What Is Solana? A Guide To The Blockchain Network

Solana is a project that advertises itself as the world's fastest blockchain, one that could potentially process millions of transactions per second.[1] Solana's sol tokens have experienced some very impressive gains at times, skyrocketing in 2021, for example.[2]

While the project seems to hold great promise, it has encountered some technical difficulties. For example, the Solana network went down in September 2021 when it became overwhelmed with transactions.[3]

What Is Solana?

Solana is a blockchain network that leverages several technologies, including a new system called Proof-of-History (POH), to give users the ability to finalise transactions in less than a second.[4]

As a result, this network permits transaction throughput that was previously unprecedented. More specifically, Solana's white paper states that the blockchain network could handle 710,000 transactions per second (TPS) with a connection of 1 gigabit per second.[4]

Millions Of Transactions Per Second

With a fast enough connection, Solana could potentially reach a throughput of millions of transactions per second.[5] In contrast, Visa, a major payments provider, claims that its network can process more than 24,000 TPS.[6]

Low Costs

Because Solana can keep its throughput high, it can keep its costs low. As of September 2021, it was advertising an average transaction cost of $0.00025 on the project's website.[7] Leveraging this environment of low expenses and high transaction capacity, Solana aims to offer interested parties the ability to create scalable decentralised apps (DApps).

Start Trading Bitcoin with Confidence

Get a free practice account today.

At the time of this writing, the Solana network served as the home for more than 400 projects, including those involving NFTs and DeFi.[7] As a result of all this, some analysts have described Solana as a "legitimate competitor to Ethereum."[8]

What Makes Solana Different?

Solana harnesses several innovations in order to provide a blockchain network with high throughput and low transaction fees. One of these innovations is POH, a system that helps overcome the limitations of other consensus mechanisms.

Bitcoin's proof-of-work system creates a new block every 10 minutes on average.[9] Ethereum's block time varies, but at the time of this writing, it was roughly 13 seconds.[10]

Proof Of History (POH)

Under POH, every transaction is embedded with a timestamp before being included in the system's distributed ledger.[11] Because transactions receive a timestamp in this manner, the network can easily verify the order in which they took place. It can also make updates more quickly than it would take the entire blockchain network to update.

Technology company Bison Trails stated that "This process is profoundly different from every other blockchain in which block producers (validators) must communicate with each other to produce blocks and synchronise the state of the network. Solana side-steps this communication requirement and, therefore, can produce blocks much faster: the key to handling more transactions as the network scales."[12]

Sol Token

The Solana network has generated substantial attention, and this development has coincided with the project's sol token experiencing some compelling gains.[13] The value of this digital asset climbed more than 13,000% between the start of 2021 and the all-time high of more than US$215.00 it reached in September 2021.[2]

Competitor To Ethereum

The project has drawn praise from analysts, with Scott Melker, a prominent market observer, stating that "Solana is a legitimate competitor to Ethereum, with lightning fast transactions at a fraction of the price."[13]

What Is Staking On Solana?

"Staking" is an activity that interested parties can perform to both help secure the Solana network and earn passive income in the form of sol tokens.[14] Every time a participant stakes these tokens, they are devoting those digital assets to validators, which use sol to confirm transactions.

If a sol investor grants a validator a larger number of tokens, they are giving that validator increased ability to verify transactions.[14] Investors should keep in mind that if they stake their sol tokens, these digital assets are tied up, and they cannot be sent to another wallet.

Technical Difficulties

Solana suffered some technical challenges in September 2021, when the network went down for 17 hours.[15] This happened because a project named Grape Protocol held an offering on Raydium, an automated market maker built on Solana, which flooded the network with transactions. Because of this overload, some validators crashed, which in turn crippled the network. First, it slowed down, but then it lost functionality completely.

Fortunately, engineers around the world were able to work together and approve a hard fork, reach consensus, and get the network up and running again.[15] This development required widespread efforts to receive approval, as 80% of the network had to agree to the changes.

Summary

Solana is a compelling project that could potentially handle millions of transactions per second while charging low fees for doing so. Past that, it has generated significant visibility for its innovative nature and promise of high throughput, which in turn coincided with its sol token skyrocketing.

Interested parties can potentially invest in sol in hopes that it will rise in value, or they can stake their tokens in order to receive pass income. At the same time, they should keep in mind that at the time of this writing, Solana has suffered one network outage.

FXCM Research Team

FXCM Research Team consists of a number of FXCM's Market and Product Specialists.

Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.

References

1

Retrieved 22 Sep 2021 https://medium.com/solana-labs/solana-milestone-a-multinode-testnet-release-fff3dc6bda88

2

Retrieved 22 Sep 2021 https://messari.io/asset/solana

3

Retrieved 22 Sep 2021 https://solana.com/news/9-14-network-outage-initial-overview

4

Retrieved 22 Sep 2021 https://solana.com/solana-whitepaper.pdf

5

Retrieved 22 Sep 2021 https://solana.blog/seriously-how-fast-can-solana-blockchain-get/

6

Retrieved 22 Sep 2021 https://usa.visa.com/run-your-business/small-business-tools/retail.html

7

Retrieved 22 Sep 2021 https://solana.com/

8

Retrieved 22 Sep 2021 https://acmecryptocorp.medium.com/solana-phenomenon-a-closer-look-at-the-project-bf72c3f17db5

9

Retrieved 22 Sep 2021 https://www.coindesk.com/markets/2020/05/01/bitcoin-miners-usually-create-6-blocks-per-hour-they-just-banged-out-16/

10

Retrieved 22 Sep 2021 https://ycharts.com/indicators/ethereum_average_block_time

11

Retrieved 22 Sep 2021 https://boxmining.com/what-is-solana-sol-token-explained/

12

Retrieved 22 Sep 2021 https://www.coinbase.com/cloud

13

Retrieved 22 Sep 2021 https://www.forbes.com/sites/cbovaird/2021/09/09/why-solana-prices-have-skyrocketed-more-than-13000-year-to-date/

14

Retrieved 22 Sep 2021 https://support.exodus.com/article/1551-solana-staking-faq

15

Retrieved 22 Sep 2021 https://solana.com/news/9-14-network-outage-initial-overview

${getInstrumentData.name} / ${getInstrumentData.ticker} /

Exchange: ${getInstrumentData.exchange}

${getInstrumentData.bid} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}
Disclosure

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.