What is (SOL) Solana Crypto & How Does it Work?

Solana is a decentralised open-source blockchain focused on providing speed, scalability and ease of app development. It was created in 2018 by Anatoly Yakovenko, Greg Fitzgerald and Stephen Akridge, taking its name from a small beach in North San Diego where its three founders used to surf.

Solana has become one of the fastest-growing blockchain ecosystems and is considered a challenger to Ethereum due to the speed, scale and low cost of transactions it can support. 

What Does Solana Do? Quick Facts about Solana Crypto

The Solana blockchain supports its own version of Smart Contracts, called Programs, enabling an ecosystem of digital applications from DEFI to NFTs. It features a native token called SOL which is used to pay for the execution of Program functions and functions as a standalone cryptocurrency.

SOL is ranked in the top 10 cryptocurrencies by market capitalisation, reaching an All-Time High price of $260 in November 2021, representing an increase of 46,000% on its launch price.

Only 61 addresses control 31% of SOL tokens worth over $14.5bn. SOL has more value staked than any other cryptocurrency outside of Ethereum, with an estimated $36bn worth of SOL tokens supporting its Validator Nodes.

At the time of writing, the Solana blockchain is supported by over 1,700 Validator Nodes running a consensus method called Proof of History which can theoretically support 710,000 transactions a second.

Solana currently processes a new block every half-second, handling around 2,500 transactions per second with an average cost of $0.00025. Over 70 billion transactions have been processed since Solana’s Genesis Block.

Solana vs Ethereum: What makes Solana different and special?

Like Ethereum, Solana is a Turing Complete blockchain meaning that it can compute any instruction that can be reduced to mathematics. Those instructions are compiled in Programs, Solana’s equivalent of Smart Contracts, and executed in its Runtime environment called Sealevel, comparable to Ethereum’s Virtual Machine (EVM).

Whereas Ethereum uses a Proof Stake (PoS) consensus mechanism, the Solana blockchain achieves consensus on the accuracy of transactions by combining PoS with an approach called Proof of History, which is the key to Solana’s scalability.

Solana’s development team believe that it is theoretically possible for a decentralised blockchain to achieve the same amount of throughput as a centralised database, considered to have a maximum capacity of 710,000 transactions per second.

Solana’s secret sauce is to rely on cryptographic proof of elapsed time - described as Verifiable Delay Function. 

Consensus is achieved through a Cluster of computers running the Solana system software, elsewhere described as a distributed network, and maintaining a ledger of accounts owning the native token SOL or controlling programs that support digital applications. 

Solana Blockchain: How does Solana Work?

To function as a cryptocurrency Solana must:

• Support the issuance of SOL (the Solana Token)
• Enable the exchange of SOL within supported wallets recording changes in account balances
• Support the execution of Smart Contracts supporting digital applications (dApps).

Solana Token: How Many Solana (SOL) Coins are Presently in Circulation?

SOL was created as a disinflationary token aiming to gradually reduce inflation over time toward a stable long-term inflation rate. That means that SOL does not have a fixed supply cap. The inflation schedule is as follows:

• 8% initial inflation
• 15% annual decline in inflation
• Longterm inflation of 1.5%

After an initial launch distribution to investors, team/foundation members and the community, SOL tokens have been issued as a reward to Node Validators as each new block is created. Validators also receive fees for processing transactions and executing Smart Contract requests though half of those fees are burned.

Solana’s tokenomics mean that the total supply of SOL is a function of the amount of SOL staked in proportion to the total supply.

At the time of writing, the total supply of SOL is 511,616,946 with a circulating supply of 333,435,952.

How Is the Solana Network Secured?

The Solana network is secured using a hybrid combination of its own Proof of History consensus method and the more established Proof of Stake method. 

Proof of Stake selects Nodes in a blockchain network to validate transactions based on the amount of the native currency they staked. The greater the stake, the greater the chance of being chosen to validate transactions and bundle them into new blocks to be added to the Solana blockchain, in return earning a fixed block reward plus associated transaction fees.

Solana’s blockchain is divided into slots representing periods of time where a Validator  Node absorbs transactions and collects them in a block. Validators keep a running time count, and each slot has a fixed time to find a block.

Solana uses Proof of Stake to choose which Validator is assigned a slot, described as a Leader. Leaders are chosen ahead of time, and because Validators know precisely where and when their block should sit, transactions are organised in the correct time sequence. 

As each block contains cryptographic proofs of hashed data that are time-stamped, some time must have elapsed since the last proof. It is a complex way of using time to ensure the authenticity of data.

Proof of History translates into much faster transaction confirmation because it isn’t constrained by the need to produce blocks at fixed time intervals. Solana doesn’t actually use blocks at all; the term is used to aid understanding and comparison. 

Transactions are batched into Entries by Validators in real-time, rather than waiting for linear block confirmation and in advance of other Validators voting on the validity of the transactions. This synchronisation is the secret to Solana’s speed because it removes the delay between transactions between batched and validated. 

FAQs about Solana Crypto

What is Solana Proof of History (PoH)? 

Proof of History is Solana’s unique approach to ordering transactions in real-time based on cryptographic proof of when they happened. It uses an Optimistic approach which reduces the time between when a transaction is included in an Entry (the equivalent of a block of data) and when the network of Validators (described as Cluster) can vote to validate it.

What is Solana Proof of Stake (PoS)?

Solana uses Proof of Stake (PoS) alongside Proof of History. Solana uses PoS to select assign slots to Validators to commit new transaction Entries (the equivalent of blocks in other chains). Solana Validators chosen through the PoS system are described as Leaders.

Is Solana's SOL Token Available in Fractional Amounts?

Solana’s SOL token is fractional to nine decimal places. The smallest denomination is known as a Lamport after Leslie Lamport, a computer scientist who significantly influenced Solana’s founders.

How to Stake Solana 

To stake SOL you need a supported wallet such as Phantom, SolFlare, Exodus, Sollet, Zelcore or Atomic. You need to create a staking account within the wallet and move as much SOL as you want to delegate. 

Each staking account has a unique address. You can create multiple staking accounts, but each account must delegate to a single Validator. You choose Validators from a list based using criteria such as the expected return and volume of delegated funds they already hold.

Where can you Stake Solana?

You can stake SOL through many popular centralised exchanges earning a passive return. Alternatively, you can use a supported wallet such as Phantom, SolFlare, Exodus or Atomic and delegate stake to a Validator choosing from a list.

What are the best wallets for Solana?

Most modern crypto wallets will support SOL transactions, but to stake you will need to choose from a list of wallets that support delegation, which includes: Phantom, SolFlare, Exodus, Sollet, Zelcore or Atomic.

Where Can You Buy Solana (SOL)?

Solana is among the top 10 most traded cryptocurrencies with a 24hr volume of over $1.5bn. You can buy SOL from a huge selection of exchanges the most popular being Coinbase, Binance, FTX, Huobi and Kucoin.

Where do Solana coins come from?

500,000 SOL were pre-mined at launch, with 48% distributed to Venture Capital investors, and the Founding Team, 39% going to the Community (funding development and airdrops) and 10.5% to the Solana Foundation. The remaining tokens were sold to the public.

Since Solana went live, new SOL are issued as a reward to Validators producing new Entries of transactions, the equivalent of blocks. This issuance is managed from a planned inflation rate which began at 8%, decreasing by 15% each year and eventually levelling off at 1.5%.

How many transactions does Solana process per second?

Solana currently processes around 3,000 transactions per second, but the expectation is that in the future, the network will support up to 65,000tps.

How much is the average transaction fee on Solana?

The average transaction fee for a Solana transaction is $0.00025, according to the official Solana website at the time of writing.

Who Are the Founders of Solana?

Anatoly Yakovenko, Greg Fitzgerald and Stephen Akridge are the founders of Solana. They met when working together at the semi-conductor maker Qualcomm. 

Yakovenko produced a whitepaper in November 2017 on the Proof of History consensus mechanism that would become the basis of Solana.

Solana was officially launched in March 2020 via the Solana Foundation, headquartered in Geneva, Switzerland.

What's next for Solana?

Solana’s unique approach to the problem of blockchain scaling has seen it process 70bn transactions since its launch in 2020 and experience a dramatic increase in the value of SOL. There have, however, been several significant bumps in the road.

The manner of Solana’s distribution at launch, with such a sizeable chunk of distribution going to Venture Capitalists, has led to critics describing it as centralised. The nature of its staking system has also been criticised for discouraging a diverse Validator Network, with the problem exacerbated by the level of financial and technical resources required to become a Validator.

Solana has also been plagued by several significant technical outages, including 17 hours of unplanned downtime in September 2021, suggesting that the system isn’t robust enough to be considered decentralised. 

As of February 2022, the value of the SOL token has dropped by over 50% from its All-Time High and the number of addresses interacting with Solana’s decentralised applications has also started to show declines.

Though these criticisms are valid, it is worth bearing in mind that Solana is only two years old with a roadmap focused on improved scalability and resilience. Solana is still one of the most popular alternatives to Ethereum, illustrating that Crypto users want fast transactions and low fees and are less concerned about the issues around genuine decentralisation. This suggests that Solana could become the blockchain of choice for mainstream adopters whose focus is on practical benefits rather than purity of decentralisation.