Solana ($SOL) is taking on one of the biggest challenges with existing blockchains- scalability. This problem has always been the bane of cryptocurrency mass adoption. With low transaction throughput, cryptocurrency cannot fully compete with payment systems like Paypal or Visa. And this is the reason why Solana was developed. With the capacity to process more than 50,000 transactions per second, Solana has attracted several crypto proponents including FTX exchange. But what exactly is Solana and how does it work?
Learn more about FTX Exchange.
Background
Anatoly Yakovenko founded Solana back in 2017. Yakovenko formerly worked for Qualcomm. He also has experience with compression algorithms after previously working at Dropbox as a Software Engineer.
Along with Greg Fitzgerald, Solana’s CTO, as well as Eric Williams, they conceptualized a new way of dealing with the throughput problems that were present in both the Bitcoin and Ethereum blockchains. They envisioned a trustless and distributed protocol that allows for greater scalability, which was how Solana was born.
What is Solana?
Enter Solana. Solana innovated on the developments that both Proof of Work (PoW) and Proof of Stake (PoS) achieved in the recent years. Through a new protocol they call the Proof of History (PoH), coupled with Tower BFT, Solana says that they can develop a more scalable blockchain with better throughput than Bitcoin and Ethereum combined.
Consensus Mechanisms
There are many blockchain innovations that were developed from the usual PoW system that Bitcoin brought to the space. Some of these innovations include what we call consensus mechanisms.
What they wanted to achieve was the promise of blockchain technology: a trustless and secure distributed ledger that can be the backbone of cryptocurrency transactions.
Consensus mechanisms, or consensus protocols, are the processes undergone to validate blocks before they are included in the distributed ledger as a finalized entry or transaction.
In Bitcoin, PoW system means that before every block is confirmed and entered into the blockchain, miners have to perform the necessary ‘work’ of solving complex arithmetic problems. Then, miners are rewarded with tokens for the work that they have done to validate every block which contains transaction details and the overall state of the blockchain.
Not only was the PoW system time-consuming, as transactions take hours before they are completely validated by miners, they were also questioned for not being ‘very’ energy-efficient. The community believed that there had to be another option.
Hence, the lightning network as Bitcoin’s sidechain. This is a topic for another article so we’ll focus on other innovations.
Proof of Stake
Over the years, we’ve seen different versions of the PoS consensus mechanism. These developments wanted to make blockchain scalable and sustainable without compromising the integrity of the whole network.
The PoS system functions with individuals who are a part of the community validating the blocks by themselves. This addresses the problem of centralization in Bitcoin’s PoW mechanism. By making the ‘forging’ process (similar to PoS’ mining system) accessible to token holders for each network, the opportunity of earning rewards by helping secure the blockchain is distributed to members of the community.
A simple explanation of the step-by-step process for the PoS system is that token holders ‘stake’ (or deposit some amount of their tokens) to the network, thereby earning them the right to have a say on how the operation of a network is going to run. This includes choosing validators for the blocks, among others.
However, while these developments brought faster transaction settlement times than the old Bitcoin PoW system, PoS still has its own issues in terms of transaction throughput.
Proof of History
Solana took to the community a new solution to make a blockchain more decentralized. The PoH system embeds historical records of blockchain transactions in order to prove that transactions indeed happened before they are included in the distributed ledger.
This is done by what Solana calls the ‘Verifiable Delay Function.’ On the Solana blockchain, transactions are embedded with timestamps that help establish the sequence of events that were processed before the latest state of the blockchain is broadcasted to the whole network.
Transactions are entered into blocks through Solana’s sequential preimage resistant hash, simply referring to hashes that cannot be altered. These hashes are then used as an input to the next transaction. Then, these entries are timestamped to record their actual sequence and eventually, save time on having to revalidate each hash function altogether.
Integration with TowerBFT
TowerBFT is Solana’s version of the Practical Byzantine Fault Toleration (PBFT) system. The consensus algorithm uses PoH as its cryptographic clock in order to reach blockchain consensus without incurring massive messaging overhead and transaction latency.
Before the state of the ledger is finalized, validators vote on which version of the ledger is accurate. Then, their vote is locked-out. This means that they are prohibited from making a different vote on a future version of the blockchain that does not show that the record of the previous votes on it.
Like usual PoS systems, Solana also has validators that receive token rewards. By staking Solana’s native token (SOL), they can receive rewards proportional to the amount that they deposited.
8 Key Innovations of Solana
- Proof of History (POH) – Cryptographic clock for the blockchain.
- Tower BFT – Solana’s version of PBFT.
- Turbine – Blockchain broadcasting protocol.
- Gulf Stream – Forwarding protocol without mempools.
- Sealevel – Solana’s parallel smart contracts.
- Pipelining – Transaction Processing Unit.
- Cloudbreak – Accounts database.
- Archivers – Storage of blockchain history.
Let’s take a look at some of these key innovations in turn.
Turbine
Solana makes it easier for data to be transmitted to every blockchain node by dividing them into smaller packets. This helps Solana address bandwidth issues and increase its capacity to settle transactions faster.
Gulf Stream
Solana can achieve a network throughput of 50,000 transactions per second by easing the process of block confirmation. Gulf Stream facilitates the process of transaction catching and forwarding even before the next set of blocks for confirmation are finalized.
Sealevel
Thousands of smart contracts run in parallel with each other to achieve a more efficient runtime for Solana. Transactions that are in the same state of the blockchain can run concurrently.
Pipelining
A set of blocks that contain transaction information is quickly validated and replicated across all nodes in the network. Solana does this by assigning a stream of input data onto different hardware that are responsible for each of them.
Cloudbreak
Solana achieves scalability with no risk of sharding by organizing a database that simultaneously reads and writes transaction input. Cloudbreak establishes a data structure where transactions are processed in a software that utilizes every hardware responsible for indexing data.
Archivers
Solana’s network allows every node to replicate information from the blockchain according to the space available on their hardware. Archivers download their respective data from validators, and this data is accessible to the network.
Solana partners with Serum ($SRM)
Serum is a new high-speed non-custodial spot and derivatives decentralised exchange (DEX) built on Solana. The reason why Serum wanted to build on Solana is because it wanted to enable the best of both the centralised and decentralised worlds, that is, an exchange that is able to be resistant to censorship and non-custodial, yet fast, inexpensive and highly liquid. And this is only achievable because Solana enables Serum to run on an on-chain central limit order book (CLOB) that updates every 400 milliseconds.
What does this mean for cryptocurrency and Defi traders? It means that Serum will have the lowest latency and gas costs.
Lean more about Serum ($SRM)
SOL Token ($SOL): What is it and what are its uses?
Solana’s native token is $SOL. Currently, there is a circulating supply of 26 million SOL and it has a maximum supply of 489 million SOL.
Staking
Staking gives users the opportunity to earn rewards by delegating their SOL tokens to validators who secure the network. Since validators are also chosen based on the amount of stake they hold in the network, biggest staked validators are likely to be chosen to input transactions on the blockchain.
How to Stake SOL Tokens
Staking SOL tokens can also be a way for users to earn profit if they are just holding their tokens.
- Transfer tokens. To stake SOL tokens, users have to first transfer their tokens in wallets that support staking. These are wallets like Ledger Nano S.
- Make a stake account. A stake account will have a different address from the supported wallet that you will link it with.
- Select a Validator. After creating a stake account, you can choose from Solana’s validators to determine who you’ll delegate your SOL to.
- Delegate your Stake. Once you have chosen a validator, you can use your wallet to delegate your stake account to them.
Conclusion
The common problem with the earlier blockchains are issues concerning transaction settlement speed and bandwidth. With Solana’s new architecture powered by a new way to verify transactions and coupled with an efficient PoS mechanism, it can definitely be a strong candidate for platforms that could compete with Bitcoin and Ethereum.
Decentralised Finance (DeFi) series: tutorials, guides and more
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The DeFi series on this website also covers topics not explored in YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency
Learn about Yearn.finance ($YFI) and all its various hard forks and iterations:
- Yearn.finance ($YFI) farming with yEarn Pool
- YFII Yield Farming- the controversial $YFI Fork
- YFFI Yield Farming – Another fork of the popular yield farming Dapp
- Andre Cronje, Founder of yEarn.Finance ($YFI) talks DeFi with FTX
For in-depth information other specific DeFi projects, check out our DeFi token guides:
- ChainLink ($LINK) guide: A key link in the DeFi space
- Serum ($SRM): First look at FTX’s new DEX for the DeFi wave
- Solana ($SOL) explained
- Orion Protocol ($ORN) explained
- DeFi Money Market and DMM Governance ($DMG) guide
- Synthetix ($SNX): Everything you need to know about this top DeFi project
- Ampleforth ($AMPL) review: The essential guide to this DeFi protocol
- Trustswap explained- Next generation of DeFi transactions
- What is Compound Finance ($COMP)? A guide to hacks and tips on the latest DeFi platform
- What is AAVE ($LEND)?
- Balancer Finance Guide and Review ($BAL)
- THORChain ($RUNE) information and guide
- Fuse Network ($FUSE): What is it?
Tutorials and guides for the ESSENTIAL DEFI TOOLS:
- MetaMask Guide: How to set up an account? PLUS tips and hacks for advanced users
- Uniswap review and tutorial: Beginners guide and advanced tips and tricks
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