What is Solana? Guide for beginners

As innovative as it may be, blockchain technology faces special challenges, including high fees, scalability, low throughput, and more.

Several projects in the DeFi space are vying to become the first scalable blockchain on the web and ensure that users get the best experience by addressing these common issues.

One of those, which is gaining traction in the DeFi community, is Solana. The open source and censorship-resistant blockchain technology leverages a comprehensive set of technologies to amplify scalability and deliver a robust network for building decentralized applications (dApps).

What is Solana?

Solana is a decentralized protocol for building dApps with a transfer rate of 65,000 transactions per second (TPS) thanks to a distributed computing system.

Unlike most Proof of Stake (PoS) or Proof of Work (PoW) protocols, Solana uses Proof of History (PoH) – a new encryption mechanism that increases scalability while maintaining network security.

Solana is among the few first layer solutions that are able to support thousands of transactions per second without the need to implement second layers or off-chain.

Solana’s main technologies

Proof of date, crypto clock

PoH is the Solana consensus mechanism. It is a series of arithmetic operations that provide a numerical record to prove that an event has occurred on the network at any time.

Think of it as a cryptographic clock that gives a timestamp to every transaction in the network along with the data structure, which can be a simple extension of the data.

PoH is based on Proof of Stake, using the Tower BFT algorithm for compatibility, which acts as an additional tool for validating transactions. In essence, PoH is a high-frequency verifiable delay function (VDF).

VDF is a triple function (preparation, evaluation and verification) to produce unique and reliable outputs. It maintains order in the network by proving that the block producers have waited enough time for the network to move forward.

In Solana’s case, it uses SHA256 (Secure 256-Bit Algorithm) – a set of patented cryptographic functions that produce a 256-bit value (which is also what Bitcoin uses). Solana’s network periodically experiments with the SHA256 hash count, providing real-time data that is routed by the CPU’s built-in hashes.

Validators can use this hash sequence to record a specific piece of data that was created before a particular hash index was created. The timestamp of transactions is generated as soon as this piece of data is entered.

Solana claims to have reached a throughput of 65,000 TPS, with an average block time of 400 milliseconds and an average transaction fee of 0.000005 SOL (Solana’s original token). To achieve these numbers, all validators on the network have a crypto clock to keep track of events instead of waiting for other nodes to verify transactions.

BFT . Tower

Tower BFT is an improved version of the Practical Byzantine Fault Tolerance Protocol (PBFT) that keeps your network secure and running. This mechanism is the primary Solana consensus that takes advantage of the PoH crypto clock.

Tower BFT addresses issues such as rollback cost, different ASIC speeds between nodes, or risks associated with reward-based voting.

turbine

Turbine is a cluster propagation protocol that enhances the network by splitting data into distributed packets with a small amount of bandwidth, allowing nodes to perform better using less power.

Clusters of groups

Groups are groups of auditors with different purposes, but whose main task is to work together by serving a client’s transactions. According to Solana, groups may coexist, and when two groups share a common mass of formation, they try to converge.

Gulf Stream

Gulf Stream refers to Solana’s mempool-less redirect protocol. mempool is a mechanism for crypto nodes to store unconfirmed transactions before they are added to the blockchain.

pipe lines

Pipelining is a multi-transaction processing unit that creates different stages for each CPU to finish its task. This technique is commonly used in CPU design.

History and foundation of Solana

Solana was founded in 2017 by Anatoly Yakovenko, a former engineer at the multinational Qualcomm. He published the Solana Whitepaper in the same year with the idea of ​​creating a distributed system using a new algorithm that could build on the blockchains mostly used for Proof of Stake and Proof of Work.

This is how Proof of Date (PoH), a timekeeping technique for encoding the passage of time within a data structure, was born.

ICO Solana

Yakovenko joined with colleagues Greg Fitzgerald and Eric Williams to launch Solana, creating a testnet prototype a year later, while also establishing Solana Laboratories – based in San Francisco, California.

The project was first floated through an Initial Coin Offering (ICO), raising more than $25.6 million in March 2020. However, in June 2021, Solana Labs also raised $314 million for network development.

Since then, it has become one of the fastest growing protocols in the DeFi space. In 2021, the protocol caught the attention of the market not only because of its technology but also because of the impressive performance of its native SOL token, which exploded in value.

The team behind Solana

Aside from founding members Yakovenko, Fitzgerald, and Williams, the project has successfully included well-known developers and management staff.

The team behind the Solana Foundation, a non-profit organization based in Switzerland, is promoting and working with international partners to support Solana. On the other hand, Solana Labs is interested in developing the protocol.

Supporters of Solana and the ecosystem

Solana’s debut attracted high-profile blockchain and DeFi firms, as well as institutional capital, including Multicoin Capital, CMCC, Tether, Chainlink, Serum, and more.

More than 231 companies are currently listed in Solana’s ecosystem, ranging from different industries. Some of what we mention are AMMs (Automated Market Makers – Serum), Oracle (ChainLink, Gravity, Switchboard, Band Protocol, and Nozomi), stablecoin projects, wallets, and exchanges.

SOL . icon

SOL is the original and useful Solana token, which is used for stake and transaction fee payment. It is an inflationary token but designed with low supply and an annual inflation rate of 1.5%.

SOL was launched in March 2020 amid beta release and has strived to become one of the leading cryptocurrencies.

As mentioned earlier, SOL performed exceptionally well in 2021 and even became the seventh largest cryptocurrency by total market capitalization (as of September 2021).

As of this writing, about 18 months after the ICO, the SOL token is priced at 725x its ICO token price of $0.22.

Solana competitors

In the world of DeFi, Solana has sought to become a legitimate competitor to industry leaders such as Ethereum, Polkadot, and Binance (BSC).

We can compare them to see the benefits and downsides of each.

Solana is supposed to be able to reach a processing speed of over 60,000 TPS. This makes it one of the fastest blockchains to compete with other industries outside the DeFi space.

Ethereum, for example, can only handle 16 TPS. Solana has an advantage here:

• Different consensus algorithm to avoid slow transaction confirmation.
• New token for lower fees.
• Better user experience overall.

However, Ethereum has been in the spotlight from the DeFi community as Ethereum 2.0 is being developed. ETH 2.0 is an upgrade that everyone in the DeFi community has come to expect – it can dramatically improve scalability, lower fees, and increase productivity.

An important feature that attracted developers is Solana’s hybrid mechanism for solving typical blockchain problems, such as PoH, which reduces the time between transactions and enhances network security.

Here’s a key feature we need to understand about Solana that sets it apart from other blockchains: it’s nonlinear, and its hybrid system and technology impact DeFi in a big way.

Rise of the NFTs on Solana

Solana’s popularity boomed in 2021, mainly due to the massive increase in its price. At the time of writing, in October 2021, the cryptocurrency is up nearly 8000% in terms of its year-to-date gains.

Much of it came thanks to the explosive growth of non-fungible tokens on the Solana blockchain. The reason people preferred it over Ethereum was simple – it was a lot cheaper and faster – users could issue NFTs at little or no cost, and there were hundreds of projects that took off.

some like Degenerate Monkey Academy The project includes NFTs that sold for more than $1 million at the time. For example, one of the cryptocurrency venture capital funds, Monrock Capital, acquired the 13^NS The rarest monkey for a whopping 5980 SOL, which at the time was worth $1.1 million.

Solana’s Cons and Challenges

However, Solana suffers inevitable setbacks that he needs to address. While the protocol can rival high-level blockchain projects, it is still vulnerable to centralization as there are not many validators in the blockchain.

This is something Solana has been criticized for: anyone on the network can become an auditor, but doing so is a challenge because it requires high computational resources.

This contributes to the reason why the protocol continues to call itself a beta mainnet; Specific errors, codes, and delays may exist. However, developers and projects still come to the network to build or participate in, such as Solstarter, Serum Swaw or Raydium.

Besides, the network experienced two major outages during the month of September. The second outage took hours to sort through until enough network auditors upgraded their version.

conclusion

Despite the decline, Solana is a high-performance blockchain that has caught the attention of the community.

It has the support of some of the most famous names in the industry and, despite some challenges, appears to be on the right track for growth.

In a short period of time, Solana became one of the most used platforms for various DeFi applications and was at the center of the NFT boom in 2021.