What is Solana?

Solana is an open source blockchain network that is designed to host decentralized applications (DApps), similar to Ethereum. It was officially launched in 2020 by Solana Labs, but it is now run by the Solana Foundation based in Geneva. Solana has a native cryptocurrency (SOL) that shares the same name, and as of January 2023, it has a market cap of over $8 billion.

Solana has a number of advantages over Ethereum, which have played a big part in its rapid growth over the past few years. Its blockchain now boasts more than 11.5 million users, over 350 decentralized applications, and more than 2,300 nodes. It also processes almost 4,300 transactions per second. Despite all that, Solana claims to be net carbon neutral.

In this AAG Academy guide, we’ll explain Solana and its proof-of-history (PoH) concept in more detail, and look at how it compares to Ethereum. We’ll also cover Solana’s biggest benefits and drawbacks, and answer some of the most common questions users have about the project.

How does Solana work?

Solana is a decentralized blockchain network that relies on a proof-of-stake (PoS) consensus mechanism combined with its own unique proof-of-history (PoH) concept. Much like Ethereum, its blockchain hosts a growing number of DApps with a wide range of features and functions, including those associated with NFTs, decentralized finance (DeFi), and more.

Solana has a native cryptocurrency, SOL, with more than 350 million coins now in circulation. Like many cryptocurrencies, SOL has limited annual issuance and the supply of new coins is decreased every year — until it reaches a minimum of 1.5%.

Solana and the proof-of-history (PoH) concept

Although Solana currently processes fewer than 4,300 transactions per second, it is actually capable of handling up to 65,000. That’s largely thanks to the unique PoH concept mentioned above, which uses a combination of clock synchronization and cryptographic proofs to verify the time of transactions against a trustless passage of time in the public ledger.

The PoH mechanism was first detailed by Solana co-founder Anatoly Yakovenko, who described the concept in a 2017 whitepaper. Yakovenko noted that publicly available blockchains at that point did not rely on time, and that each of the nodes on the network had to rely on its own local clock with no knowledge of the time kept by other participants.

This posed a problem, Yakovenko stated. Without a trusted time source, it was not possible to guarantee that every node on the network would make the same decision over whether a transaction should be accepted or rejected based on its timestamp. PoH solves this problem by working closely alongside Solana’s PoS consensus mechanism.

PoH works by timestamping transactions with a hash that guarantees when they occurred — or when a block was created. Every new block contains the timestamp from the previous block, so you end up with an unbroken chain of transactions with a verifiable sequence. This allows us to measure time between two blocks, and makes it impossible to add a block in the wrong place.

We can use a simple example to explain how this works: Let’s say you attended the Super Bowl in February, and while you were there, you took a photo. This image itself is proof that the photo was taken during the event. It couldn’t have been taken before or after the event because the stadium would be empty and they likely wouldn’t have let you in.

Now let’s say you have another photo taken at a World Cup final in December. We can not only guarantee that this image was taken before the Super Bowl photo, but we can establish exactly how much time passed between the two. Put a bunch of photos like this in an album that forces them into chronological order and you cannot take one photo and put it in a different place.

Solana vs. Ethereum

Why is PoH important? Well, it not only makes the blockchain lighter, but it also significantly reduces the time it takes to process transactions. This makes Solana considerably faster than its biggest competitor, Ethereum, which not only enhances its scalability, but also means that its fees are a lot smaller. This makes Solana a better choice for frequent transactions.

As we mentioned above, Solana is capable of processing up to 65,000 transactions per second because of its speed and efficiency. In comparison, Ethereum by itself can only process around 30 transactions per second, while Bitcoin — which uses the much more intensive proof-of-work (PoW) consensus mechanism — can only process around seven transactions per second.

However, Ethereum has some advantages of its own. As the second-biggest cryptocurrency project on the planet in terms of market value, Ethereum has a far greater number of users than Solana, as well as a significantly larger number of DApps — around 10 times as many. This is partly due to the fact that Ethereum has been available for longer, having launched in 2015.

Ethereum also uses the same PoS consensus mechanism as Solana following “The Merge” in September 2022, which eliminated the blockchain’s dependency on mining. This reduced its energy consumption immensely and made Ethereum just as environmentally friendly.

What are the benefits of Solana?

As we touched upon above, the biggest benefits of Solana are its speed, efficiency, and affordability. It is one of the fastest blockchain networks on the planet, and the average price of a transaction is a little as $0.00025. That’s much less than Ethereum’s average transaction fee, which is currently around $0.9, which makes Solana an ideal choice for those who need to process many transactions, or make many transfers, as quickly as possible.

What are the drawbacks of Solana?

Solana’s biggest drawback is its size. Given that it has only been operating for a couple of years, it is a considerably smaller network than Ethereum, despite the fact that it is now the ninth-most valuable cryptocurrency project in the world. Not only does Solana have fewer DApps than Ethereum, but it also has only 3,400 validators versus Ethereum’s half a million.

This can mean that you will often want to use DApps that simply aren’t compatible with the Solana blockchain. In that case, Ethereum may be the only option.

It also means that Solana and its PoH concept, although powerful and promising, is yet to really be put to the test on a massive scale. As things stand, a number of vulnerabilities have already been discovered in the PoH system, and there is some concern that others could surface as the number of active Solana users grows even larger.

References

• What is Solana (SOL) and How does SOL Crypto Work?
• Solana blockchain and the proof of historyl
• Proof of history a clock for blockchain
• Solana vs ethereum