TL;DR
Solana is an integrated, open-source blockchain with the goal of synchronizing global information at the speed of light. The network is focused on fast transactions and high throughput in order to encourage mass consumer adoption of blockchain technology. Solana optimizes for latency and throughput. It seeks to accomplish this through features such as its novel timestamp mechanism called Proof of History (PoH), block propagation protocol Turbine, and parallel transaction processing.
Since mainnet launch in March 2020, several network upgrades have brought further network performance and resilience, including QUIC, stake-weighted Quality of Service (QoS), and local fee markets.
Thanks to Proof of History (PoH) and parallelized transactions, the Solana network can match the performance of centralized systems, all on a decentralized, permissionless global blockchain. Users can pay their transaction fees and interact with smart contracts using SOL, the network’s native token. Another innovation is the Token Extensions, which is a set of rich functionality natively built into the token program that allows for complex behaviors such as confidential transfers.
Introduction
Scalability is one of the biggest challenges in blockchain technology. As networks grow, they often face limitations in terms of transaction speed and confirmation times. Because Solana is built on a new architecture, it tackles these limitations without compromising security or decentralization.
Founded in 2017 by Solana Labs’ Anatoly Yakovenko, the Solana blockchain is now one of the most widely used blockchains in the world. Solana uses a number of innovations, such as PoH and parallelization, to efficiently process tens of thousands of transactions per second (TPS) in one global state machine.
How Does Solana Work?
Solana is a third-generation Proof of Stake (PoS) blockchain that has implemented a number of unique innovations to facilitate high throughput, fast transactions, and low fees:
Parallelization: The ability to process more than one transaction at any given time.
Proof of History (PoH): A method of verifying time without the need for a conventional timestamp.
Tower Byzantine Fault Tolerance (BFT): A PoH-optimized version of Practical BFT.
Turbine: A block propagation protocol that keeps the network in sync.
Gulf Stream: A mempool-less transaction forwarding protocol.
Solana Virtual Machine: Parallel smart contracts run-time.
These features create a high-performance network that has 400ms block times and processes tens of thousands of TPS. To put this into perspective, Bitcoin’s block time is around 10 minutes, and Ethereum’s roughly 15 seconds.
SOL holders can stake their tokens as part of the blockchain’s PoS consensus mechanism. With a compatible crypto wallet, you can stake your tokens with validators who process the network’s transactions. A successful validator can then share rewards with those who have staked their tokens. This reward mechanism incentivizes validators and delegators to act in the network’s interest.
As of January 2024, Solana has 2,145 validators and a Nakamoto coefficient of 31.
Proof of History
Keeping track of the order of transactions is vital for cryptocurrencies. Bitcoin does this by bundling transactions into blocks with a single timestamp. Each node has to validate these blocks in consensus with other nodes. However, this process results in significant waiting time for nodes to confirm a block across the network. Solana takes a different approach called Proof of History (PoH).
Solana events and transactions are all hashed using the SHA256 hash function, which takes an input and produces a unique and extremely difficult to predict output. Solana takes the output of a transaction and uses it as input for the next hash, so the order of the transactions is now inbuilt into the hashed output.
This hashing process creates a long, unbroken chain of hashed transactions. This results in a clear, verifiable order of transactions that a validator can add to a block without the need for a conventional timestamp.
Hashing also requires a certain amount of time to complete, meaning 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 latest state of transactions greatly reduces block confirmation time.
PoH is not a consensus mechanism but instead, a way of shortening the time spent confirming the order of transactions. When combined with PoS, selecting the next validator for a block is much easier. Nodes need less time to validate the order of transactions, meaning the network chooses a new validator more quickly.
Low cost
Solana has extremely low fees, with the average transaction costing $0.00025. Low fees can remove some of Web3’s greatest barriers to entry, since gas fees on other chains can add significant costs to a single purchase.
Energy efficiency
Because Solana’s nodes need much less time and fewer resources to validate transactions — and because it does not require mining like Proof of Work (PoW) networks — the network has emerged as one of the most energy-efficient blockchains.
The Solana Foundation, the non-profit dedicated to securing and supporting the Solana network, releases regular third-party audits on Solana’s energy impact, as well as how it compares to other blockchain projects and their average household usage. The most recent A report, published in December 2023 indicated a decrease in energy use per transaction of 25%, from 0.879k J to 0.658k J.
What Is SOL?
SOL is Solana’s native utility token, 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 build smart contracts and create projects based on the blockchain.
SOL uses the SPL protocol; SPL is the Solana blockchain’s token standard, similar to ERC-20 on Ethereum. The SOL token has two main use cases:
Paying for transaction fees incurred when using the network or smart contracts.
Staking tokens as part of the PoS consensus mechanism.
Decentralized applications (DApps) building on Solana create new use cases for SOL and other tokens built using the SPL standard.
The Solana Ecosystem
The Solana ecosystem has grown massively since the launch of its mainnet-beta in 2020. As of January 2024, there are over 2500 developers working on Solana projects and over a million active wallets on Solana.
Traditional economic giants have also announced their integration with Solana. These include Discord (which allows users to link their profiles and Solana Wallets) and ASICS (which used the Solana Pay payments rail to allow customers to purchase a limited-edition shoe design).
Solana’s fast transactions and high throughput have made it the network of choice for several Web3 use cases, such as:
Decentralized Physical Infrastructure Networks (DePIN): Real world networks incentivized by tokens, such as the decentralized mapping protocol Hivemapper, are made possible by the ability to process transactions at extremely high speeds.
Next-gen NFTs: New non-fungible token standards have been popping up in the Solana ecosystem, taking advantage of the network’s scalability to create new uses. Executable NFTs (xNFTs) from Coral are NFTs that can launch a program, creating the promise of a web and application stack that exist entirely in a wallet. Compressed NFTs (cNFTs) use merkle trees to dramatically lower the cost of storing data on chain, bringing the cost of minting one million NFTs from millions to hundreds of dollars.
Payments: The Solana Pay protocol has powered an ecosystem of frictionless, permissionless payment structures that can settle payments in seconds payments for businesses.
Games and entertainment: Processing large transactions with minimal lag time opens up web3 use cases for games, entertainment, and metaverse capabilities.
DeFi: Solana’s high throughput and low fees make it possible to create automatic market makers, decentralized exchanges, and more.
What’s Next?
The 2023 Breakpoint conference by the Solana Foundation highlighted a number of projects to follow in the coming months and years, including:
Firedancer: Jump Crypto is developing new open-source Solana core software, including a second validator client that can process 1.2 million TPS in a test environment as of November, which will expand Solana’s throughput even further.
Token Extensions: a new token program launched in 2024 allows developers to add features such as confidential transfers and whitelist permissioned recipients without writing additional code.
Closing Thoughts
After appearing on the blockchain scene in 2020, Solana continues to mature into a robust, sustainable ecosystem. It has since become a popular choice for both projects and users, and seems poised to grow even further.