Summary
Solana is an integrated and open-source blockchain aimed at synchronizing global information at the speed of light. The network focuses on fast transactions and high processing capacity to foster mass adoption of blockchain technology by consumers. Solana optimizes latency and performance. It seeks to achieve this through features such as its novel time-stamping mechanism called Proof of History (PoH), the Turbine block propagation protocol, and parallel transaction processing.
Since the launch of the mainnet in March 2020, several network updates have provided greater performance and resilience to the network, including QUIC, Quality of Service (QoS) with staking weighting, and local fee markets.
Thanks to the Proof of History (PoH) mechanism and parallel transactions, the Solana network can match the performance of centralized systems, all within a global decentralized and permissionless blockchain. Users can pay transaction fees and interact with smart contracts using SOL, the native token of the network. Another innovation is token extensions, which is a set of functionalities natively integrated into the token program that allows complex behaviors, such as confidential transfers.
Introduction
Scalability is one of the biggest challenges for blockchain technology. As networks grow, they often face limitations in terms of transaction speed and confirmation times. Because Solana is based on a new architecture, it addresses these limitations without compromising security or decentralization.
Founded in 2017 by Anatoly Yakovenko of Solana Labs, the Solana blockchain is now one of the most used blockchains in the world. Solana employs a series of innovations, such as the PoH mechanism and parallelization, to efficiently process tens of thousands of transactions per second (TPS) on a global state machine.
How does Solana work?
Solana is a third-generation Proof of Stake (PoS) blockchain that has implemented a series of unique innovations to facilitate high processing capacity, fast transactions, and low fees:
Parallelization: the ability to process more than one transaction at any given time.
Proof of History (PoH): a time verification method that eliminates the need to resort to a conventional timestamp.
Tower BFT (Byzantine Fault Tolerance): an optimized PoH version of Practical Byzantine Fault Tolerance (PBFT).
Turbine: a block propagation protocol that keeps the network synchronized.
Gulf Stream: a transaction forwarding protocol without a mempool.
Solana Virtual Machine: parallel runtime for smart contracts.
These functionalities create a high-performance network that has a block confirmation speed of 400 ms and processes thousands of TPS. To put this in perspective, the estimated time for each Bitcoin block is 10 minutes, while Ethereum's is approximately 15 seconds.
SOL holders can stake their tokens to participate in the PoS consensus mechanism of the blockchain. With a compatible crypto wallet, you can stake your tokens through validators that process the network's transactions. A successful validator can then share rewards with those who staked their tokens. This reward mechanism incentivizes both validators and delegators to act in the interest of the network.
As of January 2024, Solana has 2,145 validators and a Nakamoto coefficient of 31.
Proof of History
Tracking the order of transactions is critical for cryptocurrencies. Bitcoin does this by grouping transactions into blocks with a single timestamp. Each node must validate these blocks in consensus with other nodes. However, this process results in significant wait times for nodes to confirm a block on the network. Solana takes a different approach called Proof of History (PoH).
All events and transactions on Solana are hashed using the SHA256 hash function, which takes an input of data and produces an extremely difficult-to-predict output. Solana takes the result of a transaction and uses it as input for the next hash, so that the order of transactions is now embedded in the resulting hash.
This hashing process creates a long and uninterrupted chain of encrypted transactions in hashes. This results in a clear and verifiable order of transactions that a validator can add to a block, without the need to use a conventional timestamp.
Hashing also requires a certain amount of time to complete, which means that validators can easily verify how much time has passed. By ordering transactions in a chain of hashes, validators process and transmit less information per block. Using a hashed version of the last state of the transactions greatly reduces the block confirmation time.
PoH is not a consensus mechanism, but a way to shorten the time spent confirming the order of transactions. When combined with PoS, selecting the next validator for a block becomes much easier. Additionally, nodes require less time to validate the order of transactions, meaning the network selects a new validator faster.
Low cost
Solana has extremely low transaction fees; the average transaction costs $0.00025 USD. Low fees can eliminate some of the biggest barriers to entry to Web3, as gas fees on other chains can add significant costs to a single purchase.
Energy efficiency
Since Solana nodes require much less time and fewer resources to validate transactions, and because they do not need to mine like in Proof-of-Work (PoW) networks, the network has emerged as one of the most energy-efficient blockchains.
The Solana Foundation, the non-profit organization dedicated to protecting and supporting the Solana network, regularly publishes third-party audits on Solana's energy impact and how it compares to other blockchain projects and average household usage. The most recent report, published in December 2023, indicated a 25% reduction in energy use per transaction, from 0.879 kJ to 0.658 kJ.
What is SOL?
SOL is the native utility token of Solana, which the network burns as part of its deflationary model. Users need SOL to pay transaction fees when making transfers or interacting with smart contracts. SOL holders can also become network validators. Like Ethereum, Solana allows developers to design smart contracts and create blockchain-based projects.
SOL uses the SPL protocol; SPL is the token standard for the Solana blockchain, just as ERC-20 is for Ethereum. The SOL token has two main use cases:
Pay the transaction fees incurred when using the network or smart contracts.
Stake to participate in the PoS consensus mechanism.
The decentralized applications (dApps) built on Solana create new use cases for SOL and other tokens built based on the SPL standard.
The Solana ecosystem
The Solana ecosystem has grown massively since the launch of the beta version of its mainnet in 2020. As of January 2024, there are over 2,500 developers working on Solana projects and more than one million active wallets on the network.
Giants of the traditional economy have also announced their integration with Solana. These include Discord (which allows users to link Solana wallets to their profiles) and Asics (which used Solana Pay payments to enable their users to purchase a limited edition shoe design).
The fast transactions and high processing capacity of Solana have made it the network of choice for several use cases in Web3, such as the following:
Decentralized Physical Infrastructure Networks (DePIN): real-world networks incentivized by tokens, such as the decentralized mapping protocol Hivemapper, are possible thanks to the ability to process transactions at extremely high speeds.
Next-generation NFTs: new non-fungible token standards have emerged in the Solana ecosystem, leveraging the scalability of the network to create new uses. Executable NFTs (xNFT) from Coral are NFTs that can launch a program, creating the promise of a web stack and applications that exist entirely in a wallet. Compressed NFTs (cNFT) use Merkle trees to drastically reduce the cost of storing data on-chain, reducing the cost of minting a million NFTs from millions to hundreds of dollars.
Payments: The Solana Pay protocol has powered an ecosystem of simplified and permissionless payment structures that can settle payments for businesses in seconds.
Games and entertainment: processing large transactions with minimal lag opens up Web3 use cases for gaming, entertainment, and metaverse capabilities.
DeFi: Solana's high processing capacity and low fees enable the creation of automated market makers, decentralized exchanges, and more.
What's next?
At the Solana Foundation Breakpoint 2023 conference, a series of projects for the coming months and years were highlighted:
Firedancer: Jump Crypto is developing the new open-source core software for Solana, which includes a second validator client that, as of November, can process 1.2 million TPS in a test environment, further expanding Solana's processing capacity.
Token extensions: a new token program launched in 2024 allows developers to add features such as confidential transfers and permissioned recipients through a whitelist without writing additional code.
Conclusions
Since emerging on the blockchain scene in 2020, Solana continues to mature as a sustainable and robust ecosystem. Since then, it has become a popular choice for both projects and users and seems poised for even further growth.
Additional readings
What is Proof of Stake (PoS)?
What is Solana (SOL)?
Three popular crypto bridges and how they work
