There is a tendency for each cryptocurrency to be unique in a rather crowded crypto market. The likes of Bitcoin can remain in the spotlight for a long time simply because they are the “icebreakers,” but it doesn’t mean there can’t be any breakthroughs.
That is precisely how Solana becomes an instant pick for investors due to its project potential, as well as its price. So, if you’ve stumbled on Solana but are wondering if it is a good digital asset to be invested in, we’re going to dive deeper into how Solana works and what it promises.
What Is Solana?
Solana is a highly functional open source web-scale blockchain with a permissionless nature to provide decentralized finance (Decentralized Finance (DeFi) takes the decentralized concept of blockchain and applies it to the world of finance. Build...) solutions. Solana is the first to develop a decentralized clock by adding timestamps in the verification process of transactions. By doing so, Solana solves scalability issues and provides one of the most efficient blockchains in the crypto market. While the Solana coin (SOL) is the native cryptocurrency users can use to interact with smart contracts and pay transaction fees.
When looking into its origins, Solana was founded by a software engineer — Anatoly Yakovenko. Coming from an extensive tech background, he then came up with this project with a core team including Greg Fitzgerald, Stephen Akridge, and three others that led to Solana Labs’ birth.
The whitepaper for the Solana network was released to the public in 2017. And there were five rounds of initial coin offerings (ICO) held for Solana, which helped them accumulate over $20 million to launch and release the SOL token across the major crypto exchanges.
How Does Solana Coin Work?
Since the Solana Foundation focuses on making decentralized finance accessible on a larger scale, they use the Proof-of-Stake (PoS) consensus mechanism. That also means the mining rate depends on the number of staked coins and the number of coins a node holds. The staking process requires that some of your coins get locked for a certain period of time. Then the network uses the locked coins to improve itself. After the staking period is over, you receive additional coins as interest, depending on the original number of coins you staked.
Similar to the Ethereum network, users can launch their own projects with Solana. These projects can be decentralized applications (DApps) or decentralized finance (DeFi). Such projects need to be created in the programming language called Rust.
What makes Solana so unique is mainly the way to uplift the order of transactions.
PoH is a historical record that proves that an event has occurred at a specific moment in time. It only requires a set of numbers of sequential steps to evaluate and eventually produce a unique output that can be verified publicly.
Unlike Proof-of-Work (PoW) or Proof-of-Stake (PoS) consensus, PoH is not a consensus mechanism but rather a system that enables the verification of transactions through time stamps. Each block of transactions is verified every 400 milliseconds, which is a tick of the decentralized clock of Solana. The timestamps in Solana are possible because of the SHA-256 hash function, in which the output of a transaction is reused as an input for the next hash.
PoH differs from Bitcoin PoW, particularly in how a transaction is being validated and the speed and accuracy of the validation. Unlike PoH, BTC miners with different local times have to constantly look for a valid timestamp for mining a block. Hence resulting in errors and false timestamps.
However, PoH introduces a chain of organized hashes for validators to process; using the latest hashed state of a transaction can significantly reduce the time to validate a block. Hence, a node can verify as many transactions as possible in 1.6 seconds (a total of 4 blocks). Then, the node responsible for mining switches roles with another node. During the verification process, the node responsible for mining is considered the Leader node.
The Key Features
Solana distinguishes itself through the eight technical features. While Proof of History stood out, here are other innovations that make the Solana network possible:
The Tower BFT is basically a slightly updated version of Practical Byzantine Fault Tolerance (pBFT). While pBFT allows nodes in the network to vote about major decisions in the network, with Tower BFT, nodes do not need to cast their votes every single voting. However, they can automatically leave a previous vote to serve for every voting. This helps the network save quite some time.
Mempools are where all transactions are added until they are verified by nodes. Solana uses a slightly different approach to mempools. Through a system known as Gulf Stream, the nodes that are not leaders can start verifying some of the transactions in the mempool so that the mempool does not get overcrowded. As a result, a lot of time is saved in the network here as well.
The functionality of smart contracts in the Solana network is slightly different from that of other cryptocurrencies, in which smart contracts may interfere with one another since they cannot operate in parallel.
Solana uses Sealevel, a system that allows smart contracts to run side by side without causing any disruptions. This gives Solana the upper hand in terms of performance levels in the network.
Yet another feature of Solana is its Turbine. The Turbine is responsible for breaking down transactions into smaller parts. This helps the nodes to receive the information quicker while at the same time using less bandwidth. This is another reason why Solana is one of the best cryptocurrencies in terms of time efficiency.
Using its Cloudbreak feature, the Solana system can access and interpret data simultaneously, using older versions as a backup.
Pipelining is a hardware structure in Solana that is responsible for directing transaction information toward designated hardware. This makes the block validation process more efficient.
Also a hardware structure, Archivers works with Pipelining, helping leader nodes access network-based information at quicker rates.
What Is a SOL Token?
As a native token to the Solana network, SOL uses the SLP protocol and is used as a utility token. As of now, there is a total supply of over 490 million SOL, 272 million of which are already in circulation. For example, users of Solana use the token to make transfers and interact with smart contracts.
However, there’s uncertainty if there’ll be any max supply of SOL. SOL networks use the “burn” as a deflationary policy. By holding a SOL, a user can be a part of the network validator. While SOL may be experiencing a slow burn at its initial stage, but it has become one of the top cryptocurrencies in terms of The market capitalization (or market cap) of a cryptocurrency is a measurement of its market value. In other words, it... and the return of investment.
Solana Coin Price History
After Solana’s public ICO in March of 2020, SOL was released to the public in the next month. Its starting price was trading at around $0.70 on April 11, 2020. The price of SOL dropped to around $0.50 by May, and then by the end of August, the price went as high as $4.70, which marked Solana’s first bullish run. By the end of the year, the price had dropped again to around $1.50.
At the beginning of 2021, the price of SOL was around $1.80. Then, following the bullish trend of the crypto market, the price of SOL started increasing at larger rates, reaching around $17 by February 2021. The price kept increasing, and it recently reached its all-time high at $56 as of May 18, 2021. But the SOL price was then followed by a steep plunge to around $24. As of now (the publishing date), the price of SOL is trading at $43.92.
With a circulating supply of around 272 million and trading over $40 as of June 7, 2021, the market capitalization of Solana is over $11 billion, placing it at number 14 in the crypto market. The fully diluted market cap is around $21 billion.
Solana Coin Current Projects
Currently, Solana is involved in several projects. One of the biggest projects built in the Solana blockchain is the — Serum.
Serum, a DeFi project, has constantly been growing and has started to climb the ranks in the crypto market as a powerful asset. Currently, Serum is ranked as the 150th-largest cryptocurrency based on its market cap. While it is still a small-cap cryptocurrency, its potential is enormous. Other startup projects with considerable potential are Raydium, Oxygen, PsyOptions, Mango Markets, Audius, and Star Atlas.
Solana also has many partners within the industry, including Chainlink, FTX, and Akash.
Solana is also involved with the German company Hetzner Falkenstein. This is important to know because some of the staked SOL in the network are used to develop this data center.
Additionally, Solana is expanding even more in the DeFi field. It has started to interoperate with Ethereum through projects such as Wormhole. This can only have positive implications for Solana’s future.
The Future of Solana Coin
So let’s talk about the future of Solana. In terms of the SOL token and its price, most predictions forecast a long-term increase, suggesting that this investment might be profitable.
According to CoinDesk, Solana may receive five additional fundings worth around $100 million. Since Solana’s ICOs were able to compile around $25 million and manage to be successful, an additional $100 million can improve Solana even more. These funds are planned to be allocated in the development of Solana in the Asia-Pacific region, as well as helping the growth of projects within the Solana network. If all goes well, Solana’s prosperity may be inevitable.
There has also been news that Solana is raising up to $450 million, challenging Ethereum to be the next “to go for decentralized applications, dApps.”
The Solana network can potentially become the best network in the crypto market in terms of scalability and time efficiency. Only time will tell if other cryptocurrencies may apply features such as Proof-of-History in the same way as Solana.
The projects already involved with Solana are also predicted to become larger, increasing the scalability of the Solana ecosystem. As more projects are added to the Solana network, more SOL tokens are needed for transactions within the network. The demand for more SOL tokens can lead to a surge in SOL prices in the near future.
The Bottom Line
Solana coin (SOL) has become a must-have investment for most cryptocurrency traders and investors. Moreover, people who want to mine coins find Solana lucrative due to its fast verifications. Solana has distinguished itself from most of the other top cryptocurrencies by providing better, faster, and simpler services.
The nature of cryptocurrencies is still uncertain, so nobody can precisely predict their future. It’s best to seek financial investment advice before diving into crypto. However, Solana is one of those cryptocurrencies whose future looks quite promising in a congested market.