Solana pushes the limits of what is possible for a highly scalable blockchain platform. Learn about how Solana differs from other smart contract networks and discover the function of the SOL token.
How does Solana (SOL) work?
Solana is a highly scalable cryptocurrency platform that aims to increase the mainstream adoption of blockchain technology. Solana was designed to be faster, cheaper and more scalable than Ethereum (ETH), which is the largest and most popular blockchain platform for decentralised applications (dApps).
Solana uses a unique combination of algorithms to maintain consensus and approve transactions:
- Proof of History (PoH) — a method of using timestamps to validate the legitimacy of transactions
- Delegated Proof of Stake (DPoS) — similar to Proof of Stake, DPoS allows network users to vote on delegates to validate blocks.
These consensus mechanisms enable the Solana blockchain to process thousands of transactions per second with low fees and limited energy use. Solana also supports the creation of various applications, such as decentralised finance (DeFi) and non-fungible tokens (NFTs), making it a versatile and innovative blockchain solution. So, what is Solana, how does it work and what does the future look like for SOL?
What makes Solana different?
Solana is an innovative blockchain platform that aims to bring blockchain to the masses. Unlike other crypto projects, Solana makes trade-offs to achieve fast, scalable and affordable transactions.
There are a number of features that help to make Solana stand out from its competitors. For example, it:
- Has a high potential throughput of over 50,000 transactions per second, which enables low fees of less than $0.01 per transaction
- Has a large and growing ecosystem of applications, tools and integrations from companies and developers around the world
- Is energy efficient and has a net-zero carbon impact, compared to energy-intensive Proof of Work (PoW) blockchains such as Bitcoin.
Each Solana transaction uses about the same energy as a few Google searches.
Solana
Solana is designed to be powerful for developers and fast for users, which has led to it becoming one of the most promising crypto projects in the market.
What is the SOL price and forecast for the future?
Solana exploded onto the crypto scene during the DeFi and NFT boom of 2021, during which time the SOL price rose by more than 100x. However, the ensuing cryptocurrency bear market in 2022 led to SOL losing 94% of its value.
| Year | Start Price | Mid-Year Price | End Price | Percentage Change |
|---|---|---|---|---|
| 2020 | – | $0.86 | $1.51 | – |
| 2021 | $1.51 | $35.51 | $170.30 | 11,178% |
| 2022 | $170.31 | $33.65 | $9.96 | -94% |
Past performance is not an indication of future results
Source: Yahoo! Finance
A number of different platforms have tried to replace Ethereum as the premier platform for decentralised applications, based on the use of smart contracts. However, none have arguably been as successful as Solana in this regard.
As long as the blockchain remains active and competitive, SOL holders could potentially see a rise in the value of their holdings. However, the Solana network has experienced a number of outages since its launch, which could hinder the project from reaching its full potential.
Who created Solana?
In 2017, Anatoly Yakovenko introduced the concept of Proof of History in a whitepaper draft. Proof of History aimed to streamline transaction ordering in blockchain technology, addressing scalability issues faced by networks such as Bitcoin (BTC) and Ethereum. Yakovenko and Greg Fitzgerald, a former colleague from Qualcomm, released the first internal testnet and the concept’s official whitepaper in February 2018.
After Stephen Akridge joined the team, he proposed offloading signature verification to graphics processors to improve transaction throughput. Initially known as Loom, the project was rebranded to Solana to avoid confusion with another Ethereum scaling solution, Loom Network.
In Q2 2018, Solana Labs embarked on a fundraising campaign to support the development of its cryptocurrency network, managing to secure over $20 million of funding between April 2018 and July 2019.
Tip: Digg co-founder Kevin Rose participated in a seed round of funding for Solana in 2019.
The launch of the Mainnet Beta version of Solana took place in March 2020, following a public token auction that raised $1.76 million on CoinList. Although the beta network offered basic transaction capabilities and smart contract support, staking rewards had not yet been implemented.
Solana Labs continues to contribute to the Solana network, while the Solana Foundation supports community-building initiatives and the protocol’s ongoing development.
Final thoughts on investing in Solana
Looking ahead, the long-term investment thesis around Solana appears promising. As a highly scalable blockchain platform, Solana aims to overcome the limitations of Ethereum and offer faster, cheaper and more scalable solutions for dApps.
With a unique combination of PoH and DPoS algorithms, Solana can process thousands of transactions per second with low fees and minimal energy consumption. Solana’s success in establishing itself as a leading smart contract platform, alongside its commitment to environmental sustainability, positions it as a strong contender in the crypto market.
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FAQs
- What is SOL Used For?
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SOL is Solana’s native cryptocurrency. It is used to pay for transactions and run decentralised applications on the network. SOL is also used for staking, which helps secure the network and provides rewards to blockchain validators.
- What are Solana NFTs?
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Solana NFTs are non-fungible tokens created on the Solana blockchain. NFTs are blockchain-based assets that verify ownership. Solana is one of the most popular NFT networks, hosting collections such as Degenerate Ape Academy, DeGods and Okay Bears.
- Is Solana better than Cardano?
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Cardano (ADA) and Solana are both blockchains that compete to take advantage of the growing DeFi industry. Solana has a faster transaction speed and cheaper transactions than Cardano and Ethereum, but Cardano is arguably more decentralised and has a more reliable network. However, before investing in either, it is important to research the pros and cons of both.
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