Cryptocurrencies are necessary today, but it isn’t that simple to keep up with them due to the numbers, how much they are worth or not, how to buy them, when is the right time to purchase them, etc.
It is quite exhausting to work around this old yet new way to make money and get the most out of it, but if you don’t want to continue making a pass and miss the big opportunity it represents, here’s a piece of advice: Start by learning about the cryptocurrencies before you decide to purchase or trade.
Solana (SOL) is one of the most popular today, and you should definitely keep an eye on it if you are looking for a low-cost currency with lots of potentials to become a big investment.
Since we’ve covered several cryptocurrencies so far, including the popular Bitcoin and Binance, we will take our time with this one as well and offer an alternative for those who don’t have that much money to invest (and you will get introduced to this world as well).
What Is Solana (SOL)? Making It Simple
We won’t complicate your life, so expect us to keep the explanation as simple as possible and go over some concepts you might not be familiar with or could be confusing to what you’ve known so far.
First, we need to start with Solana alone and exclude the part of SOL for now.
Solana is a platform that uses blockchain to enable decentralized apps just like other cryptocurrencies, but it has its benefits over several decentralized platforms so far.
It is an open-source project that is maintained by the Geneva-based Solana Foundation and developed by Solana Labs in San Francisco.
Among all the decentralized platforms in the currencies, Solana is competing directly with Ethereum, the largest decentralized app platform to this date.
For it, Solana promises faster operations and lower transaction fees. It is a PoS blockchain (proof-of-stake), which makes it more eco-friendly than PoW (proof to work) blockchains like Bitcoin, which is part of the main reason investors consider it a better option in the short and long term.
Here we enter the part you must keep in mind: Its native cryptocurrency, Solana, has the ticker SOL, which means it isn’t the same to refer to Solana and SOL overall.
To simplify the explanation, Solana is a web-scale blockchain that provides secure, decentralized, and scalable apps and marketplaces, making it easy to operate and bringing several users.
To this date, the system supports transactions per second of 50,000 and block times of 400ms each.
But How Does It Work?
Going back to what we were mentioning about PoS, we have to stop there for a minute and review what you must know about it.
First, what is so special about PoS?
Simple, a decentralized blockchain system uses many computers (nodes) to validate transactions.
To take over the network, a bad actor could add many nodes. This can be stopped by making the computers that run the network hard to work by solving a math puzzle, and this makes it more expensive to attack the network.
This system is what we know as proof of work. However, the network can still consume a lot of electricity.
Another way is to make validator nodes on a network have something to stake.
In Solana’s instance, they will need to stake SOL tokens. While validators on Solana’s network use power to function, their power consumption is much lower than that of Bitcoin miners, making it a great alternative for ecological investors and reducing consumption exponentially.
Both PoW or PoS mechanisms reward validators and miners for their efforts.
Bitcoin miners receive BTC, and validators on Solana are rewarded with SOL. End users do not have to operate a validator node in order to receive rewards. They can instead delegate their stakes to validators which will then pass on the rewards for a fee.
The PoW mechanism in Bitcoin also acts as a clock, ensuring that all nodes can agree on the order of transactions.
This is not as simple in PoS systems. Solana uses Proof of History technology that it claims allows the network to determine the time and date of transactions more efficiently.
Solana claims that this and other innovations make the network more secure and perform better over other blockchains.
Modern blockchains all use PoS. However, Solana is not the biggest competitor to Ethereum. Ethereum still relies upon PoW, but it’s currently switching to PoS.
From the end-user’s perspective, Solana is a place that allows you to use SOL for interaction with different decentralized apps. Many of these apps are related to finance.
You can lend, borrow, trade crypto, or invest in different assets. Some apps allow you to buy and sell NFTs, or even find a partner.
With this in mind, we can set a simple scheme for you to understand the steps of how Solana works:
- Input transactions to the Leader.
- The leader will arrange the messages and order them efficiently to be processed easily by other nodes or computers.
- The leader will execute the transactions regarding the current state stored in the RAM.
- The leader will then publish transactions and the signature of the final status to Verifiers, which are the replication nodes.
- Verifiers will execute the same transactions on copies of the state and publish their signatures if the state receives confirmation.
- Published confirmations will vote on the consensus algorithm.
Where Is SOL Left?
Since we introduced it briefly as the native currency of the platform, it won’t be too difficult to understand its role, just like with Bitcoin, Ethereum, and other decentralized blockchains.
With the acronyms of SOL, this token is known as the “solar” cryptocurrency of the moment.
The token can be used to exchange on-chain programs and validating output with other nodes in the Solana cluster.
SOL can also be used to make micropayments, imports, and the current circulating supply of the currency is 26 million, yet SOL’s maximum supply is 489 million.
Of course, other uses for the native currency apply.
You can stake the token to get additional rewards, for example. If you are looking to make a profit with your tokens, then staking can be a great way to do so, and it is quite simple:
- Transfer tokens into a wallet that supports stake.
- Make a staking bank.
- Choose a validator from Solana’s validators.
- Give your stake to the validator.
Background: Behind the Currency
With the basics clear and the concept of how to use the blockchain and currency (SOL), we can go back to when it was designed.
Solana is one of the newest decentralized platforms in the market, which is why its history isn’t that much of a big deal in terms of length and how complicated it is.
Anatoly Yakovenko published Solana’s whitepaper in 2017.
He previously worked for Qualcomm and Dropbox and was a specialist in the design of distributed systems and compression algorithms.
Going back to Solana, this paper described Proof of History, which was a new timekeeping technique for distributed systems that could automate transaction ordering for blockchain networks and was introduced by Yakovenko.
With a huge project in his hands, Anatoly joined forces with Greg Fitzgerald, his former Qualcomm colleague, to create a blockchain testnet based on proof-of-history, as we have explained before.
When done, this testnet was released for the first time in February 2018.
Yakovenko and Fitzgerald founded the company behind Solana (originally called Loom) and Stephen Akridge followed shortly.
To avoid confusion with Loom Network, the most popular multichain interoperability solution, they rebranded the company as Solana Labs later on.
Multicoin Capital led a $20 Million Series A round of funding for Solana Labs in July 2019. Solana launched its beta mainnet in March 2020 with basic transaction capabilities.
Solana Labs is the current core contributor to the network. At the same time, The Solana Foundation is a non-profit organization located in Zug, Switzerland, that funds and develops the blockchain’s community-building projects.
Now, what led these people to actually work around this project? They wanted to establish a trustless, distributed protocol that would enable more scaling.
Due to how positive the reputation of Solana is due to how the platform works and the main cores, which we will review later, the team is currently supported by top companies such as Apple, Qualcomm, and Intel, Microsoft, Twitter, and Dropbox.
Many investors were also attracted to Solana’s impact, including Multicoin Capital and Foundation Capital, SLOW Capital, and Abstract Ventures.
What Makes Solana Special?
With so many cryptocurrency options and blockchain platforms, it can be a bit tough to understand why people would choose one in specific above others.
Since we get that Solana is very recent even though it is booming right now, it is common to have your doubts about what makes it a good investment.
This is why we will cover the main innovations of the platform and currency:
- Proof of History (PoH).
PoH, despite its name, is not a consensus mechanism. It is a cryptographic clock that allows nodes to agree on the order of events on the chain without communicating with each other. Basically, each node has its own clock.
PoH allows for greater efficiency and throughput in the network. It stores historical transactions and allows the system to track the order of events better.
This is why it is known for being much more effective and behind the main popularity for Solana.
- Tower BFT.
Tower BFT is Solana’s implementation of pBFT, which is practical Byzantine flaw tolerance optimized for PoH.
This consensus algorithm uses the cryptographic clock to reach consensus without the need to send many messages between nodes. It improves transaction speed.
- Gulf Stream.
Gulf Stream allows Solana to achieve 50,000 TPS.
This protocol is responsible for transaction caching and forwarding them to edge networks.
This allows network validation to perform transactions before they are completed, greatly reducing the time required for confirmation and memory requirements on validators.
- Turbine.
The turbine is a block propagation protocol. It breaks down data into smaller chunks, making data transfer between nodes easier.
Turbine assists Solana in addressing bandwidth issues and increasing the network’s overall transaction processing speeds.
- Sealevel.
This parallelized transaction processing engine allows Solana horizontal scaling across SSDs and GPUs.
Sealevel allows concurrent transactions on the same chain. This results in a faster runtime for the network.
- Pipelining.
The common method in CPU design is Pipelining. This refers to the act of assigning input data streams to different hardware to be processed.
This allows transaction information to be quickly replicated and validated quicker across nodes in the network.
- Cloudbreak.
Cloudbreak is a data format that allows for network scalability.
It organizes the accounts database, making concurrent reads/writes between 32 threads of the network possible.
- Archivers.
Solana’s validators transfer the data to a network known as Archivers. Archiver nodes are either basic laptops or powerful PCs that the network uses to store data.
Finally, since the platform and currency are direct competitors of Ethereum, the uses are the same, including the common cryptocurrency transactions and payments, creating smart contracts, and accessing decentralized apps and options without relying on central banks.
However, the trick is to offer a more efficient, quicker, and effective platform to bring up those operations for much lower costs.
One of the best parts? It allows people to transfer money without third parties involved in the process.
To this date, the Solana price stands at $160 but can always change due to the usual price volatility in the market.
Investing in Solana (SOL)? Or Is There Something Better?
Investing in cryptocurrencies isn’t a bad idea overall. The only issue is that this market is quite volatile, and it can be hard to keep up with it to the point of losing money when you could be earning it and all the aspects of market capitalization.
Even when we explained Solana so far, this niche isn’t about a currency alone, and even when you could just choose to invest in it and no more, you have to focus on how good it is every single day.
Of course, you can start with a very low investment and see how it goes, but will you just keep doing this in the long run? It doesn’t feel right.
Although we invested in currencies and decided to be part of this market, we believe local lead generation is more profitable and cost-effective than traditional methods.
You don’t have to take too much risk and are not betting on a business that is dependent on you.
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But how does this option work? Is it truly that simple?
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