Solana is a public, open-source blockchain platform that supports NFTs (non-fungible tokens) and a wide range of dApps (decentralized applications).
Solana itself is not a cryptocurrency. It's purely a blockchain that houses its own native token, SOL, which is a utility token that transmits value and enables the network's security via staking.
Solana runs on smart contract functionality, similar to another popular blockchain, Ethereum (ETH). Smart contracts are digital agreements that automatically activate when a predetermined set of conditions are met and don’t require an intermediary. However, this isn’t the only feature that makes Solana stand out. Let’s look at a few characteristics of Solana’s ecosystem that make it a unique blockchain.
What makes Solana unique?
Solana’s creators aimed to tackle a few obstacles that they thought were missing from other blockchains and traditional financial instruments, such as:
- Speed: Solana’s creators wanted to build a blockchain with the potential for widespread adoption. Unlike Visa and Mastercard, which handle about 65,000 transactions per second (TPS), standard blockchain transaction speeds were only about 15 TPS. To address demand on a global level, Solana Labs set out to create a new platform that now processes 65,000 TPS.
- Low cost: Solana offers far lower entrance costs than the hefty gas fees on Ethereum's network, which has worked in its favor and has resulted in a rapidly growing user base. Solana transactions come in at an average of $0.00025, which is modest compared to other blockchains. Solana draws users from all over the world because of its low pricing and higher transaction speeds.
- Consensus mechanism Most blockchains use a proof-of-work (PoW) or proof-of-stake (PoS) consensus mechanism. However, the Solana blockchain uses a unique voting system to validate blocks called a proof-of-history (PoH) protocol based on a PoS consensus mechanism with a different time calculation method.
How does Solana work?
Solana sets itself apart from other blockchains due to its method of functioning. It processes crypto transactions as they occur instead of adding each block on the blockchain. This allows Solana to offer levels of high performance that benefit dApps on its platform.
The PoW consensus method is somewhat sluggish, although it reduces the possibility of many validators simultaneously creating new blocks. While PoS systems are exempt from this limitation, network validators still struggle to establish the sequence of blocks as they arrive without a reliable time source.
Several programmable blockchains, such as Ethereum, rely on external algorithms to establish a "median" timestamp. These timestamps are used to authenticate transactions sequentially. However, using a centralized source negates the benefits of decentralization. PoH enables these "timestamps" to be included into Solana's blockchain itself.
In short, PoH produces timestamps to show when a block was formed and confirms the interval between two transactions.
PoH is a modification of PoS but isn’t a consensus mechanism. With the use of cryptography, a PoH protocol can accurately organize crypto transactions recorded on Solana's blockchain. Instead of organizing each transaction block by block, the PoH algorithm allows transactions to be processed as they come.
This offers immediate completion for all transactions while resolving the issue of sequencing events. Solana's algorithm facilitates higher scalability, reduced transaction fees, and more stable platforms for dApps. It allows stablecoins, gaming, cloud storage, and decentralized exchanges to be parts of its network architecture.
Solana uses a unique protocol in PoH and offers various solutions to many existing blockchain-related issues. However, there are potential concerns surrounding Solana.
The fundamental principle of blockchains and cryptocurrencies is decentralization. Eliminating entities that have substantial influence over blockchains is the overarching objective of the crypto ecosystem, which is why cryptos don't experience misuse of power or third-party interventions.
Decentralization is one of the critical areas that separates Solana from a major competitor like Ethereum. ETH is a decentralized network that currently relies on a PoW consensus mechanism but is looking to move to a PoS protocol in its next iteration.
Solana, on the other hand, is more centralized. That’s because a third of Solana's top validators control more than 35% of its overall stake. This sizable portion allows these individuals and entities to influence Solana's value based on their market share. They also control how SOL evolves and what upgrades are made in the future. Additionally, the team and investors own a higher percentage of all tokens compared to other top protocols, making many enthusiasts question if SOL is a truly decentralized cryptocurrency.
Another reason people tout Solana as centralized is the large amount of computing power needed to run a node. This means it is less feasible for the average user. Additionally, the process for owning a node can be a risky task depending on the type of node you wish to run.
Solana has experienced some issues with outages. It has experienced 12 outages thus far (at the time of writing), with the second downtime in May 2022 resulting in its value dropping by more than 12%. The most recent outage––which lasted for four hours and 10 minutes––was caused by a deficiency in creating new blocks, which are essential to maintaining Solana’s blockchain functionality.
The Solana Foundation instructed validators to reset their computers after servers stopped processing new blocks. Validators finished a cluster restart after more than four hours, allowing Solana to resume regular services. An estimated 975 million transactions were unable to take place during the outage.
Solana underwent similar downtime in September 2021, when the blockchain experienced "resource fatigue." Another glitch occurred in January 2022 due to high computational transactions, causing the blockchain's operations to lag.
Despite Solana’s decentralization and outage issues, it remains a popular cryptocurrency platform and a mainstream blockchain network for the crypto community.
It has recorded growth in active developers and market capitalization, ranking in the top 10 cryptocurrencies globally. With a circulating supply of around 349 million SOL, Solana’s market cap (at the time of writing) is approximately $12.5 billion.
Solana is also planning to launch its own mobile phone series, Saga. The Saga phones will have Android operating systems with integrated Web3 capabilities. Yakovenko confirmed that Solana wants to turn Saga phones into a central hub for managing and transacting digital assets. These phones are expected to sport 12 gigabytes of RAM, 512 gigabytes of internal storage, and Snapdragon’s latest 8+ Gen 1 processors with added security features specifically for cryptocurrency transactions and services. Solana reportedly expects to release Saga in the fourth quarter of 2022 (this article was written in September 2022).
Solana aims to rival mainstream blockchains like ETH and claims to be the fastest, cheapest, and most efficient blockchain network today, although it has flaws. Users and experts, alike, have concerns over Solana’s stability due to downtime issues and its lack of complete decentralization.
At the same time, Solana uses a unique protocol in proof-of-history that enables low transaction fees, higher throughput, and a distinct voting system for its validators. Solana Labs plans to expand its services via Solana Mobile, which plans to launch its Saga phone series in late 2022.
As Solana comes with its benefits and risks, it’s essentially your responsibility to research well and perform your due diligence before investing. However, other initiatives don’t require spending anything if you want to buy crypto. One such company is Worldcoin.
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