As innovative as blockchain technology is, it faces certain challenges, including high fees, scalability issues, low performance, and more.

Several projects in the DeFi space are competing to become the first web-scalable blockchain and ensure that users have the best experience by tackling these common problems.

One of them that is gaining popularity in the DeFi community is Solana. This open-source censor-resistant blockchain uses a comprehensive set of technologies to increase scalability and provide a robust network for building decentralized applications (dApps).

The Solana (SOL) platform was founded back in 2017. It began trading for less than $1 per coin. Since then, its value has skyrocketed, with Solana trading for more than $140 as of January 2022. According to CoinMarketCap.com, it is one of the top ten most valuable cryptocurrencies in terms of total value.

What is Solana?

Solana is a decentralized computer network that uses a blockchain ledger to function. It was created by Anatoly Yakovenko. Like a long-running ledger, this blockchain database controls and tracks the money and essentially records every transaction that has ever occurred in it. The money transactions are recorded on the computer network, which also checks the data’s integrity.

Solana is a decentralized protocol for building dApps with a reported performance of 65,000 XNUMX transactions per second (TPS) thanks to its distributed computing system.

Unlike most protocols that work with Proof of Stake (PoS) or Proof of Work (PoW), Solana uses Proof of History (PoH), a new cryptographic mechanism that increases scalability while maintaining network security.

Solana is one of the few level one solutions capable of supporting thousands of transactions per second without having to apply second layers or out of chains.

What makes Solana different?

The main concept that is embedded in the Solana and distinguishes it from all previous blockchain chains is the proof of history, which provides it with the highest performance among all blockchain chains from Layer-1 at the time of writing. This also applies to smart contracts, thanks to the Sealevel system, which is the world’s first parallel implementation of smart contracts.

Solana is designed for speed, with a current transaction rate of over 50 000 per second. On the other hand, Bitcoin and Ethereum handle 5 and 16 transactions per second, respectively. Visa’s payment network, for example, is estimated to process over 1 700 transactions every second on average. Projects that use decentralized blockchain-based apps to replace the financial system, as we know it, will need faster transaction processing rates, so Solana seems like the right spot for that.

The Sol Token

SOL is a native and useful Solana token, used for betting and transaction fees. This is an inflation sign, but it’s designed with declining supply and a 1.5% annual inflation rate.

SOL launched in March 2020 amid the launch of the beta test network and aims to become one of the leading cryptocurrencies.

The current circulating supply of SOL is 260 million. The maximum supply of SOL caps at 489 million SOL. SOL also has additional use cases, you can stake the token to earn additional rewards.

The rise of Solana’s NFTs

Solana is booming in popularity this year, mainly due to the huge increase in price. From the beginning of 2021 until now the cryptocurrency has increased by about 10970% , at the time of this writing.

Much of this came thanks to the explosive growth of irreplaceable tokens in Solana’s blockchain. The reason people preferred it to Ethereum was simple – it was cheaper and much faster – users could invent NFT at almost no cost, and there were hundreds of projects that developed.

Solana’s challenges

Still, Solana has inevitable setbacks to deal with. Although the protocol can compete with high-profile blockchain projects, it is still vulnerable to centralization because there are not as many blockchain validators.

This is something that Solana has been criticized for: anyone on the web can become a validator, but it is a challenge as it requires a lot of computing resources. Solana network only has 1,000 validators to date. The more the number of validators, the more secure the network.

Is Solana still a good investment?

This might be a generational purchasing opportunity in a new asset class or a speculative bubble. In any case, diversity is usually a good idea when it comes to investing. Without offering investment advice, conduct some study on smart contracts and Solana and establish your own opinion about the future. If you believe smart contracts and blockchain technology have a bright future, it may be good to include some Solana in your cryptocurrency portfolio.

Final thoughts

Solana has big plans for the future, but many of those plans still remain in beta testing. Until those plans are put into action by the company, it will not be possible to analyze how successful the crypto might become.

Solana is a cryptocurrency with a lot of potential. It stands out among the hundreds of cryptocurrencies on the market by demonstrating steady growth and promise. Its fast, scalable, and programmable blockchain provides the necessary infrastructure to build applications that can be adopted worldwide. Its huge bandwidth, low fees, and fast processing and validation make it one of the best working blockchain chains.

However, if you want to trade Solana, you should be aware of the risks, since you might lose your entire investment. Crypto is not just risky, but it is also rarely backed by assets or cash flow. As a result, if you’re trading cryptocurrency, don’t risk money you can’t afford to lose.

1 thought on “What is Solana and how does it work?”

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