What is Solana(SOL) and How Does Solana Crypto Work?

Solana(SOL) is a Web 3.0 next-generation internet platform built around a publicly traded blockchain-based cryptocurrency system. Solana's open-source software network connects decentralized computers all over the world to create a completely unified, user-owned, and managed cloud platform. Solana provides high-speed and low-cost transactions on a single-layer blockchain, eliminating the need for extra scaling solutions required by competing networks.

Let’s understand Solana in detail - what is Solana blockchain, how Solana work, the history of Solana, Solana’s tokens, Solana features, Solana price predictions, the downfall of Solana, pros, and cons of Solana.

What is Solana?

Solana is an open-source project that is developing a new permissionless, high-performance blockchain. The open-source project is managed by the Solana Foundation, which is situated in Geneva, Switzerland.

Solana employs a kind of Proof of Stake consensus known as Proof of History, which employs a precise verifiable delay function to efficiently date and organize network transactions. "It employs a cryptographically safe function constructed so that output cannot be guessed from the input and must be entirely performed to create the output," Solana says.

The Solana design seeks to establish the existence of a collection of software algorithms that, when combined to construct a blockchain, eliminate software as a performance barrier, allowing transaction throughput to increase proportionately with network capacity. The design then goes on to meet all three desirable features of a true blockchain: scalability, security, and decentralization.

How does Solana(SOL) Work?

Solana, designed by Anatoly Yakovenko, works on a decentralized computer network based on the blockchain ledger. This blockchain database controls and monitors the money, effectively recording every transaction that has ever occurred in it, similar to a long-running receipt. The computer network records the cash transactions and validates the data's integrity.

 

Source: QuickNode

This decentralized architecture strengthens the network and allows users to conduct transactions without the need for a middleman. Solana bills itself as the world's fastest blockchain, claiming the ability to validate 65,000 transactions per second for less than a cent apiece.

The Solana protocol's central component is proof-of-history, a series of calculations that gives a digital record that certifies that an event occurred on the network at any point in time. It may be provided as a cryptographic clock that provides a timestamp to every network transaction, as well as a data structure that is a simple addition to it.

Solana employs a 256-bit secure hash algorithm (SHA-256), which is a collection of patented cryptographic operations that produces a 256-bit result. 

This sequence of hashes may be used by Solana validators to record a specific piece of data that was produced before the production of a given hash index. The transaction timestamp is generated once this specific piece of data is entered.

Solana Blockchain and the Proof of History (PoH) Concept

Solana employs the Proof of History(PoH) consensus mechanism. It is a series of calculations that creates a digital record that proves an event took place on the network at any given moment.

PoH uses Proof of Stake for consensus, with the Tower BFT algorithm acting as an extra tool to validate transactions. PoH is a high-frequency Verifiable Delay Function at its heart (VDF).

A VDF is a three-step process that produces a unique and trustworthy product (Setup, Evaluation, and Verification). It keeps the network running smoothly by demonstrating that block producers have waited long enough for the network to go on.

It employs SHA256 (Secure Hash Algorithm 256-bit) - a collection of patented cryptographic operations that generates a 256-bit result which is also the one Bitcoin uses. The Solana network samples the SHA256 count and hashes regularly, delivering real-time data as specified by the set of hashes present on CPUs.

 

Source: Genesis Block

Validators can utilize this hash sequence to record a specific piece of data generated before a given hash index is formed. Once this piece of data is added, the timestamp for transactions is created.

Solana’s Native Token SOL

SOL is the native cryptocurrency of the Solana network. It is used to pay for network transactions. It is an inflationary token with a declining supply and a yearly inflation rate of 1.5%. 

SOL was released in March 2020 as part of the beta testnet release and has since aspired to be one of the main cryptocurrencies. Solana, as a smart contract platform, promises to tackle many of the scaling (growth) and throughput (volume) challenges that other layer-1 blockchain solutions encounter.

The SOL token operating model is comparable to the Ethereum network. Even though they work similarly, Solana token holders must stake the token for transactions to be validated via the PoS consensus process. In addition, the Solana coin is used to gain awards and pay transaction costs, with SOL allowing users to participate in governance.

More than 500 million tokens will be placed into circulation, with the current total supply of Solana topping 511 million tokens – Solana's circulating quantity is slightly more than half that. Solana's founders and the Solana Foundation hold around 60% of SOL tokens, with just 38% available for the community.

Solana Key Features

Solana is a combination of various developments and features. From Defi to smart contracts, the SOL ecosystem covers every single aspect of a blockchain-decentralized network.

Below are some major attributes of the Solana Network:

Proof of History (PoH)

Proof of Work (PoW) is a rigorous method that decreases transaction speeds. To address the shortcomings of the PoW system, PoH (Proof of History) was invented. Proof of history simply implies that a new block may be added to the blockchain network without the need for mutual consent.

In Solana, each node has its clock and makes choices without consulting with the others. Proof of History accelerates transactions while simultaneously providing an efficient blockchain network and keeping a record of all transactions.

Tower Byzantine Fault Tolerance (BFT) Algorithm

The BFT system acts as a safety net for the Solana ecosystem, ensuring that a single node failure does not disrupt the operation of the entire system. This approach allows the nodes to continue operating even after several failures.

Turbine

The turbine is a block propagation system that uses User Datagram Protocol (UDP) to broadcast transaction fragments to all network nodes, providing low-latency and loss-tolerant connections between programs on the internet.

Cluster

Clusters are groups of validators that collaborate to preserve the ledger's integrity by servicing client transactions. Each cluster is made up of computers that are all owned separately. Clusters, on the other hand, may cohabit with one another, and when two clusters have a similar genesis block, they can converge.

Validators can support the network in a variety of ways. They can keep track of which validators did meaningful work to keep the cluster running, as well as verify the output of user-submitted programs.

Gulf Stream

Gulfstream is a system that eliminates "meme pool requirements." Memepool may be viewed as a holding area where all unprocessed transactions await their turn. Solana's network can handle a memory pool with a capacity of 1,000 transactions.

Sealevel

Solana allows many smart contracts to function concurrently. Solana becomes a more cost-effective blockchain network as a result of these time savings. The technology that allows Solana to execute numerous smart contracts concurrently is termed "sea level."

CloudBreak

Cloudbreak: Solana employs a horizontal scaling approach, which allows Solana to expand its scalability. Cloudbreak creates a database capable of reading and writing transaction input. Cloudbreak is also in charge of establishing a link between hardware and software.

Pipeline

The majority of jobs in Solana's ecosystem are separated to guarantee rapid transaction processing. Solana distributes the input data to the various network hardware components. Pipelining is a method in which many pieces of hardware immediately verify the information blocks.

Solana Vs Ethereum

The main feature that distinguishes Solana from the competition is its capacity to execute transactions rapidly; this one factor has significantly contributed to Solana's success. When compared to other cryptocurrencies, Solana is unrivaled in terms of transaction speed and transaction confirmation time.

On the other hand, Ethereum is a decentralized environment where developers can implement DeFi protocols owing to its well-developed architecture, making it the pioneer and undisputed leader of the DeFi sector, however, Ethereum has significant drawbacks on its mainnet that prevent it from reaching its full potentials, such as limited scalability, network congestion, and expensive gas costs.

Solana is said to have a processing speed of more than 60,000 TPS. This makes it one of the quickest blockchains to compete with sectors other than DeFi.

Ethereum, for example, is limited to 16 TPS. Solana wins here:

To avoid sluggish transaction confirmation, a separate consensus algorithm is used on the Solana platform:

• A new tokenomics model with reduced costs.

• A better overall user experience.

However, while Ethereum 2.0 is in operation, Ethereum has been the focus of the DeFi community. ETH 2.0 claims to greatly enhance scalability, reduce fees, and boost throughput.

Solana Price

Solana Price is experiencing immense volatility at the moment. Solana which was once considered an Ethereum killer is now struggling to survive. After the FTX collapse which hampered many crypto projects and markets, Solana became one of the victims of it. 

On 11 Nov, as soon as FTX announced its bankruptcy, SOL's Price started to tumble. The fear caught fire because Alameda (SBF’s company associated with FTX’s Bankruptcy) held $1.2 Bn worth of SOL tokens. Due to this, Solana felt almost 94% in value compared to its ATH.

 

Source: TradingView

Right now, Solana is being tested on the ultimate resistance level. The long-term price could be estimated by this stance of Solana. The down-slope joining with the peak arrow shows the price fluctuation inside this resistance line. Any breakout from this line could make the price swing heavily.

Solana Price Predictions (2023-2030)

Solana is subjected to great volatility and price fluctuations.  Any analytics company predicting the price of any crypto or digital assets is based on some tools and algorithms. The below price predictions are made by the analytic firm Changelly. It’s just a prediction and not any investment idea.

Solana Price Prediction 2023

Based on recent years' Solana pricing, it is estimated that the minimum price of Solana in 2023 will be about $20.51. The most likely SOL price is approximately $24.75. In 2023, the average trade price might be $21.09.

Solana Price Prediction 2024

According to cryptocurrency professionals' technical study of Solana prices, SOL is anticipated to have the following lowest and maximum prices in 2024: about $30.70 and $35.34, respectively. The average projected cost of trading is $31.55.

Solana Price Prediction 2025

The values of Solana and their changes over the preceding years have been studied by cryptocurrency specialists. It is expected that by 2025, the least SOL price will be $43.69, with a maximum of $52.37. The average cost of trading will be roughly $44.96.

Solana Price Prediction 2026

According to crypto specialists' study of Solana expenses, the following maximum and minimum SOL prices are projected in 2026: $75.13 and $63.71. It will be traded at an average price of $65.96.

Solana Price Prediction 2027

Crypto professionals are continually studying Solana's changes. According to their forecasts, the average SOL price will be about $94.90. It might fall to as low as $92.27, but it could still rise to $107.97 by 2027.

Solana Price Prediction 2028

According to Cryptocurrency analysts,  SOL is expected to trade between $134.08 and $158.37 in 2028. During the year, the average cost is estimated to be about $137.88.

Solana Price Prediction 2029

The maximum SOL price of $230.21 will define the year 2029. However, the rate may fall to approximately $202.75. As a result, the anticipated average trading price is $208.27.

Solana Price Prediction 2030

Solana will be traded for at least $295.09, with a possible high of $348.03. As a result, the SOL price in 2030 is expected to be roughly $305.50 on average.

Major Downfall of Solana Coin

On Nov 6, 2022, FTX the third-largest crypto exchange at that time was experiencing a great financial crisis due to which it went bankrupt in the following days. This fiasco led the crypto market to plunge, even more, when the market was still recovering from the crypto winter.

The firm declared bankruptcy owing to mismanagement and poor financial flow. In 2017, Sam Bankman-Fried (SBF) founded the quantitative trading firm, Alameda.

Solana has been the most seriously impacted crypto during the FTX meltdown. The network itself was already experiencing major issues. TVL metrics and NFT buyer numbers have reached new lows. While the average price loss in the crypto market was roughly 20%, SOL prices fell by more than 94% from their all-time high.

Sam Bankman-Fried, the founder of FTX, had SOL holdings of more than $1.1 billion, according to a leaked copy of Alameda Research's balance sheet. This revelation had a significant impact on the SOL coin, and the market value has declined since the news spread.

Solana Pros & Cons

Solana provides an open framework for greater blockchain technology adoption. While many people are interested in it for the technology — and developers love it — experts have identified certain drawbacks to the protocol. Here are some of Solana's advantages and disadvantages.

Pros:

• Scalability and speed have been improved.

• More than 50,000 TPS.

• Despite having billions of customers on its network, fees remain cheap.

• Further improvements and wider acceptance are possible.

Cons:

• There are only about 200 validators, which might lead to protocol centralization.

• Most consumers find distribution and the emissions schedule unappealing.

• The community owns only 33.9 per cent of the total maximum supply.

History of Solana

Anatoly Yakovenko presented a whitepaper in November 2017 detailing Proof of History, a mechanism for tracking time across devices that do not trust one another.

On February 13th, 2018, Greg began developing the first open-source implementation of Anatoly's whitepaper. In the loom protocol organization, the project was uploaded on GitHub under the name Silk. Greg released his initial release on February 28th, proving that 10,000 signed transactions could be validated and processed in slightly over half a second.

At the same timeline, the Ethereum-based project Loom Network emerged, leaving many people confused as to whether they were the same project. The Loom team decided to rename it. 

They adopted the name Solana as a tribute to Solana Seaside, a little beach community north of San Diego where Anatoly, Greg, and Stephen resided and surfed for three years while working at Qualcomm. On March 28th, the Solana GitHub organization was established, and Greg's prototype Silk was renamed, Solana.

Frequently Asked Questions (FAQs)

How to buy Solana?

There are many crypto exchanges from where one can buy Solana in exchange for Fiat or stable coins or some related Solana pairs. Binance, Kraken, and Coinbase are some of the exchanges where Solana has been listed.

Which consensus mechanism does Solana use?

Solana uses a Proof of History consensus, which leverages a precise verifiable delay function to effectively timestamp and arrange network transactions.

How Many SOL Tokens Are Presently in Circulation?

Solana has a total supply of 511.6 million SOL tokens, with 363 million already in circulation.

How many transactions can Solana make in a second?

Solana is one of the fastest blockchains, with an average of 2,000 transactions per second (TPS) and a potential maximum of 710,000 TPS. This is considerably superior to the 15 TPS capabilities of Bitcoin and Ethereum.

Is Solana Layer 1 or Layer 2 Blockchain?

Solana is a Layer 1 blockchain that enables smart contracts and the development of new decentralized apps (DApps).