The Solana blockchain has gained multiple supporters thanks to its lightning speed, lower transaction fees, and smart contract functionality. This has helped Solana take a growing share of the blockchain market and has led to the emergence of an ecosystem built around it.
But what is it that makes Solana so attractive to developers and traders alike? This introduction to Solana explores what it is, the Solana Token, the consensus mechanism, and the top Solana dApps.
The Solana public, open-source blockchain was proposed in a white paper published in November of 2017 by Anatoly Yakovenko. The white paper proposed a blockchain based on Proof of History that would support high performance smart contracts, including NFTs. Three years later on March 16, 2020, the first Solana block was created.
Solana has since become one of the most popular blockchains, with a 400% growth spurt in the summer of 2021. This astronomical rise to the spotlight neatly coincided with the NFT boom and increased interest in DeFi.
The newcomer is now considered to be a direct competitor of Ethereum thanks to its similar capabilities but with the added bonus of lower transaction fees and greater efficiency.
Solana aims to be the Visa of the blockchain, claiming to process an industry-leading 65,000 transactions per second (TPS). This is a stark contrast to Ethereum’s 30 TPS and puts Bitcoin’s 7 TPS to shame.
Another point for Solana against the other two major blockchain players is that Solana’s consensus mechanism, a hybrid of Proof of Stake (PoS) and Proof of History (PoH) is greener than their Proof of Work approach. (Although Ethereum recently switched to PoS, it has been for a long criticized for the high energy consumption caused by PoW. )
Solana’s blockchain is home to a vast ecosystem of dApps, DeFi, games, collectibles, tokens, and more that aim to benefit from its speed, low fees, security, and scalability.
Solana has its own native and utility token, SOL, which is used to pay for transaction fees on the network. It is also used for staking, allowing users to support Solana’s security while earning rewards. The inflationary token is designed to have a decreasing supply and an annual inflation rate of 1.5%.
Developers are leveraging Solana’s high performance, speed, and security to create scalable dApps including exchanges, collectibles, games, NFT marketplaces, and more. Let’s take a look at some of the most popular creations on the Solana network.
Raydium: Raydium was the first Automated Market Maker (AMM) built on Solana. The protocol provides on-chain liquidity to the Serum DEX (another top Solana project, see below). Raydium enables fast and affordable swaps and trades, shared liquidity, yielding opportunities, and more.
Orca: Orca is one of the most popular decentralized exchanges built on Solana. The platform boasts accessibility to cryptocurrencies with a more straightforward, human-centered and user-friendly experience. With Orca, users can swap assets, provide liquidity and earn yield.
Serum: Serum is another DEX ecosystem built on Solana. Serum provides non-custodial spot and derivatives and an automated full limit order book to give traders full control. Its wide range of functions includes cross-chain stablecoin and wrapped assets exchange and low slippage trading.
Magic Eden: Magic Eden is the #1 Solana NFT Marketplace allowing users to create, buy, sell and trade unique digital assets. The platform boasts a 0% listing fee and only 2% transaction fee making it an attractive NFT platform for newbies and seasoned minters alike.
Solana's unique network architecture brings together a set of algorithms to implement a blockchain that enables higher transaction throughput with the ability to scale as the network grows.
The blockchain operates on a combination of Proof of Stake (PoS) and Proof of History (PoH).
PoH is not used as a consensus mechanism on Solana but rather a way to improve the Proof of Stake (PoS) consensus mechanism.
The PoS allows validators to verify transactions based on how much SOL they hold and stake while PoH timestamps the transactions which is what allows the greater efficiency and high throughput.
Let’s take a closer look at these two methods.
With Proof-of-Stake, SOL owners stake their coins to a validator. The validator is basically a computer running the blockchain’s software and downloads its own copy of the blockchain ledger.
Solana validators are much like “miners” and nodes of Proof of Work blockchains like Bitcoin and Ethereum. The difference is that validators don’t compete against each other in order to be the one to add the next block of transactions to the blockchain (and gain the transaction fees as a reward).
Instead, a validator is chosen at random, but from a selected group based on how much crypto they have staked, how long they have been staking, and other possible criteria. This model is a way to measure a validator’s level of commitment to the network and then reward them for it.
PoH is what sets Solana apart from the other major blockchains. The Proof of History model has been labeled as “the clock for the blockchain”.
Its sequence of computations acts as a cryptographic digital record giving proof of verifiable order and the passage of time between events. Every transaction in the network receives a timestamp, encoding trustless passage of time into a ledger.
Why is this special?
Well, up until that point, the other public blockchains had a network of nodes that each had their own local clock. None of the nodes had knowledge of the others’ clocks resulting in a lack of a trusted time source.
This meant that when a timestamp was used to accept or reject a message, there was no guarantee that the other network nodes would make the same choice. PoH resolves this as every network node can rely on the recorded timestamp in a completely trustless way.
Solana’s network of nodes can perform a variety of complex tasks, but it will suffice to know that there are two main types of nodes— validator nodes and archivers.
Validator nodes are the ones that perform consensus on the blockchain. If a staker sends its stake to a validator, the validator can be selected as a slot leader. This slot leader is a validator that has been made responsible for producing blocks during that assigned time slot.
At full capacity, the Solana network can generate 4 petabytes of data every year.
If every Solana node was required to store all that data, it would limit network membership resulting in centralization. Proof of History helps avoid this by creating a faster validation process and allowing the distribution of the ledger to a network of nodes called Archivers.
READ MORE: Blockchain Nodes Explained
Although, anyone who wishes to can become a Solana validator, there is no strict minimum of SOL required. However, running a validator does cost money.
Solana validators have to vote each day on new blocks and in order to do that, they must spend SOL. A day's worth of voting will cost approximately 1.1 SOL which is equal to $61 per day at current prices. This translates to over $22,000 a year.
But before you even get to that stage, there are advanced technical requirements to be able to run a validator node. These hardware requirements can set you back about $6000.
The Solana network is a complex mix of technology, cryptographic algorithms, and architecture that requires powerful equipment, high bandwidth, and blockchain expertise to manage.
This can act as a huge barrier to any SME wishing to access Solana data or participate in the network. Crypto APIs provides reliable infrastructure and technical knowledge to help break down those barriers.
Our Nodes as a Service gives easy access to data from Solana, allowing you to build robust dApps and applications integrated with the blockchain.
To find out more about our Nodes as a Service, contact the Crypto APIs team today.