Over the last few years, Ethereum has come to dominate the crypto ecosystem. From smart contracts to decentralised applications, it supports many new technologies that make it an attractive choice for developers. However, it has a major issue – scalability. This has led to the creation of many alternative blockchains to compete with it. But the most successful of these is known as Solana, widely regarded as the “Ethereum killer”.
What Is Solana (SOL)?
Solana is a blockchain platform that focuses on speed and scalability. It enables developers to create powerful decentralised applications and smart contracts, just like Ethereum. But it goes a step further in ensuring the blockchain remains fast and cheap for all users. It is currently one of the most popular blockchains in the world, with a market capitalisation of $4,918,000,000 at the time of writing.
The native token of Solana is known as SOL. It is used to execute smart contracts, complete transactions and participate in securing the network. It thus forms the backbone of the Solana ecosystem.
What Makes Solana Unique?
Anatoly Yakovenko created Solana in 2020 to solve the shortcomings of blockchains that came before it. While older blockchains could host many decentralised applications, their lack of scalability was holding them back. To overcome this, Solana uses a unique consensus mechanism known as Proof of History.
Solana’s usage of proof of history is the key to bringing blockchains to a larger audience. It enables the platform to process transactions thousands of times faster than older solutions like Bitcoin and Ethereum.
How Does Solana Work?
Solana uses a hybrid consensus system, applying both Proof of Stake and Proof of History. This unique process is what allows Solana to solve both scalability and security.
Blocks are collections of transactions on a blockchain. But they cannot be added automatically, since it is important to verify if the transactions are legitimate. Proof of Stake is a consensus mechanism used to validate these blocks.
Users who “stake” or lock in their tokens can be chosen as validators. They can then confirm if the blocks are genuine and add them to the chain. To compensate for this service, validators receive the platform’s crypto token as a block reward.
Proof of History helps in standardising time across the blockchain. Nodes then do not need to communicate with each other and confirm when transactions occurred. This reduces the time it takes for nodes to function and makes the system super fast.
How To Stake Solana?
If you wish to stake Solana, the first step is to acquire the token. This can be done from any centralised or decentralised crypto exchange. After this, you must create a Solana-compatible wallet to hold your tokens.
Read more: What is Crypto Staking
After this, the process is simple. Click on the stake button, pick a validator of your choice and confirm the number of tokens to stake.
How Does Solana Staking Work?
You can be involved with staking in two ways. First, you can run a Solana node. However, this can be very capital-intensive as you need to purchase expensive hardware. Most users instead choose to “delegate” their stake.
Delegating means you stake your tokens with a particular node, increasing its power in the validation process. You can then share in the node’s block rewards without running any powerful computers.
What Is Solana Proof of History?
As mentioned above, proof of history is a unique consensus mechanism employed by Solana. It creates a standard system of time across the blockchain. Unlike older blockchains, all transactions are timestamped. This means that each transaction is finalised in the order that they come in.
The timestamp also alleviates a time-consuming process in validation – communication between nodes. Since nodes do not need to communicate to validate time, transactions can be confirmed much faster than on other blockchains. This enables Solana to process almost 50,000 transactions per second.
What Is the Purpose of Solana?
Solana’s main goal is to create a better system for dApps than Ethereum and its competitors. This involves both fast transactions and cheaper fees. It succeeds in this regard by offering higher transaction speed and lower fees than its main competitors like Cardano.
Its dual consensus system also provides security to all applications built on the network. It thus solves two out of the three challenges of the “Blockchain Trilemma” coined by Vitalik Buterin.
Benefits of Solana
Solana is one of the fastest blockchains today. It can reach speeds of 50,000 transactions per second. This is thousands of times faster than Bitcoin and Ethereum, which can only reach 7 and 20 respectively.
Transactions on Ethereum are notoriously expensive. Sometimes, the fees can even exceed the value of the transaction. By contrast, Solana has gas fees of just $0.00025, several times lower than its main competitors.
Single, Unified Network
Solana does not require any layer-2 scaling solutions to reach its blistering fast speeds. It also does not use technologies like sharding, which can fragment the blockchain and lead to security concerns.
FAQs on What is Solana
Can I Earn Passive Income From Solana?
Yes, it is possible to stake your holdings of SOL tokens to earn a passive income. This is done thanks to its delegated proof of stake consensus protocol. Users can expect to earn anywhere between 5-8% annual returns.
Can I Mine Solana?
How to mine Solana? Unlike Bitcoin, Solana does not use proof of work. This means you cannot mine SOL using your laptop or desktop. Instead, you can stake SOL tokens through your crypto wallet.
What are the Downsides of Solana?
The main downside of Solana is a lack of decentralisation. Bitcoin has around 10,000 nodes running. Meanwhile, Solana has just 1,800 nodes, many of which are owned by the same entities. This leads to the network being more centralised than other options.
Is Solana Decentralised?
As mentioned above, Solana does not have a lot of independent nodes. This leads to a more centralised network than Bitcoin or Ethereum.