Summary
Solana is an open-source blockchain designed to synchronize global information at light speed. The network focuses on fast transactions and high throughput to drive mass consumer adoption of blockchain technology. Solana optimizes latency and throughput. Solana aims to achieve this through features such as a new timestamping mechanism called Proof of History (PoH), the Turbine block propagation protocol, and parallel transaction processing.
Since the mainnet launch in March 2020, several network upgrades have further improved the network's performance and resilience, including QUIC, Quality of Service with staking weight (QoS), and local fee markets.
Thanks to Proof of History (PoH) and parallel transactions, the Solana network can match the performance of centralized systems on a decentralized and permissionless global blockchain. Users can pay transaction fees and interact with smart contracts using SOL, which is the native token of this network. Another innovation is the Token Extension, a set of rich functionalities built natively into token programs that enable complex behaviors such as secret transfers.
Introduction
Scalability is one of the biggest challenges in blockchain technology. As it develops, the network often faces limitations related to transaction speed and confirmation time. Because it is built on a new architecture, Solana addresses these limitations without sacrificing security or decentralization.
The Solana blockchain, founded in 2017 by Anatoly Yakovenko of Solana Labs, is now one of the most widely used blockchains in the world. Solana employs several innovations, such as PoH and parallelization, to efficiently process tens of thousands of transactions per second (TPS) within a single global engine.
How Does Solana Work?
Solana is a third-generation Proof of Stake (PoS) blockchain that has implemented several unique innovations to facilitate high throughput, fast transactions, and low costs:
Parallelization: The ability to process more than one transaction at a time.
Proof of History (PoH): A method of verifying time without requiring conventional timestamps.
Tower Byzantine Fault Tolerance (BFT): A version of Practical BFT optimized with PoH.
Turbine: A block propagation protocol that keeps the network synchronized.
Gulf Stream: A transaction forwarding protocol without a mempool.
Solana Virtual Machine: Parallel execution of smart contracts.
These features form a high-performance network with a block time of 400 ms and process tens of thousands of TPS. In comparison, Bitcoin's block time is around 10 minutes and Ethereum's block time is around 15 seconds.
SOL owners can stake their tokens as part of the PoS consensus mechanism of the blockchain. With a compatible crypto wallet, you can now stake tokens with validators that process network transactions. Then, successful validators can share rewards with users who have staked their tokens. This reward mechanism encourages validators and delegators to act in the network's best interest.
As of January 2024, Solana has 2,145 validators and a Nakamoto coefficient of 31.
Proof of History
Tracking the order of transactions is crucial in the cryptocurrency space. Bitcoin does this by bundling transactions into blocks with a single timestamp. Each node must validate the block by reaching consensus with other nodes. However, this process significantly adds to the waiting time for nodes to confirm blocks across the network. Solana takes a different approach called Proof of History (PoH).
All events and transactions on Solana go through a hashing process using the SHA256 hash function that takes input and produces unique and highly unpredictable output. Solana takes the output of a transaction and uses it as input for the next hash, so the order of transactions is now included in the output of the hashing result.
This hashing process creates a long and unbroken chain of incoming transaction hashes. The result is a clear and verifiable order of transactions that can be added to a block by a validator without requiring conventional timestamps.
Hashing also requires a certain duration to complete. This means that validators can easily verify the time that has passed. By ordering transactions in a hash chain, validators process and send less information per block. The use of the hashed version of the current state of transactions greatly reduces block confirmation time.
PoH is not a consensus mechanism, but rather a way to shorten the time used to confirm the order of transactions. When combined with PoS, the next validator selection for a block becomes much easier. Nodes require less time to validate the order of transactions. This means the network will select new validators faster.
Low cost
Solana has very low costs with an average transaction fee of $0.00025. Low costs can eliminate some of the biggest barriers to entry for Web3, as gas fees on other chains can add significant costs to a purchase.
Energy efficiency
Because Solana nodes require less time and fewer resources to validate transactions — and because Solana does not require mining like Proof of Work (PoW) networks — this network emerges as one of the most energy-efficient blockchains.
The Solana Foundation, a nonprofit organization dedicated to securing and supporting the Solana network, releases periodic third-party audits on Solana's energy impact and its comparison with other blockchain projects and their average energy usage. The latest report published in December 2023 shows a 25% reduction in energy usage per transaction from 0.879 kJ to 0.658 kJ.
What is SOL?
SOL is the native utility token of Solana that goes into the burning of the network as part of the deflationary model. Users need SOL to pay transaction fees when transferring or interacting with smart contracts. SOL holders can also become network validators. Like Ethereum, Solana allows developers to build smart contracts and create projects based on this blockchain.
SOL uses the SPL protocol. SPL is the Solana token standard similar to ERC-20 on Ethereum. The SOL token has two main uses:
Paying transaction fees incurred when using the network or smart contracts.
Staking tokens as part of the PoS consensus mechanism.
Decentralized applications (DApps) built on Solana create new utility for SOL and other tokens built using the SPL standard.
Solana Ecosystem
The Solana ecosystem has rapidly grown since the mainnet-beta launch in 2020. By January 2024, there were over 2,500 developers working on Solana projects and over one million active wallets on Solana.
Traditional economic giants have also announced their integration with Solana. One of them is Discord (which allows users to link their profiles with Solana Wallet) and ASICS (which uses the Solana Pay payment pathway for customers to buy limited edition shoe designs).
The fast transactions and high throughput of Solana make it the network of choice for several Web3 use cases, such as:
Decentralized Physical Infrastructure Network (DePIN): A real-world network incentivized by tokens, such as the decentralized mapping protocol Hivemapper, made possible by the ability to process non-fungible token transactions at very high speeds.
Next-generation NFTs: New non-fungible token standards have emerged in the Solana ecosystem. These NFTs leverage the network's scalability to create new utility. Executable NFTs (xNFTs) from Coral are NFTs that can launch programs promising a web stack and applications that fully reside in wallets. Compressed NFTs (cNFTs) use merkle trees to dramatically reduce on-chain data storage costs, allowing the cost of minting a million NFTs to drop from millions to hundreds of dollars.
Payments: The Solana Pay protocol has supported an ecosystem of seamless and permissionless payment structures that can settle payments in seconds for business payments.
Games and entertainment: Processing large transactions with minimal latency generates web3 utility for games, entertainment, and metaverse capabilities.
DeFi: The high throughput and low costs of Solana enable the creation of automated market makers, decentralized exchanges, and much more.
What are the Next Steps?
The Breakpoint 2023 conference by the Solana Foundation highlighted several projects to watch in the coming months and years, including:
Firedancer: Jump Crypto is developing new open-source core Solana software, including a second validator client that can process 1.2 million TPS in a testing environment as of November. This software will further enhance Solana's throughput.
Token Extension: A new token program launched in 2024 allows developers to add features such as secret transfers and whitelisted recipients without writing additional code.
Conclusion
Since emerging in the blockchain space in 2020, Solana has continued to evolve into a robust and sustainable ecosystem. Since then, Solana has become a popular choice for projects and users. It seems that Solana is ready to grow even further.
Further Reading
What is Proof of Stake (PoS)?
What is Solana (SOL)?
Three Popular Crypto Bridges and How They Work