What is Solana (SOL)?
in Solana (SOL)
The triangle trilemma is one method that can be used to classify a blockchain network. The trilemma states that a blockchain can have any two of these features, but not all three.
For example, Bitcoin chooses security and decentralization at the expense of scalability. XRP opts for security and scalability, sacrificing decentralization. Other blockchains exist somewhere on the spectrum, with each network having to make choices about which features it values most.
Enter Solana, a network that claims to have solved the trilemma. Solana sells itself as a cryptocurrency that’s decentralized, secure and also scalable. If true, this would represent a huge advance in blockchain technology.
In this article we’ll investigate Solana’s claim to have solved the scaling problem, what Solana does well, a brief overview of the consensus mechanism and also a review of the SOL token.
The Solana Blockchain
The first thing to know about Solana is that it’s a technically complex blockchain. Anyone who wants to do the deep dive on the network should check out the Solana documentation, as well as this explanation of the consensus mechanism.
Similar to Ethereum and Tezos, Solana supports smart contracts. This means that developers can build decentralized applications, like a decentralized exchange, on top of Solana. What separates Solana from other smart contract platforms is that Solana can scale to hundreds of thousands of transactions per second.
Solana makes several claims about their network capabilities, including a transaction throughput of 50,000 to 65,000 TPS (Transactions Per Second). These transactions can be sent with a nominal fee, around $0.00001 per transaction, a cost so small that you would have to send thousands of transactions to even spend $1 in cumulative fees.
The secret sauce which makes all of this possible is what Solana calls, Proof of History (PoH). Proof of history is a clock used before consensus that solves the time problem in decentralized systems. What if instead of trusting the timestamp you could prove that the message occurred sometime before and after an event? When you take a photograph with the cover of New York Times, you are creating a proof that your photograph was taken after that newspaper was published, or you have some way to influence what New York Times publishes. With Proof of History, you can create a historical record that proves that an event has occurred at a specific moment in time.
On most blockchains the transactions are grouped together in a block, and the block is written to the blockchain. With this architecture it’s possible to tell that one group of transactions came before or after another, but it’s not possible to discern which transactions came first or last within that block.
It’s not that this is a bad system; however, certain applications require ordered transactions. For example, decentralized exchanges can offer better services when there is a clear order of transactions, versus all transactions in one block being grouped together. For those who really want to dig deep into the technicals, this article provides a great explanation of POH.
Why Solana is so Fast
The key to being able to clear tens of thousands of transactions per second is that there is a “leader” on the Solana network. The leader (who changes regularly) orders and writes transactions to the network as fast as possible. The only limitation is the speed of the leader’s hardware. This introduces a unique feature: the faster hardware becomes, the more transactions per second are possible on the Solana network.
You might think that with a single leader recording the transactions, Solana would be centralized. However, this is not necessarily the case. One step below the leader are the verifiers. These are proof of stake nodes and their function is to ensure that the leader is only writing valid transactions to the blockchain.
Suppose two-thirds or more of the verifiers come to the consensus that the leader is acting maliciously. In that case, the leader is ousted and replaced by another one of the verifiers (verifiers take turns being the leader).
As mentioned, these verifiers are proof of stake nodes. That means that users are staking their Solana in order to become a verifier and earn a staking reward.
- A single leader (with fast hardware) writes transactions to the blockchain as fast as possible
- Verifier nodes check that the transactions are legal and correct (no double spends)
- If two-thirds of verifier nodes dispute a leader, the leader is kicked out and replaced by a different verifier
Solana is fast because it’s set up in such a way that the network believes that all transactions are legal, unless proven otherwise.
What Solana Does Well
Because it’s so fast, Solana can support all sorts of projects. Decentralized exchanges work great on Solana. A DEX that’s running on Solana could clear tens of thousands of transactions per second with an average trade costing only $0.00001. That would enable a truly massive exchange, bigger than anything that has ever existed in crypto.
Solana would also be a good platform for payments. The cryptocurrency community commonly points out that the Visa network clears 3,000 TPS, although it can scale to 10,000 TPS or more at peak demand.
Well, Solana could clear all of Visa’s transactions, and Mastercard’s, and PayPal’s…. There is just so much scalability that you could build almost any kind of payment platform on top of Solana.
Already we’ve seen USDC migrate to Solana, with over 50M USDC-SPL already minted on Solana, as well as Tether. These are two of the largest stablecoins in the cryptocurrency ecosystem and it will be interesting to see if their usage on the Solana network takes off.
While we cited a number of roughly 50,000 TPS at the beginning of this article, the Solana team believes that the blockchain could scale to as high as 710,000 TPS.
Of course, the cryptocurrency ecosystem is flooded with big claims about “theoretical” performance, and lots of these claims never amount to much. However, if Solana tops out at “just” 250,000 TPS, that’s still enough scalability to handle an astonishing amount of traffic.
Solana Coin: SOL
The SOL token plays a similar role on Solana as ETH does on Ethereum or XTZ does on the Tezos network. SOL can be used to run a verifier node and earn a staking reward. There is no minimum requirement to start staking, although the more SOL you stake, the more likely you’ll be periodically selected as the leader.
In addition to staking, SOL is used to transmit value on the Solana network. The maximum supply of SOL is 489 million.
Solana is an exciting project because it appears to have solved the scaling problem while also remaining decentralized. The technology is there, the real question is will people start using it? If there is one thing that we’ve seen with crypto, it’s that the best tech doesn’t always win. Bitcoin is the undisputed king of crypto, even though it can only clear about 7 TPS.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.