What Is Solana? Everything You Need To Know About the Ethereum Rival – Blockworks

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What is Solana?

Solana is a public, open-source blockchain ecosystem 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. 

Solana 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 a consensus mechanism, or tool, that lets a blockchain maintain accurate information across all of its network 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 is proof-of-history?

Proof-of-history is a method for proving that transactions are in the correct sequence and found by the right leader.

Solana’s blockchain is broken into slots or periods of time where a validator ingests transactions and produces a block. In this system, leaders are chosen ahead of each slot in order to save time. 

A node (or validator) is chosen to be a “leader” of a slot through the proof-of-stake mechanism based on the quantity of SOL held. Each validator is responsible for continuing a count or tally of the passage of time, or a proof-of-history sequence, and the next block of transactions for the slot they have been chosen for. 

How proof-of-history works

  1. Validator A is assigned to slot one and spends five seconds finding the next block.
  2. Validator B is assigned slot two and takes five seconds to find the following block, amounting to the passage of 10 seconds.
  3. Validator C is assigned to slot three and takes five seconds to find a block. By the end, a total of 15 seconds have passed.

It takes each validator the same amount of time to complete this process. We know validator C is assigned to slot three and because each block takes the same amount of time, we know that slot three should only begin at the 10-second mark. Therefore, validator C cannot start before or after the tally has reached 10 seconds.

Because this tally of the passage of time can be seen by all validators, and the slot leaders are chosen ahead of time, everyone knows when a leader is supposed to begin. If there were a fourth validator (validator D) chosen as the leader for slot four, all parties would know that validator D would begin its process at the 15-second mark. 

Why use proof-of history?

This system lowers latency and increases throughput because slot leaders can stream transactions to the rest of the validators in real-time rather than waiting to fill an entire block and send it at once. 

As validators keep the count of time, they can stamp each incoming transaction with a time, or proof-of-history value, so the other nodes can order transactions within a block correctly even if they aren’t streamed in chronological order. The other nodes can then verify these transactions as they come in rather than having to review an entire block of transactions at once.

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 audits 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 tokenomics

There are currently 315,100,273 SOL coins in circulation with a total supply of 511,616,946 without an established maximum supply.

The SOL token has two use cases. One is staking, where token holders can stake their SOL and receive rewards. The other allows users to use SOL as payment for fees associated with running smart contracts or other transactions.

Additionally, Solana distributes a fixed amount of inflation-based rewards across its weighted validator set that secures the Solana network. Each staking reward is weighted by the number of tokens that are staked. Yield is proportional to the number of tokens staked measured against the total token supply. 
Solana launched with an inflation rate of around 8%, which is expected to decline by 15% each year, a downward trend that will decrease until the rate reaches 1.5% annually, where it will remain. Issuances are anticipated to be sent to validators, with 95% of issued tokens toward validator rewards and 5% reserved for operating expenses.

Token distribution

Data from Messari shows that nearly 50% of Solana’s initial token allocation went to insiders, like venture capital firms. Only a fractional amount went to the public.

Initial token allocation major blockchains. Source: Messari

Solana investors

Solana investors include some of the most prominent venture capital firms in the crypto space: a16z, CoinShares, Alameda Research, Coinfund, and Parafi Capital. The reputation and size of its investors and the money they have provided have helped to boost Solana’s presence in the industry.

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 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)…



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