What Is Solana (SOL)? A Beginner’s Guide to the Blockchain

Solana (SOL) has gained significant attention in the blockchain space as a Layer 1 blockchain, offering improvements in scalability, transaction speed, and lower costs compared to other competing Layer 1 blockchains. Its ecosystem is expanding rapidly, positioning it as a strong alternative to other blockchain platforms. 

With meme coins and DeFi on the rise, Solana stands out due to its unique ability to process thousands of transactions per second at remarkably low costs. Whether you’re new to crypto or already familiar with the largest tokens, understanding Solana’s features can help you make informed decisions.

In this guide, we break down everything you need to know about Solana—from its foundations and how it works to what sets it apart from its competitors. 

Solana is a Layer 1 blockchain protocol built to help scale decentralized applications (dApps). Launched in 2020, Solana aimed to address the industry’s scalability challenges by providing easier deployment and faster transaction speeds.

Solana is known for its efficiency as a network protocol. With higher TPS than most blockchains like Ethereum or Bitcoin, due to its Proof-Of-History (PoH) consensus combined with Proof-of-Stake (PoS), it can theoretically support more than 65,000 transactions per second.

Solana’s native token, SOL, is used as a utility token on the network. Moreover, it offers low transaction fees and can be used as collateral or as a payment method for DeFi and other on-chain integrations. 

Solana proposes a novel approach to blockchain development. In addition to its Proof-of-Stake (PoS) and Proof-of-History (PoH) consensus mechanisms, which enable Solana to validate and process transactions faster, the network also relies on parallel processing.

Parallel processing means Solana can execute multilevel queries concurrently to help scale the network. Solana uses independently deployed shards to process multiple transactions at the same time. The difference is that validation occurs outside the network, and only the output is recorded on-chain.

As a result of its innovative architecture, Solana can achieve high transaction speeds and scale protocols and dApps much more quickly.

Delegated Proof-of-Stake Consensus  
Solana employs a hybrid consensus process combining Proof-of-History (PoH) with Delegated Proof-of-Stake (DPoS). Here’s how they work together:

• Delegated Proof-of-Stake (DPoS): In DPoS, every network participant is selected based on the number of SOL tokens they hold. The more SOL someone holds and delegates, the higher the chances of validating transactions. As a result, the mechanism attempts to balances efficiency with decentralization efforts.
• Proof-of-History (PoH): PoH timestamps transactions using a cryptographic clock, ensuring that all network nodes have a common understanding of the order and time of events. By eliminating the need for constant communication between nodes to confirm time, PoH speeds up the entire process. 

The SOL token is integral to the Solana ecosystem and serves several critical functions:

• Transaction Fees: SOL is used to pay fees for transactions and smart contract executions within the Solana network.
• Staking and Validator Rewards: Users can stake SOL to support the network’s validation process, earning rewards in return. This mechanism helps maintain the security and stability of the blockchain.

Additionally, SOL can be used in various DeFi applications, such as providing liquidity or serving as collateral. 

Originally, Ethereum used a Proof-of-Work (PoW) consensus mechanism before switching to Proof-of-Stake (PoS) to to improve security, reduce energy consumption, and provide a platform for implementing new scaling solutions.  

In contrast, Solana’s Proof-of-History (PoH) mechanism enables the blockchain to achieve lightning-fast transactions at a fraction of the cost of Ethereum.

Both Solana and Ethereum have established validators, making them highly secure. Users can easily deploy smart contracts and run dApps without compromising security. However, Solana has faced some concerns surrounding its decentralization. On several occasions, the network went offline or became clogged. On the other hand, Ethereum is more decentralized but has suffered a DAO hack back in 2016.

Solana is currently popular for meme coins within the ecosystem due to its speed and scalability. However, developers still prefer using Ethereum for applications that require higher security and decentralization.

• High Scalability: With its innovative technology, the Solana network can handle a vastly larger volume of transactions than many other blockchains.  
• Low Transaction Costs: Cost-effectiveness makes Solana ideal for gaming, micropayments, and DeFi applications.  
• Developer-Friendly Ecosystem: Open-source tools and community support attract a growing number of developers to create dApps on Solana.  
• Energy Efficiency: Its hybrid consensus mechanism is significantly more energy-efficient than Proof-of-Work platforms like Bitcoin.   

• Network Outages: Solana has faced several outages in the past due to network congestion, raising concerns about its reliability.  
• Validator Centralization: A small number of validators control a large share of the network’s stake, which could pose centralization risks.  
• Competition: With Ethereum’s ongoing upgrades and the rise of newer blockchains, Solana faces stiff competition for dominance in decentralized applications. 

Solana and the SOL token are available across most established exchanges. If you are from Canada, we have a guide on how to buy Solana easily on Ndax using Canadian Dollars.  

• Why Is Solana So Powerful?  

Solana’s strength lies in its innovative use of Proof-of-History combined with Proof-of-Stake. This hybrid consensus mechanism enables unparalleled speed and scalability, making it suitable for high-demand use cases such as DeFi.  

• Who Is Solana’s Biggest Competitor?  

Ethereum remains Solana’s primary competitor because of its high market cap and large developer community. Ethereum is the second cryptocurrency by market capitalization that enables the deployment of smart contracts. 

Solana has positioned itself as one of the fastest and most efficient blockchain platforms, offering significant benefits for traders, developers, and users of decentralized applications. However, like any technology, it comes with risks and challenges worth considering.

Interested in starting your cryptocurrency journey? With its seamless platform and competitive rates, Ndax makes it easy to trade Solana (SOL) and explore other exciting cryptocurrencies. Sign up today and take advantage of a platform that prioritizes your trading needs.

Further Readings

• How to Buy Solana (SOL) - A Step-by-Step Guide