Blog Crypto How the Solana Network Works: A Look Under the Hood

How the Solana Network Works: A Look Under the Hood

date April 17, 2022 time 5 min read 527 views

Billed as the next Ethereum, the Solana network had a stellar 2021, with its token reaching a high of $250. While the price has fallen since then, it still retains a strong reputation. Is the reputation deserved, and will it be a good long-term investment?

Solana coin review

Solana (SOL) is the native cryptocurrency and utility token used to power the Solana Network. It’s primarily used to secure the network through staking and paying transaction fees and as a means of transferring value. Holders of solana can become network validators and support the consensus process needed to run the blockchain.

Solana’s fast-growing and controversial network is a highly functional open-source cryptocurrency platform that provides decentralized financial solutions powered by blockchain technology. Its unprecedented transaction speeds and low fees have made it a potential successor to Ethereum.

Solana is a decentralized blockchain built to enable scalable, user-friendly apps for the world.
Solana is a decentralized blockchain built to enable scalable, user-friendly apps for the world. (Source: Solana.com) 

The network was founded in 2017 by Anatoly Yakovenko in collaboration with some of his colleagues from Qualcomm. Borne out of the need for speed, Solana aims to make decentralized finance accessible on a larger scale by providing faster transaction speeds and cheaper fees. The Solana Foundation currently runs Solana.

Solana coin usage

Outside paying transaction fees and functioning as the “gas” that keeps the Solana Network running smoothly, most people who are passionate about the project purchase solana coins to support the development of smart contract platforms.

You can also:

  • Trade solana coins like any other cryptocurrency in the market and profit based on the difference in buying and selling prices.
  • Use it as a store of value.
  • Buy NFTs on the Solana marketplace.
  • Stake to earn interest while contributing to the network’s security and smooth operation. Depending on the validator node, staking rewards go as high as 6.35% APR.

Solana is a valuable utility token with real-world applications and benefits, making it one of the largest cryptocurrencies by market capitalization.

Solana coin price history

Similar to other cryptocurrencies, solana raised over $25 million in funding. It had five funding rounds between 2018 and 2020, with the public ICO in March 2020, where 8 million SOL sold for $1.76 million at $0.22 per coin.

Solana quickly climbed over 500% from $0.22 to $1.33 within hours of launching on Binance. It was even the highest volume BTC pair for 24 hours before settling in the top five.

Solana quickly climbed over 500% from $0.22 to $1.33.
Solana quickly climbed over 500% from $0.22 to $1.33. (Source: CoinMarketCap)

The hype soon cooled and maintained a steady $0.70 until it hit its all-time low of $0.50 in April 2020. Solana’s price increased to $55, before it experienced a spike and hit its all-time high of $260 in November 2021. Solana’s price dipped during the bearish market from February 2022, maintaining an average price of $95.

At the time of writing, solana’s coin price is $115.83. With a 24-hour trading volume of over $3.3 billion and a market cap of $37.7 billion, solana currently ranks 7th among the most prominent cryptocurrencies ranking. It could well surge again with the emergence of NFTs, potentially being the next cryptocurrency to explode in 2022.

Where to buy solana

You can get solana in several ways. You can receive it as a gift, payment for service or products – like NFT, or you can exchange it with other currencies from popular cryptocurrency exchanges.

Solana is a freely-tradable token on major exchanges like Binance, Coinbase, FTX, Bilaxy, and Huobi Global with good liquidity. You can also store your tokens on these exchanges, but it’s safer to store your assets on a private cryptocurrency wallet like Trezor or Trust Wallet. Hardware wallets are the safest way to store your cryptocurrency assets.

The Solana Foundation’s founders’ goal to make decentralized finance accessible on a larger scale by providing faster transaction speeds and cheaper fees birthed this juggernaut that has shown significant growth and has won the hearts of millions of investors globally. But how does it work?

How does Solana work?

In a bid to create a new blockchain paradigm that enabled faster processing speeds, Yakovenko realized that the lack of standardized and synchronized clocks on publicly available blockchains. This meant each node on the network relied on its local clock without the knowledge of any other participants’ clocks.

This problem resulted in bottlenecked processes where nodes had difficulty functioning. This is because there was no guarantee that every other participant in the network would make the same choice when a timestamp was used to accept or reject a message.

Proof-of-history, the innovative solution

Solana created a cryptographically trustless time source while building a blockchain around it known as the proof-of-history to get past this hurdle.

With proof-of-history, nodes in the network can verify events’ time and order without directly witnessing them. It helps reduce the messaging overhead by weaving a standardized timestamp into the Solana Blockchain. This concept allows for greater scalability of the protocol, which boosts usability.

Thanks to the combination of Yakovenko’s proof-of-history (PoH) and the underlying proof-of-stake (PoS) consensus mechanism, Solana successfully allows for greater scalability of the protocol, which boosts usability.

The proof-of-stake consensus is used as a monitoring tool for the proof-of-work processes, and it validates each sequence of blocks produced by it. The combination of two consensus mechanisms makes Solana a unique phenomenon in the blockchain industry.

Solana’s innovative technology has resulted in a high-throughput blockchain supporting about 65,000 transactions per second. Besting globally recognized decentralized payment processors like Visa, processing 24,000 transactions per second. Its rival, Ethereum, only processes 15 to 45 transactions per second at extremely high fees.

Solana’s skillful use of smart contracts, proof-of-history, and proof-of-work consensus mechanism has made it the preferred network among small-time users and enterprise customers who want low transaction costs, guaranteed scalability, and fast processing.

The journey ahead

While Solana has received praise for its performance, the network has also been under scrutiny and the subject of controversies. 

The network has suffered repeated outages, and claims by skeptics that it sacrificed decentralization for speed have reduced some investors’ confidence in its future as the equivalent of Visa in the cryptocurrency world.

However, Solana has had a fantastic 2021, and its supporters are optimistic that it’s ‘going to the moon’ this year.

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