Crypto investors have always complained about the scalability of Ethereum, the second most popular cryptocurrency.
Transacting on the Ethereum blockchain is generally cost-heavy as users have to “pay” some Ethereum to the “blockchain engine” for computing the transaction.
This payment is called a “gas fee” and is prevalent in every crypto transaction that involves Ethereum.
Over the years, a couple of coins and blockchains have been built to serve as the replacement for Ethereum. They are supposed to have the openness, versatility, and adaptability of Ethereum while keeping gas fees to a minimum or even removing the need for it totally.
Solana is one of those coins. It is one of the most successful coins built to rival the established Ethereum.
Solana was conceived as far back as November 2017 but was properly established in April 2019 by blockchain developers, Anatoly Yakovenko, Greg Fitzgerald, and Stephen Akridge under the company name, Loom. Loom is now called Solana Labs.
When Solana was built, blockchain transaction speeds were limited to around 15 per second, a very slow process compared to top fintech giants like Visa and Mastercard, which could process about 65,000 transactions per second.
Yakovenko wanted to solve this problem of already existing blockchains and build one to meet peak demand on a global scale. Today, Solana claims it processes 65,000 transactions per second, and it is one of the most used blockchains due to its speed and cheap transaction costs.
Solana had a great 2021. Bloomberg journalist, Joanna Ossinger, described it as “a potential long-term rival for Ethereum,” citing its superior transaction speeds and lower associated costs.
Crypto investors who bought the coin early saw profits of up to 45,000%. The number looks outrageous, but if you’re not new to the world of cryptocurrencies, you’d know it’s pretty standard for many coins.
In November 2021, the coin hit an all-time high of $250 and a market cap of $68 billion, making it the fifth-largest cryptocurrency by market capitalisation, according to Coin Market Cap.
This massive and unprecedented gain propelled Solana to a top-ten cryptocurrency. Solana got this boost because of the rise in popularity of non-fungible tokens (NFTs).
How Solana works
Solana works with a mixed protocol of Proof-of-Stake (PoS) and Proof-of-History (PoH). The coding language in which it was written is called Rust.
Proof-of-Stake
With PoS, cryptocurrency owners pledge or stake their coins to a validator.
A validator is a computer that confirms transactions on a blockchain. Instead of competing with other computers to solve complex problems like in Bitcoin mining (Proof-of-Work), it just validates already existing transactions.
The system randomly chooses validators to add the next block of transactions on the blockchain and confirm attempts by others to create new blocks. The idea behind PoS is to gauge each participant’s commitment level and reward them for their dedication.
Proof-of-History
Proof-of-History is a method for showing that transactions are in the correct sequence. The Solana blockchain is broken into periods where a validator confirms a transaction and produces a block. A validator is chosen to be a “leader” of a period through the PoS mechanism based on the quantity of SOL held.
Solana’s tokenomics
The Solana blockchain currently has 315,100,273 SOL coins in circulation with a total supply of 511,616,946 SOL.
The coin is distributed by 95% of issued tokens going towards validator rewards and 5% reserved for operating expenses.
Where to buy Solana
Solana can be bought on most centralised and decentralised exchanges.
Solana use cases
Payments
Solana was built to function on a large scale and carry out transactions in seconds. Its local token, SOL, is already being used as an accepted form of payment between crypto heads.
However, SOL is very volatile, and the price keeps fluctuating. As of the time of this publication, the coin is worth less than half of its $230 all-time high, according to data from Coin Market Cap.
Decentralised Finance (DeFi)
Due to the public nature of the Solana blockchain, it is easy to build decentralised apps (DApps) based on it. Decentralised Apps are used to support Decentralised Finance transactions.
Decentralised Finance (DeFi) is a new financial system based on the blockchain that allows individuals to transact directly between themselves, without the need for a central authority or intermediary, thereby disrupting the banking industry and the entire traditional finance sector.
DApps are applications that are built on the blockchain and operate with its technology.
These apps allow you to perform DeFi transactions from anywhere globally as long as you have an internet connection. The Solana blockchain powers a lot of DApps, thereby supporting DeFi.
Solana owners can also “stake” their SOL for the opportunity to earn more in the future. Staking involves locking up coins while they’re used by anonymous crypto traders/crypto platforms who trade your coins and give you profit.
Non-fungible tokens (NFTs)
The most popular use of Solana has been as a replacement for Ethereum NFTs. Solana has the global scalability which Ethereum doesn’t have when it comes to transactions.
Minting, which is the process of making a new NFT, is also cheaper on the Solana blockchain; the average transaction fee on Solana is just $0.00025. NFTs are digital assets that represent real-world objects like pictures, art and music. Each NFT has a unique digital signature and cannot be exchanged for another.
Pros of Solana
Speed
Solana was built to rival Ethereum based on transaction speed and scale. The company responsible for the blockchain has claimed that it can validate 65,000 transactions per second, one of the fastest speeds in the cryptocurrency industry. For context, Ethereum can only do about 15 transactions per second.
Potential
Due to its current price, there is still a lot of potential for Solana. Crypto investors widely believe that, just like Bitcoin and Ethereum, the price of one SOL will rise to $1,000 and even $10,000.
NFTs and DeFi
Solana’s blockchain allows it to comfortably host NFTs and decentralised applications without the fear of enormous gas fees that come with other blockchains.
Investors
Solana is backed by some of the most prominent venture capital firms in the crypto space: a16z, CoinShares, Alameda Research, Coinfund, and Parafi Capital.
The reputation of its investors and the money they have gives Solana solid backing in the crypto industry.
Cons
Lack of decentralisation
Solana lacks proper decentralisation because of how the blockchain is set up. The PoS validation allows the network to keep the distribution of the coin close-knit and centralised.
For context, the Ethereum network has over 200,000 validators, but the Solana network has less than 1,000 validators to date. The more the number of validators, the more secure the network.
Fewer projects
As a relatively young network, Solana is still struggling to list projects on its blockchain.
It claims to have about 350 projects on its network, including decentralised finance, NFT projects, and gaming apps. Ethereum, which it is supposed to replace, has multiple of such projects, even full-blown blockchain projects on its chain.
Inflation
Most cryptocurrencies have a hard cap on how many coins will ever exist. Solana has no fixed supply of coins.
The Solana creators have steadily increased the yearly supply of SOL tokens by 8%, which means that the inflation rate will decrease by 15% until it is 1.5%, and then it will cease to decrease beyond that point.
Network instability
Solana’s blockchain is still shaky because it’s still in its early stage. The crypto’s reputation took a hit when the network experienced some instability and got hacked in 2021.
Since Ethereum’s blockchain is more stable, it is unclear if SOL will replace it soon.
Solana is a cryptocurrency with a lot of potentials and might rise to be a more important player in the crypto ecosystem. However, the opinions that it will actually “kill” Ethereum, in the long run, are speculative and yet to be seen.
