The biggest draws of Solana are its fast and cheap transactions. It’s reportedly able to handle 65,000 transactions per second, and the average cost per transaction is $0.00025.
Solana is able to do that because it uses proof of history, a unique algorithm to validate transactions. Most blockchains use either a proof-of-work or proof-of-stake consensus mechanism, with proof of stake being the more efficient option. Solana uses a hybrid protocol that combines proof of stake with proof of history for even faster processing.
As far as what Solana does, it’s an open-source blockchain, which means that developers can use it in a variety of ways. Here are a few examples of what can be done on the Solana ecosystem:
- Minting, selling, and trading non-fungible tokens (NFTs).
- Developing decentralized finance (DeFi) platforms, such as decentralized crypto exchanges.
- Building blockchain games, including Web3 games, and partnerships with big-name companies such as FTX, Lightspeed (NYSE:LSPD), and Forte.
One of the most exciting developments with Solana has been Solana Pay, a free-to-use payments framework. It allows merchants to accept payments directly from customers through the Solana network. Payments are made in stablecoins such as USD Coin (CRYPTO:USDC) that are designed to maintain a stable price.
By using Solana Pay, businesses can avoid high payment processing fees.
Where Solana came from
In November 2017, Anatoly Yakovenko published a white paper introducing Solana’s proof-of-history concept. Yakovenko was previously a senior staff engineer at Qualcomm and a software engineer at Mesosphere and Dropbox. He went on to work with Greg Fitzgerald, Stephen Akridge, and Raj Gokal in developing a single, scalable blockchain.
The original name for their project was Loom, but Ethereum released Loom Network at the same time. To avoid confusion, the team renamed their project Solana and chose Solana Labs as the company name.
The Solana cryptocurrency was first available in 2019 during private token sales, where Solana Labs raised about $20 million. Both the Solana protocol and SOL tokens were released to the general public in 2020. The Switzerland-based Solana Foundation, which supports the Solana ecosystem today, also was founded in 2020.
Solana vs. Ethereum
Solana’s biggest competitor is Ethereum, and it has been called an “Ethereum killer.” Considering the popularity of each blockchain, prospective investors often wonder how the two match up.
When Ethereum launched, it used the proof-of-work consensus mechanism to validate transactions. Although proof of work was common at the time, it’s not energy-efficient. Ethereum is currently in the process of transitioning to proof of stake, which is used by Solana in conjunction with its proof-of-history algorithm.
That results in a major difference in transaction processing. Solana regularly processes thousands of transactions per second and is theoretically capable of handling 65,000. Ethereum can only handle about 30 transactions per second (although once it completes its upgrades, it will reportedly be able to handle up to 100,000 per second).
How Solana works
Solana is built for scalability, and it accomplishes that through its unique hybrid protocol. This protocol uses both the proof-of-stake consensus mechanism popular with other blockchains, as well as Solana’s proof-of-history algorithm.
Proof of stake is a way to validate blockchain transactions. Validators are chosen based on the amount of crypto tokens that they’ve staked (pledged to the blockchain). Validators receive rewards when they confirm new blocks of transactions and add them to the blockchain.
Proof of history verifies the order of blockchain transactions and the passage of time between them. The timestamps on transactions are built into the blockchain itself. Because the time stamp is built in, validator nodes don’t all need to communicate with each other to confirm transaction times.
There are a few other technical design reasons for Solana’s relative speed advantages, but the end result is that proof of history helps optimize the transaction process. It cuts down on the work that validators need to do, enabling much shorter processing times.