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Solana is a layer 1 blockchain platform whose goal is to maximize transaction speeds through a novel computational mechanism called Proof of History.
What is Solana? (SOL)

Through its architecture, Solana aims to solve the blockchain trilemma of blockchain security, scalability, and decentralization. Accomplishing two of three of these goals is common for many blockchains but finding a balance of all three is notoriously difficult.

By using a consensus mechanism based on the familiar Proof of Stake (PoS) design, but with a unique computational timekeeping method dubbed Proof of History (PoH), the developers have built a network that can reportedly process up to 65,000 transactions per second (tps), more than twice the number of traditional payment rails.

Since its birth, the network’s growth has been one of the fastest of any blockchain project. From decentralized finance (DeFi) lending protocols to decentralized exchanges (DEXes) to NFT marketplaces, developers have built up the ecosystem because of its ease of use and fast and cheap transactions.

SOL is Solana’s native cryptocurrency that is used to pay transaction fees and secure the network through staking.

SOLANA ESSENTIALS

  • Solana is a layer 1 blockchain platform that attempts to use a novel, hybrid consensus mechanism to solve the famous “blockchain trilemma” and maximize security, scalability, and decentralization.
  • The driver behind the network efficiency is its Proof of History timekeeping method, which works alongside its delegated Proof of Stake consensus mechanism. Proof of History allows multiple validators to process transactions simultaneously.
  • SOL, the platform’s native cryptocurrency, allows users to interact with the network’s dapps and validators to process transactions and secure the blockchain.

How was Solana developed?

The Solana whitepaper was published in late 2017 by founder Anatoly Yakovenko, who now serves as the company’s CEO. Previously, Yakovenko worked for chip producer Qualcomm and cloud storage giant Dropbox, primarily focusing on distributed systems development.

Solana Labs led the creation of the platform and is run by Yakovenko and co-founder Greg Fitzgerald. Further development of the network has been coordinated by the Solana Foundation, a non-profit organization based in Switzerland.

The team held five funding rounds—four of which were private—between April 2018 and March 2020 when the beta mainnet went live. In total, the project raised more than $25 million, and has raised hundreds of millions more through venture capital firms such as Multicoin Capital in the years since its launch.

How does Solana work?

Consensus mechanism

Solana uses a delegated Proof of Stake (PoS) consensus mechanism alongside a novel timekeeping computation called Proof of History (PoH).

Standard PoS protocols depend on validators who lock up their coins to be granted the opportunity to process transactions and vote on upgrades to its software. Building on this model, users called delegators can choose to commit their SOL to validators, staking their SOL indirectly and earning a portion of the staking rewards as a result. Doing so allocates votes to the validators in Solana’s consensus mechanism.

Additionally, instead of the arduous task of communicating the state of the blockchain to all network validators for each transaction, the novel PoH is also used to help run transactions on the chain.

How does this work? Validators take turns leading the validation of smaller parts of the blockchain, according to a random schedule. The blockchain data is ordered according to a standardized clock that every validator runs. This way, there is a provable method to confirm that one transaction occurred before another (hence, history) on the blockchain—without direct validator communication.

By splitting the work of validating the chain, transactions can be processed more efficiently.

Ecosystem projects

One of the draws of Solana is its rich ecosystem of decentralized applications (dapps). Some notable ones include:

  • Raydium – An automated market maker (AMM) protocol similar to Ethereum’s Uniswap that allows users to swap assets against liquidity pools and generate rewards for liquidity providers.
  • Serum – A decentralized exchange (DEX) that uses a decentralized order book to make swapping digital assets as convenient as possible. It partners with other DeFi projects—like Raydium—to deepen platform liquidity and make trades more efficient.
  • Audius – A music streaming platform built for musicians to share music with listeners and earn more for their art than traditional streaming options.
  • Magic Eden – The most popular NFT marketplace built on Solana, allowing for the trade of NFT collections like the Degenerate Ape Academy or DeGods.

How is the SOL token used?

SOL is used by validators who stake tokens to secure the network and by delegators who assign their tokens to validators. Each is rewarded with a share of new coins from block rewards for contributing to the network.

Additionally, those who use the blockchain’s DeFi platforms, NFT marketplaces, decentralized exchanges, and other dapps will need SOL to pay for transaction fees.

Just as Bitcoin has fractional denominations called Satoshis, partial SOLs are referred to as lamports—named after the American computer scientist Leslie Lamport, who is known for his work in distributed systems. A lamport has a value of 0.000000001 SOL.

Token distribution

Solana’s initial supply of 500 million SOL was divided primarily into three proportions at launch: 38% to the community reserve fund managed by the foundation, 37% to early investors, and 25% divided between the foundation and development team. These coins were subject to a vesting schedule ending in January 2023.

Inflation was enabled on the Solana network in early 2021. This allowed for the compensation of validator nodes with brand new SOL coins that are systematically introduced into the supply through staking rewards. The initial inflation rate was set at 8% annually, and inflation on the network is set to decrease by 15% on an annual basis until it reaches the goal inflation rate of 1.5%. Solana’s inflation is balanced by various deflationary mechanisms such as the burning of a portion of all transaction fees.

How to buy SOL

You can buy the Solana coin on Bitstamp. Sign up for a Bitstamp account and start trading SOL today!

Disclosure: Bitstamp is licensed to engage in virtual currency business activity by the New York State Department of Financial Services.

This webpage has been approved as a financial promotion by Bitstamp UK Limited which is registered with the UK’s Financial Conduct Authority. Please read the Risk Warning Statement before investing. Cryptoassets and cryptoasset services are not regulated by the Financial Conduct Authority. You are unlikely to be protected if something goes wrong. Your investment may go down as well as up. You may be liable to pay Capital Gains Tax on any profits you earn.

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