Bringing speed to the blockchain
Solana is a blockchain designed to address network congestion, expensive transaction fees and high energy consumption. Solana achieves this by using a Proof-of-History (PoH) protocol to synchronize “time” on the network instead of the Proof-of-Work (PoW) model that blockchains like Bitcoin and Ethereum use which have no notion of centralized time, thus taking them longer to arrive at a consensus.
What is Solana (SOL)?
Solana was designed with one thought in mind: How do you make a superfast blockchain with transaction speeds, rivaling even those of credit card companies?
You see, the problem with conventional blockchains is that in keeping it “unhackable”, all the computers (nodes) in the network have to be constantly talking to one another to agree about the information they’re putting on the blockchain’s ledger, or what is called as arriving at a network consensus. This makes the network super secure and foolproof, but it also makes it extremely slow, since there is so much data going back and forth among all the nodes.
Bitcoin for example, can only process around 3-7 transactions per second (TPS). Ethereum does slightly better at 25 TPS. The speed of a credit card company like Visa however, can peak at 24,000 TPS. What would take Visa only one second to process would take Bitcoin around an hour or more.
At a proven 50,000 TPS, and a theoretical 710,000 TPS (with enough high-performance hardware participating in the network), Solana belongs with the pack of new generation blockchains that are being dubbed as “Ethereum killers”.
Such previously unheard-of speeds opens so many possibilities, especially for the Philippine crypto community as it drastically lowers the entry barrier for anyone wishing to explore decentralized applications (dApps) or participate in the booming NFT trade. After all, faster speeds means less congestion and more importantly—lower fees.
What is SOL used for?
SOL is the cryptocurrency that powers the Solana blockchain. As it is used in a completely separate network, it has its own token standard—SPL (Solana Program Library), similar to the ERC-20 designation on Ethereum. SOL has the following uses:
- SOL can be used for payments for the exchange of goods and services. SOL is also used to pay the network fees for each transaction, though only a tiny amount is charged by the network.
- DApps such as blockchain games and decentralized finance (DeFi) apps built on the Solana network are also powered by SOL and are used to execute their smart contracts.
- SOL is used to mint and trade Solana-based NFTs.
- SOL can be staked on the Solana network to contribute processing power as a validator. Being a validator rewards you with more SOL as well as discounts on transaction fees.
- SOL is also a governance token, which means that holders can join the community to vote on future changes to the network such as the rates for fees or network upgrades.
Why is Solana so fast? (or What is Proof-of-History?)
How does Solana achieve such lightning speeds? First we have to talk about the problem with legacy blockchains like Bitcoin and Ethereum. In the Proof-of-Work (PoW) consensus protocol that both of these networks use, computers can’t decide very efficiently about the “time”.
In Bitcoin for example, each block to be added to the chain is “time stamped” after a block is mined—to prove which node did the “work” first, and thus be rewarded in bitcoin. But before the block can be added permanently to the records, every single node in the network has to verify that time stamp. This is a time and energy consuming process.
Factors such as network latency and the nodes just being in different places with different local times adds more to the difficulty in verifying transactions. (There is no central time in a decentralized network.) Sometimes two or more miners successfully complete the block simultaneously, further requiring the network to allocate a little more precious computing power to untangle the conflicting information and decide who really mined the block first.
To get around this problem, Solana employs a protocol called “Proof-of-History” (PoH), a novel solution first proposed in Solana’s whitepaper. PoH by itself is not a consensus protocol, but is a method of figuring out the time between network processes to make it easier and faster for the whole blockchain to arrive at a consensus.
In PoH, a “leader” node is assigned to execute the transactions in a particular sequence for a block. While this string of transactions is being processed, a set of trusted validator nodes are already “observing” and verifying the order even before the block is complete. They do this by periodically checking the progress, like taking snapshots, as each transaction is added on top of the previous one. So by the time a block is completed and ready to be added to the chain, the network has pretty much already arrived at a consensus about the block’s legitimacy. The leader signs it off and the network is already ready to move on to processing the next block in the chain.
In short, there is less chatter within the network. Solana nodes are well-coordinated, focused and quiet workers.
The assignment of leader nodes also adds to the speed and efficiency. By having only one designated leader at any time, the nodes aren’t racing and fighting for who gets to complete the block first (as it is with Bitcoin) and then wasting more time and overhead compute talking with each other later to settle differences. Furthermore, leader roles are assigned to the nodes in rotation, and consistency and proven track record of the node’s performance is prioritized over mere availability.
Super fast means super cheap
Another reason for Solana’s Ethereum-killer reputation is the sheer difference in fees. With hardly any network congestion on Solana, transaction fees can be kept extremely low. At peak hours, Ethereum gas fees can prove to be quite disproportionate, which often shocks people who are new to crypto and discourages others from moving ETH in and out of their wallets.
On Solana meanwhile, a transaction would cost an average of $0.00025—far from even registering as a single cent. This is true even for the fees for minting NFTs, whereas the initial minting fees for Ethereum-based NFTs would cost anywhere between $70 to $300.
This is particularly advantageous for gamers who often need to put out a substantial amount just to acquire or “rent” NFTs before they could start earning in play-to-earn (P2E) games, or for creatives looking to sell their art.
Furthermore, transactions on Solana are almost instantaneous compared to Ethereum which normally takes a few minutes, since miners on Ethereum prioritize transactions which are willing to allocate more gas, creating a queue for those who are putting out just a fair amount to get their transactions through.
Unlike Ethereum, Solana was designed to be efficiently scalable. As the network grows, bandwidth is not compromised but rather increased, since adding more nodes only lends more throughput to the network instead of adding more data traffic. In theory, Solana can only go faster. This is why Solana confidently markets itself to be able to maintain low fees—forever.
Solana energy consumption
Usually, the faster a piece of technology is, the more fuel it burns. Though this may be true of cars and rockets, Solana runs counter to this notion by being one of the cleanest and most environmentally friendly blockchains around.
In Solana’s latest energy usage report in November 2021, the entire network used only 11 million kilowatt hours to process over 20 billion transactions per year. That’s enough to power just over a thousand American homes, compared to Bitcoin’s energy consumption which is larger than the annual energy needs of most small countries.
With such a tiny carbon footprint, Solana is doing a lot of good in repairing cryptocurrency’s image to the general public who are increasingly becoming critical of crypto mining, attracting a new wave of eco-conscious investors.
Solana history and recent developments
The concept of PoH was conceived in 2017 by Anatoly Yakovenko who had years of experience with network synchronization working at Qualcomm, Mesosphere and Dropbox.
Other Qualcomm colleagues, Greg Fitzgerald and Stephen Akridge, also contributed to putting the concept to practice. Together, they co-founded the company Loom in 2018 which would later be renamed to Solana to avoid confusion with another blockchain project on Ethereum with the same name.
Solana is the name of a beach in San Diego, California, where the trio used to hang out and surf after working hours at Qualcomm. In fact, the blockchain explorer for the network has been quaintly named “Solana Beach” where Solana holders can monitor network and token statistics.
Solana was relatively unheard of until 2021 when the DeFi boom prompted developers to look for a less expensive alternative to Ethereum. It easily became one of the fastest growing cryptocurrencies gaining over a 9000% price increase within 2021 alone.
Solana is also attracting more and more of the NFT market which used to be completely dominated by Ethereum. 2022 saw Solana NFT sales volume breaching the $1-billion mark a mere five months after entering the NFT trade, prompting OpenSea (currently the largest NFT trading platform) to open its doors to Solana NFTs just this April.
Another recent feature which is gaining traction is Solana Pay, a payment system designed for making transactions between merchants and buyers effortless and with near-zero fees. Currently, over 600 merchants have already signed up on the new platform.
Hot dApps on Solana
Ethereum might have Axie Infinity, still the most popular blockchain game to date especially in the Philippines where it has become a viable means of alternative income for many. But a number of new and up-and-coming dApps on the Solana network are starting to turn heads with their play-to-earn potential too. Here are a just a couple of them:
- STEPN - If you’re the athletic type, then STEPN is the perfect alternative for earning crypto than just sitting on a couch and being glued to a screen all day. STEPN literally pays its users to go outside and move, whether it be taking a leisurely walk, or going out for a serious run. All you have to do is use SOL to buy yourself a pair of NFT sneakers and you’re all set. Rare sneakers also have unique abilities such as earning bonuses. And the good thing is, it's always an option to sell them later for profit—perhaps to buy yourself an even rarer pair!
- Starbots - Fans of the hit TV show Battlebots have something to look forward to with the upcoming release of Starbots later this year, where players assemble their own NFT robots to battle it out for crypto rewards. With their hard-earned winnings, they could buy more parts such as accessories and weapons to upgrade their mechanical creations, or even sell them at the NFT market for profit.
As of April 2022, over 330 million SOL have been put into circulation. There is no fixed maximum supply as new tokens are issued every year based on demand, by as much as 8%. Solana still maintains a deflationary model however—that is, tokens are burned with each transaction to limit the supply, about 15% per year, thus relatively maintaining or increasing the value of each token.
Solana seems to have the best features of a centralized system within a decentralized network. So much so that much of the criticism aimed at the network is in casting doubt whether Solana is actually a decentralized system at all.
But it cannot be denied that for cryptocurrencies to be adopted for practical and widespread use, it has to offer not just blockchain security and privacy, but also a faster and more convenient way to conduct transactions. This is where Solana’s sleek and fine-tuned design trumps what other blockchains are currently doing.
Ready to trade?
Buying SOL is only a few clicks away.
Use this link to start your trading journey with PDAX.
The statements in this article do not constitute financial advice. PDAX does not guarantee the technical and financial integrity of the digital asset and its ecosystem. Any and all trading involving the digital asset is subject to the user’s risk and discretion and must be done after adequate and in-depth research and analysis.