Solana (SOL) Definition

What Is Solana?

Solana is a blockchain platform designed to host decentralized, scalable applications. Founded in 2017, Solana is an open-source project currently run by Solana Foundation based in Geneva, while the blockchain was built by San Francisco-based Solana Labs. Solana is much faster in terms of the number of transactions it can process and has significantly lower transaction fees compared to rival blockchains like Ethereum.

The cryptocurrency that runs on the Solana blockchain—also named Solana (SOLUSD) and with the ticker symbol SOL—has soared almost 12,000% so far in 2021, and with a market capitalization of over $66 billion, it is the fifth-largest cryptocurrency by this measure.

Understanding Solana

Proof of History Concept

Solana co-founder Anatoly Yakovenko published a whitepaper in November 2017 describing the Proof of History (PoH) concept. PoH is a proof for verifying order and passage of time between events, and it is used to encode trustless passage of time into a ledger.

In the whitepaper, Yakovenko notes that blockchains that were then publicly available did not rely on time, with each node in the network relying on its own local clock without knowledge of any other participants’ clocks in the network. The lack of a trusted source of time (i.e., a standardized clock) meant that when a message timestamp was used to accept or reject a message, there was no guarantee that every other participant in the network would make the exact same choice. PoH gets past this hurdle, with every node in the network able to rely on the recorded passage of time in the ledger on the trustless basis that is key to blockchain functioning.

Solana History

Yakovenko’s previous work experience was in the field of distributed systems design with leading technology companies such as Qualcomm Incorporated (QCOM). This experience had made him aware that a reliable clock simplifies network synchronization, and when that occurs, the resulting network would be exponentially faster, with the only constraint being its bandwidth. Yakovenko surmised that using Proof of History would speed up the blockchain tremendously compared with blockchain systems without clocks like Bitcoin and Ethereum that were struggling to scale beyond 15 transactions per second (tps) worldwide, a fraction of the throughput handled by centralized payment systems such as Visa Inc. (V) that required peaks of 65,000 tps.

Yakovenko’s initial implementation began in a private codebase and was implemented in the C programming language. Yakovenko subsequently migrated the entire codebase to the Rust programming language, at the behest of his former Qualcomm colleague Greg Fitzgerald. In February 2018, Fitzgerald commenced prototyping the first open source implementation of Yakovenko’s whitepaper and subsequently made the first release of the project, demonstrating that 10,000 signed transactions could be verified and processed in just over half a second. Shortly thereafter, Stephen Akridge—another of Yakovenko’s Qualcomm colleagues—demonstrated that throughput could be massively improved by offloading signature verification to graphic processors.

With these project milestones under their belt, Yakovenko recruited Fitzgerald, Akridge, and three others to co-found a company called Loom. However, because of the potential for confusion with an Ethereum-based project that had a similar name, the company/project was rebranded to Solana, after the small beach town near San Diego where the co-founders lived when they worked for Qualcomm.

In June 2018, the project was scaled up to run on cloud-based networks, and a month later, the company published a 50-node, permissioned, public testnet consistently supporting bursts of 250,000 transactions per second. By December 2021, Solana had processed over 40 billion transactions at an average cost of $0.00025 per transaction.

Solana’s Technology

The goal of Solana’s architecture is to demonstrate that there exists a set of software algorithms that, when used in combination to implement a blockchain, eliminates software as a performance bottleneck, enabling transaction throughput to scale proportionally with network bandwidth. Solana’s architecture satisfies all three desirable attributes for a blockchain: scalable, secure, and decentralized. Solana’s architecture describes a theoretical upper limit of 710,000 transactions per second (tps) on a standard Gigabit network and 28.4 million tps on a 40-Gigabit network.

Solana’s blockchain operates on both a Proof of History (PoH) and Proof of Stake (PoS) model. PoS permits validators (those who validate transactions added to the blockchain ledger) to verify transactions based on how many coins or tokens they hold; PoH allows those transactions to be timestamped and verified very quickly.

Solana versus Ethereum

Solana’s rapidly expanding ecosystem and its versatility have inevitably drawn comparisons to Ethereum, the leading blockchain for decentralized applications (dApps). Both Solana and Ethereum have smart contract capabilities, which are crucial for running cutting-edge applications like decentralized finance (DeFi) and nonfungible tokens (NFTs). But there are some fundamental differences between the two.

Unlike Solana, Ethereum is a Proof of Work (PoW) blockchain, where miners must compete to solve complex puzzles in order to validate transactions, making this technology more energy intensive and hence detrimental to the environment.

Much of the buzz surrounding Solana in 2021 was due to its distinct advantage over Ethereum in terms of transaction processing speed and transaction costs. Solana can process as many as 50,000 transactions per second (tps), and its average cost per transaction is $0.00025. In contrast, Ethereum can only handle less than 15 transactions per second, while transaction fees touched a record of $70 in 2021.

However, Ethereum has first mover advantage, and with its massive ecosystem, it is second only to Bitcoin in terms of market capitalization. Ethereum’s Eth2 upgrade and its shift to a PoS model are both set for 2022; the upgrade is expected to make the blockchain more scalable, secure, and sustainable, while dramatically increasing transaction processing speed.

Solana’s status as a newer blockchain company also came under the microscope when it suffered a network outage for more than 17 hours on Sept. 17, 2021, after a surge in transaction volume—which peaked at 400,000 transactions per second—and bot activity led to excessive memory consumption. While its Sol token initially plunged on the news, it has since erased those losses, reaching a record price of over $250 in November 2021.