Everything You Need To Know About Solana

This article explains everything you need to know about Solana. A must-read for everybody who doesn’t know what Solana is and how it works.

The Solana Blockchain has been a topic of much talk lately, and once again everyone is questioning whether it will be the Ethereum "killer". Regardless of your opinion on it, we think it's worth a closer look so that you can make your own decision as to whether it’s worth looking into further.

We created this easy-to-digest blog post outlining everything you need to know about the Solana blockchain project. We want to take a close look at the Solana Blockchain and show its advantages and disadvantages. We also talk about what we think of the project and what's coming up in the next few years.

🧠 What's Solana?

Solana is a blockchain for building decentralized applications (dApps) and smart contracts, including non-fungible tokens (NFTs). Native to Solana’s blockchain is the SOL token which can be used to transfer value and provides network security through staking.

It was created in 2017 by Anatoly Yakovenko, who also serves as Solana Lab's CEO. Yakovenko came from a background in system design and wanted to use his knowledge by creating a blockchain with faster processing speeds.

Solana’s blockchain is based on a hybrid protocol of proof-of-stake (PoS) and proof-of-history (PoH).

8 Important Innovations used in Solana

Tower BFT - A PoH-optimized version of Practical Byzantine Fault Tolerance (PBFT).
Turbine - A protocol for block propagation
Gulf Stream - Transaction forwarding protocol without a mempool
Sealevel - Parallel runtime for smart contracts
Pipelining - A transaction processing unit for validation optimization
Cloudbreak - Horizontally scaled account database
Archivers - Distributed ledger storage

Don't worry if you didn't understand anything right now. These terms go deeper into the technical implementation and functionality of the blockchain. If you want to know more, look up these terms. The important thing is that you have already heard the terms once and recognize them when someone is talking about them.

💎 Proof of Stake

Proof-of-Stake (PoS) is an alternative consensus mechanism for public blockchains. Instead of the hash rate, the stake of a user is crucial for the proof-of-stake mechanism. The “stake” is a certain number of tokens assigned to the user's own validator node. The larger the stake, the more likely it is that this user will be selected to validate the next block. Broadly speaking, the proof-of-stake mechanism can be compared more to a public company compared to proof-of-work - whoever owns a larger share in the company normally receives more voting rights that entitle them to make decisions.

Nevertheless, an important difference is that in the proof-of-stake mechanism, a random algorithm is used for the consensus-building of a blockchain network. This draws a participant who subsequently has the right to mine the block. In simple terms, each token is then a winning ticket - consequently, users with a higher stake (= more tickets) also have a higher probability of being selected.

Therefore, it is possible to stake Solana Coins to participate in the validation of the blockchain. Staking can take place directly. Then the corresponding user account applies itself to participate in the network as a validator. In addition, however, indirect staking via delegation is also possible. Solana has an integrated delegation mechanism that allows SOL holders who only own small amounts to earn interest on their balances. Via delegation, it is possible to support selected validators with their own SOL credit balance.
Initially, about 8% interest per year was paid out for staking. This interest rate has been gradually decreasing since then until it is expected to settle at around 1.5% around the year 2027.

⚡️ Proof of History – an innovative approach to creating a new blockchain

Proof of History (PoH) is a process that is intended to help significantly reduce the validation time in the Solana blockchain. For this purpose, transactions are directly provided with a cryptographic hash, as it is normally used for the linking of blocks of a blockchain.

ℹ️ What’s a hash?

A hash, simply put, is a function that takes a bunch of data (the input) and spits out a small fixed-size output. For example, a text, such as your full name, can be hashed into a fixed, tiny amount of data. The usefulness of these functions lies in their security. Regardless of the input data, there is no way to predict the exact output - you have to run the entire function to actually know the output (this is the cryptographic part of why blockchain technology works and is very difficult to "hack").

In the case of a blockchain, this is, among other things, the content of the previous block, whose checksum is included in the subsequent block. In the Solana network, the hash of a previous transaction is directly included in a new transaction.

The transactions chained together in this way are subsequently verified and thus bundled and ordered for long-term verification. This is called proof of history. This increases the security of the system. The hybrid approach taken by Solana helps to utilize the computing power available to the network as much as possible. This greatly reduces transaction costs. A typical transaction only costs $0.00001 to $0.001.

Here is a video from Solana Labs:

🔍 The SOL Token

SOL is the name of the native coin of the Solana blockchain. A total of about 489 million Solana Coins were circulated at launch. However, Solana is inflationary in nature, so the total supply will continue to increase over time.

Source: https://docs.solana.com/inflation/inflation_schedule

Find more about Solana's inflation schedule here.

The use cases of the SOL token are:

Staking
Transaction fees (e.g., for running smart contracts).
Governance
Transferring value

☠️ Is Solana the Ethereum Killer?

Advantages of Solana	Advantages of Ethereum
Very fast transaction processing Principally no congestion during the processing of transactions Energy efficient	High penetration: Ethereum is already the basis of numerous crypto projects Proven security In the future, similarly energy-efficient as Solana

CryptoExplorer's opinion: Although this term is good for marketing purposes, it was only introduced by the community. We are not aware that the team itself has ever called its project by this name.
We believe there is enough room in the market to have multiple smart contract blockchains that differ in use cases and features. For this reason, some members of the CryptoExplorer Team have Solana in their portfolio.

☀️ The Solana Landscape

The Solana ecosystem is still relatively small, and there are still few large projects on this chain. Also in the NFT area, there are a lot of projects, but there are very few successful projects with high volume compared to the Ethereum ecosystem.

Top DeFi Projects

Orca
Saber
Serum
Drift Protocol
Raydium
Mango

Top Lending Protocols

Apricot Finance
Francium
Solend
Port Finance
Jet Protocol
Tulip Protocol

Top NFT Marketplaces

Metaplex
Solanart
Solanalysis
Magic Eden
Solsea
DigitalEyes Market

Top Web3 Apps

Audius
Grape Protocol
Squads
Wum.bo
Brave Browser
Bonfida

Source: https://solana.com/ecosystem (as of Mar 22, 2022)

Top NFT Projects

Degenerate Ape Academy

The Degenerate Ape Academy is an NFT brand housed on the Solana blockchain. The academy consists of 10,000 degenerate ape NFTs.

Volume: 1.09m SOL

Aurory

The villagers from the whole country have gathered in Neftiville for the party, meet the Aurorians.

Volume: 584.66k SOL

SolPunks

SolPunks are one of the very first NFTs on the Solana blockchain. Each of these 10,000 SolPunks has attributes that make them unique according to a defined rarity system.

Volume: 423.65k SOL

Galactic Gecko Space Garage

In the distant future, mercenary geckos battle via brutal galactic races. Join a gecko faction and decide the fate of the cosmos.

Volume: 284.30k SOL

Bold Badgers

Bold Badgers are 10,000 generative badgers NFTs.

Volume: 214.56k SOL

Frakt

Frakt is a generative fractal art NFT collection combining fractals, math and blockchain with 10,000 unique art pieces.

Volume: 191.08k SOL

Source: https://solanart.io/collections (sorted Volume High to Low)

📈 How to Buy and Store SOL Tokens

Now that you know what Solana is and what the future may hold, you probably want to know how to buy SOL tokens and keep them safe. Let's start with how to buy Solana.

To do this, you need to use an exchange. There are many different exchanges and each has its own advantages and disadvantages. For beginners and people who want to buy Solana using fiat (Euro, USD, ..), we can recommend Coinbase. If you don't know how to buy and sell on Coinbase, you should try our "Bitcoin Starter" course, it's free! There you will learn how to buy any cryptocurrency listed on Coinbase.

After you buy your Solana, it's a good idea to store them in an external wallet. Because remember:

"Not your keys, not your coins".

This means that if you don't have the private key to your wallet, you don't own the funds in it. With a centralized exchange, the money is in a company wallet, which is not a problem if you trade your funds or only hold them for a short period of time. But in the long term, you are exposing your assets to risks associated with the exchange. The exchange can be hacked or regulatory issues can cause your assets to be frozen.

That's why we recommend using your own wallet. You can either use a software wallet like SafePal or for maximum security, a hardware wallet. To move your funds from Coinbase to your wallet, watch the video in the Bitcoin Starter Course on our website. You'll see it's super easy once you know what to do!

🎯 Takeaways

Solana offers a convincing technical platform but is a bit late. It will be a challenge to compete against the already existing alternatives. Ethereum and Co. have the advantage of having occupied the market as first movers. Nevertheless, SOL is now one of the 10 largest cryptocurrencies in the world by market capitalization.

We think the platform will find a way to compete against the competition, at least in certain niches. Therefore, those who want to diversify their crypto portfolio a bit should definitely keep an eye on Solana and the Solana token. Thanks to the staking mechanism, the coin is even generating considerable interest at the moment.

Categories: Guide

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