Breaking Blockchain’s Speed Limit: Explaining the Solana Cryptocurrency

In crypto, Solana (SOL) is synonymous with speed. Not only does the Solana blockchain boast one of the quickest confirmation speeds at 65,000 transactions per second (TPS), but it’s also one of the fastest-growing ecosystems in web3. In June 2020, Solana had a market cap of $10 million; at the end of 2021, that number swelled to more than $70 billion. Despite competition from other blockchains in the smart contract field, Solana continues to hold its own and attract developers interested in building decentralized applications (dApps).

Discover why Solana continues gaining momentum in cryptocurrency and the unique features it brings into web3. 

Solana’s history

According to programmer and former Dropbox engineer Anatoly Yakovenko, Solana’s story began as a “caffeine-induced fever dream,” where he envisioned a new coding standard to solve scalability issues plaguing other cryptocurrency projects. Yakovenko penned his proposal for a new blockchain called “Solana” in a 2017 whitepaper and later teamed up with entrepreneur Raj Gokal to form the company Solana Labs. 

After multiple funding rounds, Solana Labs launched the beta Solana blockchain in 2020 and has since welcomed third-party developers to build dApps within its ecosystem. In addition to Solana Labs, the non-profit Solana Foundation organizes development and fundraising for the Solana ecosystem. 

How does Solana work?

Solana uses a unique consensus mechanism called Proof-of-History (PoH) alongside the more popular Proof-of-Stake (PoS) found on blockchains like Ethereum (ETH) and Cardano (ADA). Like PoS, computers (aka nodes) on Solana must lock (or stake) the native SOL coin onchain to participate in transaction validation and receive crypto rewards. PoH creates timestamps for transactions on a separate network to speed up the validation process. The PoH framework, when combined with PoS, enables Solana to process transactions more swiftly because it reduces the wait time for traders seeking full network confirmation for their coin transfers.

The Solana blockchain also uses pre-programmed commands called “smart contracts” that let third-party developers create intermediary-free web experiences. Smart contracts scan the Solana blockchain’s state and react to specific conditions according to their code. By combining smart contracts and PoH, Solana provides developers with an intermediary-free platform to create dApps in fields like decentralized finance (DeFi) with fast transaction throughput.

Solana FAQs

What is the SOL coin? 

The native cryptocurrency on the Solana blockchain, SOL plays a role in securing the network through staking, incentivizing nodes with rewards, and paying transaction costs (aka gas fees) when transferring crypto. Since SOL is a fungible cryptocurrency, the Solana price is divisible and has a 1:1 market value. The price per Solana coin is viewable on real-time Solana price charts on popular crypto exchanges or price aggregator websites. 

How do traders use Solana? 

Anyone interested in exploring Solana’s ecosystem first needs a self-custodial Solana-compatible crypto wallet like Phantom. Traders also need SOL in their crypto wallet to pay gas fees when interacting with the Solana mainnet. After setting up a Solana wallet and loading it with SOL, traders link it to a Solana dApp and use their funds to trade, lend, or participate in any other web3 activities.   

What makes Solana so fast? 

Two significant technologies behind Solana’s speed include the Proof-of-History (PoH) consensus algorithm and parallel processing. PoH creates a verifiable record of time with irrefutable “timestamps,” while parallel processing helps batch multiple transactions for speedier processing. By leveraging the passage of time and efficient transaction batching procedures, traders don’t have to wait for a complete network confirmation every time they transfer cryptocurrencies. 

Disclosures

The content of this article (the “Article”) is provided for general informational purposes only. Reference to any specific strategy, technique, product, service, or entity does not constitute an endorsement or recommendation by dYdX Trading Inc., or any affiliate, agent, or representative thereof (“dYdX”). Use of strategies, techniques, products or services referenced in this Article may involve material risks, including the risk of financial losses arising from the volatility, operational loss, or nonconsensual liquidation of digital assets.  The content of this Article does not constitute, and should not be considered, construed, or relied upon as, financial advice, legal advice, tax advice, investment advice, or advice of any other nature; and the content of this Article is not an offer, solicitation or call to action to make any investment, or purchase any crypto asset, of any kind.  dYdX makes no representation, assurance or guarantee as to the accuracy, completeness, timeliness, suitability, or validity of any information in this Article or any third-party website that may be linked to it.  You are solely responsible for conducting independent research, performing due diligence, and/or seeking advice from a professional advisor prior to taking any financial, tax, legal, or investment action.

You may only use the dYdX Services in compliance with the dYdX Terms of Use available here, including the geographic restrictions therein.

Any applicable sponsorship in connection with this Article will be disclosed, and any reference to a sponsor in this Article is for disclosure purposes, or informational in nature, and in any event is not a call to action to make an investment, acquire a service or product, or purchase crypto assets.  This Article does not offer the purchase or sale of any financial instruments or related services.

By accessing this Article and taking any action in connection with the information contained in this Article, you agree that dYdX is not responsible, directly or indirectly, for any errors, omissions, or delays related to this Article, or any damage, injury, or loss incurred in connection with use of or reliance on the content of this Article, including any specific strategy, technique, product, service, or entity that may be referenced in the Article.