What’s all the hype about Solana? What exactly is Solana? How does it work? And why is it surging? Is Solana a good investment? Is Solana really the ‘Ethereum Killer’? In this article, we’re covering everything you need to know about the Ethereum strong rival Solana in 2022.
With that being said, let’s get down to business!
Founded in 2017 and intended to host scalable, decentralized applications, Solana is a blockchain platform that is currently managed by the Solana Foundation in Geneva. SOL, the native coin of Solana, is mainly used for transaction fees and staking on the Solana blockchain. Staking is the main application for the native token SOL on the network. The integrity of the blockchain network is actively supported by users through staking. You can either directly stake SOL onto the blockchain or assign this task to active validators.
In exchange for staking SOL, token owners get a cut of on-chain transactions rewards as payment for assisting the network’s ongoing functionality. Validators receive rewards for staking based on how much of their SOL was staked. Of course, your chances of having your staked Solana coins selected and receive a reward increase with the quantity of SOL you stake on the blockchain. SOL can also be used to pay transaction fees on the Solana network.
Solana makes use of an innovative mechanism called Proof-of-History (PoH), which is based on The Proof-of-Stake (PoS). When compared to the Ethereum blockchains and other prominent blockchains, SOL is substantially faster when it comes to the quantity of transactions it can handle, with far cheaper transaction fees that further increases its appeal. Since Solana can process about 50,000 TPS , compared to Ethereum’s maximum of 15 TPS, it is aptly called the ‘Ethereum Killer’.
How Does Solana Work?
In November 2017, Anatoly Yakovenko, a co-founder of Solana, presented a white paper outlining the Proof-of-History (PoH) idea. Proof-of-History provides a proof for validating the sequence of events and the time between these events. The purpose of Solana’s technology is to show that it’s possible to create a blockchain without any performance constraints from the software.
According to Yakovenko, today’s blockchains do not depend on the factor of time because all nodes in the blockchain network use their own local clocks and are unaware of the clocks of any other network participants. The idea of PoH overcomes this problem by enabling each node in the network to rely on the time-stamped events in the ledger.
So, both the PoH and PoS models are used by Solana to run its blockchain. Thanks to PoS, validators get to validate each transaction based on the number of tokens or coins they have. While PoH timestamps each transaction and immediately verifies it.
Why Solana (SOL) Cryptocurrency Surging
According to Nasdaq, several market observers have predicted that SOL is going to ‘burn’ tokens. When you get rid of a predetermined number of Cryptocurrencies, the remaining Cryptocurrencies gain more value because of the increased level of scarcity. Now, Solana employs a token burning strategy to burn a percentage of transaction fees.
Another reason why Solana may be surging is the increased popularity of decentralized finance (DeFi). Financial institutions and developers expect that SOL will be one of the most important components in the Crypto market thanks to its low costs, fast technology, and stable network.
Is Solana a Good Investment?
Yes. Solana is widely believed to be a good investment in 2022. If we compare Solana to other top smart contract platforms, Solana offers quicker transaction completion and substantially lower fees. Additionally, Solana is extremely well-funded and has the support of important organizations, including Multicoin Capital, FTX exchange, and Alameda Research. Finally, Solana offers a user-friendly platform and wallet, which helps not only seasoned Crypto investors to easily carry out transactions on the platform, but also novice investors who are just getting started.
However, just like any other investment, investing in Solana comes with risks. For example, venture capital firms and early insiders hold a significant percentage of SOL, which leads to undesirable wealth concentration. Solana also has problems when it comes to network stability, which further increases the risk of investing in it. Additionally, despite being highly effective now, ‘monolithic layer-one’ design is expected to face problems scaling into the numerous transactions per second.