What is Solana and What Sets It Apart from Other Blockchains?

Solana is a fast and affordable blockchain network built for easy access. It acts as a worldwide network of computers that process transactions in less than a second, with fees usually just a fraction of a cent. This speed and low cost make Solana a favorite for finance apps, games, and NFTs. Solana has its own native cryptocurrency, SOL, which powers the network.

Origin and development

A small group of former Qualcomm engineers created the revolutionary blockchain. The project was first called Loom, but changed its name to Solana in 2018, inspired by Solana Beach in California.

Anatoly Yakovenko led the team and built the first prototype. Raj Gokal joined as a co-founder, with Greg Fitzgerald and Stephen Akridge completing the founding group. Together, they developed Solana’s unique Proof of History consensus mechanism and took the network from an idea to a working product. The mainnet beta went live in 2020, bringing a blockchain that could handle thousands of transactions per second.

Solana quickly stood out for its speed, handling 10,000 transactions in just half a second during early tests. Its growth was also supported by major backers, as many DeFi projects on Solana received funding from Sam Bankman-Fried’s FTX group in 2021 and 2022. When FTX collapsed in late 2022, Solana’s price dropped sharply, and some apps experienced outages. Even so, the Solana community worked on upgrades to make the network more stable and accessible, with projects like Firedancer and Alpenglow aiming for faster processing and better decentralization.

How the Solana blockchain works

Solana’s main innovation is Proof of History (PoH). This method uses cryptography to create a built-in clock for validating transactions. A validator keeps hashing data with SHA256, and each result is used in the next round. This process, called a verifiable delay function, takes a set amount of time and can’t be rushed. The outcome is a series of timestamped hashes that anyone can check. PoH lets everyone see when each transaction happened compared to others, without needing every computer to sync up in real time.

PoH gives Solana a clear way to order transactions, so blocks can be finalized very quickly. Transactions are processed at the same time (or in parallel), using a feature called Sealevel, and sent right away to the next block leader. There is no need for a public mempool as most transactions are confirmed in less than a second. Validators just check the hashes to see the order, which saves time and effort.

Alongside PoH, Solana uses Proof of Stake (PoS) to keep the network secure. Validators, which are servers that confirm transactions, lock up SOL coins as a guarantee. They take turns creating blocks and must follow the PoH timeline when adding transactions. This system encourages honest work: good validators earn new SOL, while bad behavior leads to fewer rewards. Stakers earn about 5–7% per year, with rewards paid out every 2–3 days.

Use cases and the ecosystem

Solana’s fast speed and low fees make it useful for many things. You can send money worldwide almost instantly, without needing a bank or paying high fees. Aside from the native cryptocurrency, Solana also supports thousands of tokens in the ecosystem that can be swapped anytime.

Artists use Solana to create and sell digital art (NFTs) at a low cost, since transactions are so cheap. These NFTs can be traded in marketplaces like Magic Eden.

Solana’s DeFi (decentralized finance) ecosystem is very active. You can add liquidity to pools, borrow or lend assets, and earn rewards on your tokens. Apps, like Jupiter, let you swap assets quickly, while tools like Kamino help automate advanced strategies.

Gaming is another major use for Solana. In Solana-based blockchain games, items and currencies are real digital assets that you truly own and can trade. Games, like Powday Farm, let players earn tokens and NFTs that have value outside the game. You can also easily tip video game content creators without worrying about high fees.

There are also social and community apps, where groups use SOL or other Solana tokens to control access or voting. Some companies are also using Solana; for example, Solana Pay works with Shopify stores, and Mastercard has added crypto credentials on Solana.

Because Solana’s ecosystem is so large, developers have many tools to work with. Most Solana smart contracts are written in Rust, a programming language known for its speed. Frameworks like Anchor make it easier to build apps.

Criticisms and challenges

Unlike older blockchains, Solana has had several times when the network stopped working for hours. For example, it was offline for about 17 hours in September 2021, for several hours in mid-2022, and again in October 2022. During these outages, transactions and apps paused, causing price drops and user frustration. These problems were usually caused by too many transactions (spam) or software bugs. The Solana team is working to fix this by adding a second validator client called Firedancer and rethinking consensus with Alpenglow to make the network more stable.

Centralization is another concern for Solana. Running a validator node on Solana needs powerful hardware, so there are fewer validators compared to other blockchains. For example, Ethereum has over a million validators, while Solana has less than a thousand. Also, large holders like founders, early investors, or exchanges control much of the total stake. This makes Solana less decentralized than Ethereum or Bitcoin. The Solana team knows about this and has made it easier to delegate stakes to more people, but critics still worry that a few big players could have too much influence.

There have also been some security incidents on Solana. In 2022, a phishing attack stole about $5 million worth of SOL from around 8,000 wallets. To be fair, these thefts happened because users were tricked by fake links into giving away their seed phrases, not because of a problem in Solana’s code.

Solana vs. Ethereum

Solana and Ethereum are both platforms for smart contracts, but they work in different ways. The main difference is how many transactions they can handle and the design choices they make. Solana’s setup, using Proof of History and parallel processing, lets it handle thousands of transactions per second. In theory, Solana can reach about 65,000 transactions per second, but in reality, it’s usually a few thousand. Ethereum’s main layer, on the other hand, processes only about 15 to 30 transactions per second.

This difference in speed means Solana’s fees are much lower and more stable. A Solana transaction usually costs less than a cent, about $0.001. Ethereum’s fees change with network demand and can go from a few dollars to tens of dollars when the network is busy.

Don’t look down on Ethereum, though. Ethereum’s network has been very reliable, with no major outages. Solana, however, has had some outages as mentioned earlier. Ethereum has almost a million validators, making its network very decentralized and hard to attack. Solana needs more powerful hardware, which is why it has fewer than a thousand validators. This can lead to more concentrated power and a higher risk that large validators could work together.

Looking at the ecosystem and programming languages, Ethereum has a well-established network and uses the EVM, with smart contracts written in Solidity or Vyper. Many developers and projects are already on Ethereum. Solana, on the other hand, uses Rust and C/C++ for its programs, which attracts developers with a systems background. Each blockchain has its strengths: Ethereum is often used for complex DeFi and high-value apps, while Solana is better for fast, user-friendly applications.

SOL tokenomics

SOL is Solana’s main cryptocurrency and serves three main purposes: paying transaction fees, being staked by validators, and being used in governance and network programs. You can think of SOL as the network’s fuel. Every time you make a transaction or use a dApp, you pay a small amount of SOL as a fee. These fees help keep the network secure by rewarding stakers. Half of each fee is burned, or removed from supply, and the other half goes to validators.

The system is inflationary, so new SOL are created each year, but the minting process slows down over time, and the burning mechanism keeps the circulating supply manageable. Inflation started at about 8% per year but has dropped each year, aiming for a long-term rate of about 1.5%.

Solana began with 500 million SOL, which were allocated to the founders, early investors, and the community.  At the time of writing, the circulating supply is 559,652,893 SOL according to CoinGecko.

SOL’s value depends on how much the network is used. More transactions mean more fees for stakers who validate transactions. Other factors that affect the price of SOL are the public’s perception of cryptocurrency and the current economic climate. Bullish conditions mean a higher SOL price and vice versa.

Sending and receiving SOL

Using SOL is simple. First, get a Solana-compatible wallet, such as Phantom, Solflare, or a mobile wallet. Make sure you have enough SOL to cover the transfer plus a tiny fee (usually ~0.000005 SOL). Next, paste the recipient’s public address and set the amount. Finally, approve the transaction and wait about 1–2 seconds for the transaction to be confirmed on the blockchain. You can then view it on a Solana block explorer, like Solscan, to see the details (sender, receiver, fee, etc.).

To receive SOL, all you have to do is share your wallet’s public address or QR code with the sender.

Do note that if SOL was sent to the wrong address, there’s no way to get it back. Always double-check the address before sending.

Buying SOL on a centralized exchange (CEX)

If you want to buy SOL with regular money like USD or EUR, you can use a centralized exchange such as Coinbase. Here are the basic steps on Coinbase:

1. Sign up and verify: Create a Coinbase account and complete identity verification (ID documents, address proof).
2. Add payment method: Link your bank account, debit/credit card, or set up a wire transfer for depositing funds.
3. Buy SOL: In the Coinbase app or website, go to “Buy & Sell” and choose SOL (Solana) from the asset list.
4. Enter amount: Specify how much fiat currency or how many SOL you want to buy. Coinbase typically allows very small buys (as low as $1).
5. Review and confirm: Check the order details (price, fees) on the review screen, then click “Buy Now”.

After you finish your purchase, your SOL will show up in your Coinbase wallet. You can keep it there, move it to a private wallet, or trade it for other cryptocurrencies. Coinbase is easy to use and regulated, so it’s often suggested for beginners.

Buying SOL via decentralized exchange (DEX)

You can also get SOL in a decentralized way, sending it straight to your own wallet. For example, the Phantom Wallet app has a built-in Buy Crypto feature. Once you set up a Phantom wallet, you can:

• Open Phantom and click “Buy Crypto.” Select Solana (SOL) as the asset to purchase.
• Enter the amount of SOL you want to acquire. The app will show you the price in USD or another fiat.
• Choose your funding source (for example, a linked debit card or bank via a payment processor).
• Confirm the purchase.

Phantom will process your purchase through its partner service, and the SOL will show up in your Phantom wallet. This method doesn’t require you to make an account on an exchange, but the payment provider might charge higher fees.

Buying SOL over-the-counter (OTC)

For large purchases, people sometimes use crypto over-the-counter (OTC) or secondary markets. These platforms let individuals or financial institutions make deals to buy or sell outside the usual exchange order book. This method enables involved parties to move large amounts of SOL without affecting prices on public exchanges.

For example, Acquire.Fi connects buyers and sellers looking to transact large amounts of crypto. You might see listings in our secondaries marketplace like “Looking for Solana – BUYING – ticket minimum $5,000,000,” meaning someone wants to buy SOL OTC worth at least $5 million in one deal.

Buying or selling SOL OTC is generally safe. OTC platforms conduct rigorous background and compliance checks on both buyers and sellers before matching them. Plus, payments are kept safe in escrow or smart contracts until both parties have fulfilled their end of the bargain.

Staking SOL

Staking SOL means locking it up to help secure the network and earn rewards. The exact annual rate depends on how many people are staking; fewer stakers means higher rewards, and more stakers means lower rewards.

Centralized exchanges like Kraken make staking easy. You don’t have to pick a validator; the exchange does it for you. Staking SOL on Kraken, for example, can earn participants up to 9% annual rewards, which is more than most bank interest rates.

To stake on Kraken, you sign up and verify your identity, then deposit or buy SOL. Next, go to the Stake or Earn Rewards section and choose to stake your SOL. Kraken offers flexible staking, where you can withdraw anytime and earn about 2–5% per year, or bonded staking, where your SOL is locked for a few days, and you can earn 5–9% per year. Once you stake, Kraken automatically delegates your SOL to validators and adds rewards to your account.

Your staked SOL is still yours, but if you want to unstake it, you have to wait about two days before you can use it again.

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