What is Solana? A Simple Guide to Understanding How It Works

Anna Trifonova
Anna TrifonovaProduct Marketing Manager
Updated: 04 July 2024
What is Solana? A Simple Guide to Understanding How It Works

Solana (SOL) is a cryptocurrency that aims to enhance and build upon the functionality of Ethereum. It shares similarities with Ethereum but offers improvements in several areas. Named after a serene coastal city in Southern California, Solana was conceived by Anatoly Yakovenko, a skilled software developer.

Yakovenko introduced the concept of this groundbreaking blockchain technology in 2017, and after extensive development, Solana was officially launched in March 2020. Since its inception, SOL has gained great popularity within the crypto community, currently ranking as the 11th largest coin based on total market capitalization.

Solana's innovative features and growing reputation have contributed to its rise as an influential cryptocurrency in the market. In this article, we will discover how SOL works and its prominent features.

Interesting Fact: 

"Solana also has its standard for tokenization, SPL Token, similar to Ethereum's ERC-20" - Investopedia. 

What Is Solana?

Solana (SOL) is a blockchain that shares striking similarities with Ethereum and is often called an "Ethereum killer." It offers the SOL token, which can be purchased on major exchanges and holds value in conducting transactions on the Solana network, which boasts unique advantages.

One notable feature of the Solana blockchain is its use of a proof-of-history consensus mechanism. Unlike earlier cryptocurrencies like Bitcoin and Litecoin, which rely on a proof-of-work algorithm, Solana's proof-of-history algorithm utilizes timestamps to define the next block in its chain. This approach improves efficiency and reduces the energy consumption associated with traditional proof-of-work systems.

Solana also incorporates a proof-of-stake (PoS) consensus mechanism, enhancing its performance. In PoS, validators stake their tokens as collateral to secure the network and earn rewards. This combination of proof-of-history and proof-of-stake makes Solana a unique and high-performance blockchain.

Solana's popularity has grown significantly, with its market capitalization ranking it the 11th largest cryptocurrency. But, it's important to note that Solana has experienced notable events, such as outages and regulatory scrutiny, that have impacted its market performance.

One advantage is enhanced security through the history algorithm, which adds a layer of protection to the network. Additionally, Solana's focus on scalability addresses one of the three challenges Ethereum co-founder Vitalik Buterin identified in the blockchain trilemma: scalability, security, and decentralization.

While Ethereum primarily addresses security and decentralization, Solana aims to address security and scalability. The proof of history algorithm employed by Solana ensures unique security measures, while the platform's computational speed enables increased scalability.

What Makes Solana Stand Out?

Solana stands out in blockchain due to several unique features and innovations. Here are some key aspects that make Solana unique:

  1. Solana uses a unique consensus mechanism called Proof of History. This algorithm uses timestamps to precisely organize transactions on the Solana blockchain, enhancing security and efficiency.
  2. Solana combines Proof of History with a delegated proof-of-stake algorithm. This variation of the traditional proof-of-stake mechanism allows validators to stake their tokens as collateral and participate in block validation, ensuring the network's security and decentralization.
  3. Solana is designed to address the scalability challenges faced by many blockchain networks. Its architecture theoretically allows for a high transaction throughput, with a limit of 710,000 transactions per second on a standard gigabit network.
  4. Solana's high-performance blockchain platform enables fast transaction processing. It leverages a unique tech stack and optimization techniques like pipelining to achieve efficient and rapid computations.
  5. Solana aims to provide cost-effective transactions by minimizing fees. 
  6. It supports various use cases, including decentralized finance (DeFi), non-fungible tokens (NFTs), payments, gaming, and more. Its goal is to surpass the performance of popular blockchains while ensuring security, decentralization, and affordability.
  7. And finally, Solana is an open-source blockchain platform that embraces the principles of decentralization and peer-to-peer networking. It allows developers to build decentralized applications (dApps) and smart contracts on its platform, fostering innovation and collaboration within the Solana ecosystem.

Solana vs. Ethereum: A Brief Comparison

With its expanding ecosystem and versatility, Solana has garnered comparisons to Ethereum, the leading blockchain for decentralized applications (dApps).

  • Smart contracts: Both Solana and Ethereum support smart contract functionality, enabling the creation of advanced applications such as DeFi and NFTs.
  • Consensus: Solana and Ethereum employ a proof-of-stake (PoS) consensus mechanism, where validators stake their cryptocurrency to earn rewards. Solana enhances PoS with the addition of proof-of-history (PoH).
  • Speed: Solana has gained attention for its remarkable transaction processing speed and lower costs than Ethereum. Solana can handle over 2,700 transactions per second, with an average cost of $0.00025 per transaction. In contrast, Ethereum processes fewer than 15 transactions per second, with an average fee of around $2.62.

How Does Solana Work?

Solana operates on a combination of proof-of-history and delegated proof-of-stake protocols. This approach aims to facilitate the rapid processing of many transactions. According to Bryan Routledge, an associate professor of finance at the Tepper School of Business, Carnegie Mellon University, Solana aims to achieve efficient transaction processing.

Routledge highlights that achieving fast transaction processing often necessitates centralization. For instance, Visa relies on a vast network of computers to maintain its processing speed. On the other hand, Bitcoin, to preserve decentralization, processes transactions at a slower pace.

Given that blockchain technology's fundamental purpose is to provide decentralized systems, Solana endeavors to process transactions quickly, comparable to the speed of a large, centralized entity like Visa, while upholding the decentralization principles observed by Bitcoin. This swiftness in transaction processing contributes to increased scalability, reducing Solana's systems' environmental and monetary costs.

The rapid addition of blocks to Solana's blockchain necessitates additional layers of security. It is where Solana's proof-of-history algorithm comes into play. The algorithm timestamps each block to ensure the system's security.

Solana's SOL tokens are staked and used as collateral to facilitate transactions on the network. These transactions include validating smart contracts and utilizing Solana as a non-fungible tokens (NFTs) marketplace.

Final Thoughts

Like other prominent cryptocurrencies, SOL tokens can be traded on various platforms, including centralized exchanges like Binance.US, Coinbase, and Kraken. In select cities worldwide, SOL tokens are accessible through crypto and NFT ATMs.

Once investors acquire SOL tokens, storing them in a crypto wallet is advisable. Contrary to its name, a crypto wallet does not store the actual cryptocurrencies but holds the private keys necessary to access and manage them. These wallets can be online or offline, with offline storage, known as a cold wallet, being the safest option.

SOL tokens serve several purposes and have diverse use cases. They can be utilized for peer-to-peer payments and trading activities and act as incentives for securing the Solana network as a validator.

Key Takeaways

  • Solana is a blockchain platform specifically built to support decentralized and scalable applications.
  • Solana boasts significantly higher transaction processing capabilities and lower transaction fees than rival blockchains like Ethereum.
  • Solana combines proof-of-stake (PoS) with an innovative mechanism called proof-of-history (PoH). PoH utilizes hashed timestamps to provide efficient and secure verification of transaction timestamps.


  1. What is Solana? How does it work?

Solana is a fast-growing blockchain and cryptocurrency network that aims to provide a scalable and secure infrastructure for decentralized applications. It utilizes a combination of innovative technologies and cryptographic strategies to address the limitations of earlier blockchain solutions. Solana's SOL tokens are staked and used as collateral to process transactions on the network, including validating smart contracts and participating in the non-fungible token (NFT) marketplace.

  1. How does Solana ensure security?

Solana employs a proof-of-history algorithm that timestamps each block, enhancing the blockchain's security. Additionally, SOL tokens are staked and used as collateral, providing further security measures. The combination of efficient transaction processing and additional security measures contributes to the overall security of the Solana network.

  1. What are the use cases for SOL tokens?

SOL tokens have multiple use cases, including peer-to-peer payments and trading. They serve as an incentive for securing the Solana network as a validator and can also be used in various decentralized applications (DApps) and NFT marketplaces.

  1. Is investing in Solana risky?

Like all cryptocurrencies, investing in Solana carries risks. Cryptocurrencies are highly volatile and speculative investment vehicles. Investors should carefully consider their financial situation and consult a financial advisor before investing in Solana or any other cryptocurrency.


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