactions are given a timestamp before they are added to the blockchain.
This allows for parallel transaction processing and helps Solana achieve impressive speed.
The network can reportedly process over 50,000 transactions per second (TPS). In comparison, Ethereum’s TPS can go up to over 22,000, whereas Bitcoin's TPS can range between less than 3,000 to more than 10,000.
Simply put, scalability is all about increasing the transaction capacity of a system and handling it with ease.
Generally speaking, there are two types of scaling: vertical and horizontal.
While vertical scaling improves a network by increasing the power of the system's main unit, horizontal scaling does so by adding additional machines (nodes) to the system.
Solana's architecture enables horizontal scaling, which means that as more nodes (computers) join the network, its capacity increases and enables smooth operation even under heavy loads.
In comparison, for a node to be efficient on the Bitcoin blockchain, it has to be extremely powerful, even more so as the algorithms on the network become more and more difficult to solve over time requiring more and more resources from the machine on the blockchain.
Solana has a vibrant ecosystem of developers, projects, and decentralized applications (dApps).
Its compatibility with the Ethereum Virtual Machine (EVM) allows developers to easily port existing Ethereum dApps to Solana, further expanding the network.
Solana has been integrated with a variety of platforms and applications from gaming to NFT and everything in between, to enhance its functionality and expand its reach.
Here are some prominent examples:
Solana Pay is an open-source, peer-to-peer payment protocol built on the Solana network by Solana Labs. It provides real-time access to money for merchants and eliminates bank fees.
Recently, Solana Pay was integrated with Shopify and, as a result, millions of businesses using Shopify can now use Solana Pay as a payment option in their storefronts.
Solana has partnered with both Visa and Stripe to facilitate transactions on the Solana blockchain.
The integration with Visa was announced in September 2023. This partnership allows Visa to execute transactions with the USDC stablecoin over the Solana blockchain and boost cross-border payments.
In April 2024, Solana announced its integration with Stripe - a financial services and software as a service (SaaS) company that provides online payment processing solutions allowing businesses to accept payments through various payment methods, including credit cards, debit cards, and digital wallets.
Through this partnership, Orca, a Solana-based decentralized exchange (DEX), can power its fiat-to-crypto transactions using Stripe’s fiat-to-crypto system.
For the end user that translates into being able to make fiat purchases with tokens such as USDC and SOL.
The above partnerships, among others, have not only helped Solana expand its reach and user base and grow in popularity, but it is also a clear sign of the growing acceptance of blockchain technology by traditional financial institutions.
Solana's high performance and low fees, coupled with its compatibility with the Ethereum Virtual Machine (EVM), make it a popular choice among developers looking for a better infrastructure to transfer or build their projects.
With its growing ecosystem, strategic partnerships, and continuous development, Solana is on its way to playing a significant role in shaping the future of decentralized applications and the broader cryptocurrency landscape.
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