What Is Solana? A Comprehensive Look At An Impressive Blockchain
"So this idea that you can write a bunch of code and change the world with something that I believed in, saw that happened with Google, with Facebook, with Amazon. So it's always there. I'm glad that I have the opportunity to take a stab at it."
- Anatoly Yakovenko, Solana Co-Founder
Solana is an open-source blockchain platform with smart contract functionality. The original concept was outlined by Anatoly Yakovenko, Raj Gokal, Greg Fitzgerald, and Stephen Akridgein in their November 2017 whitepaper. Since then, the platform has grown tremendously and it is now among the top blockchains ranked by market capitalization.
Solana quickly gathered a strong backing by many crypto thought leaders including FTX's Sam Bankman-Fried ("SBF"). Solana's lightning-fast speed, large transaction throughput capacity and low transaction fees are among the key factors that differentiate it from other blockchains such as Bitcoin, Ethereum and Cardano.
SBF and Yakovenko met during the early days of Solana, and eventually SBF became an investor and advocate of Solana. Yakovenko showed SBF a version of Solana Break, a game that demonstrates Solana's fast transaction confirmations. The two discussed the technology's future roadmap, and a viable pathway toward scaling to one million transactions per second. SBF was impressed by the Solana team, and he noted that Solana could emerge as the best-suited blockchain to revolutionize financial markets.
The platform testnet started in February 2018. The core developer team behind Solana, Solana Labs, was originally called Loom. Later it changed its name to avoid conflicts with Loom Network. The team chose name Solana, which is inspired by Solana Beach, California. Many of Solana themes are beach-inspired as a result. By March 2020 the team began Solana's mainnet operations and validated its first block.
Solana raised more than $5 million from two seed rounds prior to its Series A. In 2019, Solana Labs completed a $20 million Series A funding round led by Multicoin Capital. In total, Solana raised approximately over $300 million in seven funding rounds. Today, the Solana Foundation, a non-profit foundation, actively manages funding and community initiatives. The Solana Foundation is headquartered in Zug, Switzerland and owns all Solana intellectual property.
The blockchain's native currency, Solana SOL, traded between $0.50 and $2.00 for most of 2020. Solana SOL was among the best performing large-cap crypto currencies during 2021 as the price rose from $2 to more than $250 by November 2021. The average market capitalization of Solana SOL during the first half of 2022 is $33 billion, which ranks it among the largest blockchains in the world by market capitalization.
As of May 2022, the total supply of Solana SOL is 521 million SOL, and the circulating supply is 337 million SOL (view on Solana Explorer).
Solana is meaningfully cheaper, faster and can handle more transaction volume than most other Layer 1 blockchains. Solana is structurally different than Bitcoin and Ethereum. Three primary components differentiate Solana from other blockchains:
Bitcoin is designed to handle about 7 transactions per second, and Ethereum is slightly higher at 15 transactions per second. Solana can handle an amazing 60,000 transactions per second currently, with the room to scale to over one million transactions per second in the future. View transaction per second charts at Blockchair.com.
Bitcoin was originally designed in 2008 by Satoshi Nakamoto, and five years later Vitalik Buterin and Gavin Wood developed Ethereum in 2013. Most technologies improve with time. Solana launched in 2020, which gave it more time to improve on prior technologies. Currently Bitcoin and Ethereum rely on Layer 2 blockchain solutions to achieve higher transactions per second. Bitcoin's primary solution is the Lightning Network, and Ethereum's primary solution is the Polygon network. Solana does not need to rely on a Layer 2 solution at this time.
Solana's Co-Founder Anatoly Yakovenko had previously worked as a wireless engineer at Qualcomm, and his experience helped him discover how Proof of History could improve crypto system scalability. Yakovenko said that his mind started racing after the idea struck him because it was different and offered great potential to change the status quo.
Proof of History enables the network to operate more efficiently and faster because nodes do not need to communicate to validate a block. Instead, nodes all agree on the time order of the events registered on the chain. The original Solana whitepaper noted that the blockchain operates as a decentralized clock. Proof of History is a historical record that proves that an event took place at a specific moment in time.
A real-life example of Proof of History would be a person posting a picture of today's newspaper on Twitter. All of the person's Twitter followers can verify that the picture was taken no earlier than today and at a specific moment in time. Also, it is easy to validate accuracy because anyone can make sure the newspaper content is real by checking the newspaper site.
The example below illustrates high level how Solana's proof of history works. Solana's proof of history uses the common SHA-256 algorithm to create a unique hash fingerprint for each time period. The SHA-256 hash creates a unique hash fingerprint for a given set of inputs. Any slight change to the inputs results in an entirely different hash fingerprint. Because the hash fingerprint changes when the inputs change, Solana is able to create a tamper-resistent "proof of history" by feeding the prior period's unique hash fingerprint as an input to the current period's hash input. This continuous process that references prior instances of itself is tamper-resistent. Any change to the history results in completely different hashes going forward.
Solana's proof of history is used is when Solana transactions include a reference to the most recent blockchain hash. Since the hash is unique and could not have randomly guessed, the network knows that the tranasction was definitely created at some point after that hash was created by the network (hence "proof of history"). For example, when Bob sends a transaction to the Solana network including a reference to a hash created at 1pm, the network knows that the transaction was definitely not created any time before 1pm.
Proof of history is extremely secure. Anatoly Yakovenko, Solana's Co-Founder, estimates that it would require 2^128 computer cores (a very large number - 340,282,366,920,938,463,463,374,607,431,768,211,456) to brute force attack Solana's proof of history algorithm.
Currently Solana transactions take about 3 to 15 seconds to confirm. The confirmation time for transactions on Ethereum is about two to three minutes, and it is about 30 minutes to several hours on Bitcoin. The fast transaction confirmation speed makes Solana an ideal solution for payments and financial exchanges.
Solana implements the Turbine Block Propagation Protocol, which builds upon the technology empowering peer-to-peer file-sharing platform BitTorent. The protocol creates smaller data packet sizes and optimizes streaming packet data to network leaders (block producers).
Another core feature is the Sealevel engine parallel processing mechanism. Parallel processing enables the network to perform many transactions concurrently, which increases capacity and speed.
Solana transactions are meaningfully cheaper than other blockchains. A typical transaction costs less than one US cent. This compares to several dollars for Bitcoin and Ethereum. Solana transaction fees are fairly stable, while transaction fees can change abruptly for Bitcoin and Ethereum during network congestion.
When you swap SOL to a token, you must also pay a fee known as "minimum rent" to create a token account that holds your new token. This is a one-time fee that can be refunded if you decide to close that token account. The fee is sort of like paying a deposit to install a mailbox. One you have the mailbox installed you can send and receive mail (tokens). You can always return the mailbox to get your deposit back. The minimum rent fee changes over time. As of today, the fee is about $0.20 USD.
Solana's core language is Rust, which is a very efficient and fast low-level programming language. Ethereum and EVM blockchains use Solidity, and Bitcoin uses Bitcoin script. Currently more Web3 programmers use Solidity, but trends indicate Rust is gaining ground quickly.
Anchor has become very popular among Solana smart contract developers. Anchor is a framework for Solana's Sealevel runtime providing several convenient developer tools for writing smart contracts. The framework integrates many security features and tools to make programming on Solana easier and intuitive.
Solana smart contracts are self-enforcing code stored on the Solana blockchain. Smart contracts provide a framework for agreements between network stakeholders without the need for third parties or traditional legal contracts. They are often implemented to formalize simple agreements between parties, create digital assets, or support organizational processes.
The Solana ecosystem has grown tremendously since 2020. Today there are hundreds of DeFi projects, Lending Protocols, NFT Marketplaces and Web3 Apps. In addition, gaming has become a hot trend on the Solana network.
Solana's low minting fees and fast network confirmations make it an ideal blockchain for NFT marketplaces. Solana NFTs use standardized metadata protocols developed by Metaplex. Similar to NFTs minted on Ethereum, Solana NFT metadata is stored both on-chain and off-chain.
The cost to mint, buy and sell NFTs on Solana is significantly cheaper than the cost on Ethereum mainnet. During the height of network congestion on Ethereum, the cost to send NFTs went over $600. Solana's fee to send NFTs is less than $1.
Metaplex developed the Candy Machine to help NFT creators mint and sell NFTs on Solana. The program acts similar to a mechanical candy machine in the sense that a person can get a piece of candy (NFT) by depositing a coin. Candy Machine is open-source and free to use. Candy Machine helps solve issues related to minting NFTs on Solana. For example, Candy Machine does not accept buyer funds when a NFT project is sold out. Also, Candy Machine enables creators to set a precise start time for minting the NFT collection. Last, the program helps ensure that the proper NFT metadata is created during the minting process.
Source: Magic Eden
The number of new DeFi projects building on Solana is expanding rapidly as well. Solana's low transaction fees and fast confirmations make it an ideal blockchain for DeFi. According to data collected by Solscan, the total value locked in DeFi apps on Solana during 2022 is over $1 billion.
Project Serum was one of the first large-scale DeFi apps to launch on the Solana network. Project Serum is a high-speed, orderbook-based, non-custodial DEX built on Solana. Serum brings the speed and convenience of centralized exchanges to DeFi while remaining fully trustless and transparent.
Solana DeFi offerings include staking, perpetual futures, farms, swaps and more. Mango Markets was one of the first DeFi projects to offer perpetual futures on Solana.
When you choose a wallet, focus on finding one that is easy to use. Avana Wallet is a non-custodial wallet which means that you have maximum control and privacy over your Solana accounts. Avana Wallet is designed to be easy to use and secure. Solana wallet providers include:
Avana Wallet makes it very easy for you to stake SOL (read more about staking SOL here). You can stake and unstake MSOL with just a few clicks using Avana Wallet.
Two of the popular liquid staking programs on Solana include Marinade and Lido. Marinade and Lido issue a token to you in exchange for depositing SOL in their programs. This token generates yield relative to SOL over time as the staking proceeds compound. The token can be swapped, bought and sold like most other Solana SPL tokens.
For example, Marinade issues the MSOL token when you deposit SOL in the staking program. MSOL is a liquid staking derivative for SOL. This means that your funds are liquid, and you do not need to wait for an epoch end to unstake your funds. The Marinade staking program is popular because users can maintain liquidity and use their MSOL with DeFi apps for collateral. MSOL enables you to earning yield on your SOL. As of May 2022, the staking yield on MSOL is about 6%.
MSOL appreciates relative to SOL over time. The Marinade program uses staking rewards to increase the value of MSOL. This causes the price of MSOL to rise relative to SOL.
MSOL can be swapped and sent similar to most Solana SPL tokens. You can also use the Marinade program to unstake your MSOL back to SOL at any time. The fee is typically 0.3% to unstake MSOL to SOL. The fee can sometimes be higher when the Marinade program pool is below its target level. Avana Wallet always calculates the current fee for you when you stake SOL and unstake MSOL using Avana Wallet.
You can also stake your SOL directly with a validator. Validators.app is a great resource to find information on different validators and staking programs.
Solana is a decentralized blockchain and all SOL token holders own a share in the network. Solana intellectual property is owned by the Solana Foundation, a non-profit organization headquartered in Zug, Switzerland.
The outlook for Solana is bright. Solana SOL was among the best performing cryptocurrencies in 2021. According to a report by Electric Capital, the growth in active developers building on the Solana blockchain far outpaced other blockchains. This means more blockchain developers are placing their bets on the future of Solana.
Solana Labs is focused on attracting developer talent to continue growing the Solana ecosystem. Solana is opening Hacker Houses in cities around the world including Los Angeles, Seattle, Singapore, Dubai, Moscow, Hong Kong and Prague. Solana Hacker Houses provide Solana developers a place to work, find collaborators, and learn about hte Solana ecosystem.
In January 2022, Solana announced Solana Pay, a payment protocol for Solana. Solana Pay is built for immediate transactions, fees that are fractions of a penny, and a net-zero environmental impact. Solana Pay has the potential to deliver meaningful value to merchants.
We are excited about the future of Solana - in just a short time it has become a top-ranked blockchain. The fast pace of innovation and growing developer community will ensure its continued success.
Upgrade your Solana wallet today