What is Solana? The Solana guide for dummies

Solana is a blockchain-based platform that is meant for hosting scalable decentralized applications. The project was announced by Anatoly Yakovenko during the period of the Initial Coin Offering(ICO) boom in 2017 with SOL as its native cryptocurrency.

Solana aspires to be an alternative to Ethereum by promising quick transactions at an exceptionally low cost. It uses the Proof-of-Stake consensus mechanism along with Proof-of-History to give an improved experience to users.

As of December 2022, Solana has a market cap of $5 billion with a circulating supply of 366 million SOL.

Who founded Solana?

Founder of Solana

Anatoly Yakovenko first introduced Solana in a white paper published in 2017. He described the concept of Proof of History(PoH) as “a proof for order and passage of time between events.” This system is used to encode the trustless passage of time into a ledger.

Yakovenko’s work history with Qualcomm enabled him to understand the significance of a reliable clock that can simplify network synchronization. He was of the belief that a resultant synchronized network would be much faster than traditional networks like Bitcoin; the only limitation being bandwidth.

The first Solana block came into being in March 2020. It got a major boost in 2021 when it raised $314 million in a funding round led by Andreessen Horowitz and Polychain Capital.

However, Solana suffered a major shock in November 2022 when its currency SOL lost 40% of its value in one day following the FTX liquidity crisis.

How does Solana Work?

How does Solana work

Solana is a blockchain platform designed to support smart contracts and decentralized apps(dApps), much like Ethereum.

Solana’s third-generation blockchain architecture allows it to support thousands of transactions on its first layer itself. It need not rely on off-chains or second layers to increase transaction speed on the mainnet.

This 2020 launched network has differentiated itself from its rivals by implementing some new technologies such as Proof-of-History.


The Solana blockchain relies on both proof-of-stake(PoS) and proof-of-history(PoH) consensus mechanisms.

PoS is a method of verifying transactions on a blockchain network. Here, validators are selected by the algorithm based on their stake to validate transactions. On completion of the process, the validators are rewarded with a fee or crypto.

PoH is a relatively novel concept. It is like a cryptographic clock that timestamps every block in the chain. It uses Bitcoin’s SHA-256 algorithm to do this within the limits of a decentralized network.

PoH is a high-frequency Verifiable Delay Function(VDF) that produces a unique and trustable output.

Scaling up blockchain networks often implies a gradual shift to centralization. Solana’s adoption of PoH is an attempt to provide users with high transaction speeds while maintaining its decentralized structure.

According to Solana, it has an average block time of 400 milliseconds and theoretically has the capacity to process 65,000 transactions per second.

Tower BFT

Tower BFT is Solana’s custom implementation of the Practical Byzantine Fault Tolerance(PBFT).

It leverages the PoH consensus as the network time clock to keep it secure. It is meant to focus on issues like differing ASIC speeds between nodes and the cost of rollbacks.


The turbine is a protocol meant to address the challenges of propagating large amounts of data on a decentralized network.

It breaks large data into smaller packets of up to 64kb and sends them to validators who further propagate them to a group of peers.

Gulf Stream

No, it is not about the warm ocean current flowing in the Atlantic ocean.

In the Solana ecosystem, Gulf Stream is a mempool-less transaction forwarding protocol.

Mempool is unconfirmed transactions that have been submitted but are not yet processed by the blockchain. They are in a sort of “in-between” state.

In Solana, validators can manage a mempool the size of about 100,000 transactions. It implies that taking a throughput of 50,000 TPS, a 100,000 mempool can be settled in a jiffy.


Solana uses the pipelining system used in CPU design to quickly validate transactions and replicate them across the network.


Sealevel is Solana’s parallel smart contracts run-time. It allows the platform to simultaneously process thousands of smart contracts in parallel.


The goal of this horizontally scaled state architecture is to facilitate 100% utilization of the software by exploiting concurrent read and write access to the account state.


Archives, as the name suggests, is a ledger store. It is Solana’s solution for storing petabytes of blockchain data. 

It is meant to prevent the centralization of data storage by allowing the implementation of Proof of Replication(PoRep) leveraging PoRep.

PoRep will enable a BitTorrent-like distribution of the ledger to Replicator nodes across the world.

These innovations are what make Solana, in Anatoly Yakovenko’s words “the most performant permissionless blockchain in the world.”

Why is Solana Unique?

Why is Solana unique

Solana was designed to overcome the shortcomings of early blockchain networks. Solana uses the Proof-of-History(PoH) mechanism to handle high network traffic volume. 

Blockchain can process only 7 transactions per second and Ethereum 1.0 around 20-30 transactions per second. In contrast, Solana can easily process 50,000 transactions per second.

Also, many older blockchain platforms such as Ethereum struggle with scalability issues. Solana meanwhile can quickly scale up. This helps it keep transaction costs low at $0.00025.

Apart from that, Solana also boasts of high censorship resistance on its network due to its system of using rotating validator nodes. 

All these factors help Solana stand out among a sea of more or less similar blockchain-based decentralized platforms.

Uses of Solana

Uses of Solana

Solana has several uses as a medium of exchange and in the domain of smart contracts, decentralized finance(DeFi), Non-Fungible Tokens(NFTs), and gaming.

1. Currency

SOL is Solana’s native cryptocurrency. It can be used in the Solana ecosystem to pay for goods and services. On Solana, users can create permissionless payment systems and automated financial contract systems.

2. Decentralized Finance(DeFi)

Decentralized financial institutions provide financial services without the involvement of a third party like the government. Raydium, Orca, and Solend are some examples of DeFi projects on Solana.

3. Smart Contracts

Smart contracts are electronic contracts that are automatically executed once certain conditions are met. Though pioneered by Ethereum, Solana is fast emerging as a rival in the arena.

4. Decentralized Apps(dApps)

dApps run on a peer-to-peer network and are free from the control of a central authority. They have been growing in popularity due to their emphasis on user privacy and free speech.

Magic Eden, Audius, and Rarible are some dApps developed on Solana.

5. Gaming

In the gaming sphere, Solana hosts much Play to Earn(P2E) games where users can earn crypto and NFTs by playing the games. LadderCaster, SolChicks, Aurory, and Battle of Guardians are some games available on Solana.

Solana vs. Ethereum

Solana vs Ethereum

Both Solana and Ethereum are decentralized, open-source blockchain technology-based platforms with smart contract functionality. While Ethereum pioneered the concept of smart contracts and dApps, Solana has been quickly catching up so much so that Solana was once dubbed an “Ethereum Killer.”

While Ethereum has the first-mover advantage, Solana has the capability to process as many as 50,000 transactions per second at a cost of a mere $0.00025 per transaction. On the other hand, pre-merge Ethereum could process only 30 transactions per second and the gas fee kept increasing with rising network traffic.

However, now that Ethereum has upgraded by merging its Mainnet Chain and Beacon Chain, it is expected to be able to process nearly 100,000 transactions per second while being more environmentally sustainable.

Plus, even though Solana has made great strides since its inception, Ethereum continues to hold its position as the second-largest cryptocurrency by market cap. As of December 2022, Ethereum(ETH) is trading at an average price of $1,200 while Solana(SOL) suffered a major fall in its price following the FTX crisis and is now valued at roughly $13.

While Solana has been introducing innovative products like Solana Pay, Ethereum has also upped the ante with its major upgrades. Hence, nothing can be conclusively stated about who will win in the future.

Will Solana Pay Overtake Bitcoin?

Will Solana Pay overtake Bitcoin

Solana(SOL) Pay is a digital payment app by Solare Labs- a consortium of Shere, Circle, Checkout.com, and all other organizations that participated in the development of Solana Pay.

It leverages the Solana blockchain network to offer immediate and free transactions to users. Considering the potential of what Solana PAy can do for crypto transactions, it has also been dubbed the Visa or PayPal of Web3.

The main advantage Solana Pay claims to have over Bitcoin and even Ethereum is that it allows the real-time transfer of SOL and other Solana tokens. 

Meanwhile, it is a known fact that the processing of Bitcoin transactions slows down when the network traffic increases. For example, Bitcoin can on average process seven transactions per second while consuming large amounts of energy.

Moreover, there is no concept of chargeback on Solana Pay and merchants can also get detailed private reports about transactions such as wallet type, currency, and transaction amount.

But the main question of whether Solana Pay can replace Bitcoin is tricky. The former is still in the early development stages while the latter has been in the game since the beginning. Even the gap between Bitcoin and its largest rival Ethereum is substantially large.

Bitcoin has a much bigger user base and whether a significant number of people would even adopt Solana Pay or not is doubtful. 

Plus, a number of security breaches on the Solana Network have also put a question mark on the security of its digital payment service. Any error or vulnerability will make the merchants and customers an easy target for hackers.

While Solana Pay wants to be the PayPal of Web3, it might take some time before customers and businesses come on board with the platform.

Trading in Solana

Trading in Solana

Investing and trading in Solana is quite a simple process as SOL is easily available on nearly all the major cryptocurrency exchanges.

1. Select an Exchange

The first step to buying Solana, or any cryptocurrency really, is to select an exchange. You need to find out which exchanges offer Solana and evaluate their reliability, speed, cost, and network security before finally deciding on one.

You can either use a centralized exchange or go for a decentralized one.

Centralized Exchanges(CEX)

CEXs are similar to traditional brokerage firms and the process is similar to trading in conventional securities. Another advantage of centralized exchanges is that they offer some form of customer support even though crypto is not as heavily regulated as stocks. Note that centralized exchanges often have KYC requirements as they have to comply with anti-money laundering laws.

Decentralized Exchanges(DEX)

In DEXs, there is no intermediary between buyers and sellers. Instead, there is a peer-to-peer network that enables users to transact among themselves. While decentralized exchanges provide users with a high level of privacy and anonymity, navigating them can be a challenge for beginners.

2. Transfer Funds into Your Account

The next step is to fund your account to pay for the amount of SOL you want to buy. You can use bank transfers, debit cards, or credit cards to transfer funds into your crypto account. To find out the transaction fee for such transfers some payment options(like credit cards) are charged more than others. 

3. Make the Trade

Now you’re all ready to buy and sell SOL. All you’ve to do is decide the amount of SOL you want to buy, find out the conversion rate and if it seems fine, confirm the transaction. If you already have some other cryptocurrency, you can also trade it and get some SOL coins.

4. Store Your Coins

After confirming the purchase, the next step is to store your SOL securely. You can make use of either a hot or cold wallet for this purpose.

Hot Wallets

These are wallets that are connected to the internet and are therefore 24/7 online wallets. The integrated wallets offered by many exchanges are also examples of hot wallets. While they are convenient for making transactions, hot wallets are also more vulnerable to hacking attempts.

Cold Wallets

These wallets are in the form of offline hardware that is not connected to the internet. These are generally in the form of a hard drive or USB and offer more privacy and security to the owner. However, remember that if you lose your private key to the wallet, you might lose access to your crypto forever.

Issues with Solana

Issues with Solana

Though Solana came up with many new features and has risen from nothing, it has been suffering from some serious problems like hacking attacks, network outages, and degraded performance that have certainly affected its reputation.

1. Security Breaches

Solana has faced multiple hacks in 2022 alone including a major one in August when more than 8,000 wallets were compromised and approximately $4 million was stolen. In October, Mango Markets lost over $100 million in a flash loan attack.

2. Network Outages

Since the beginning, Solana has been suffering from network outages; three major ones being in 2022 itself. In October, a misconfigured node caused the blockchain to stop processing transactions. In another incident, it went offline for nearly 18 hours in September 2021.

3. Regulatory Uncertainty

In July 2022, a class action lawsuit was filed against Solana. It accused the company of selling its token SOL as unregistered security and making illegal profits from it. The outcome of the lawsuit would’ve major implications for Solana and could open SOL to heavy regulatory scrutiny.

The FTX Crisis and Solana Crash

FTC Crisis and Solana Crash

In November 2022, SOL was hovering in the range of $30-$36 when it lost more than 50% of its value in one week and came down to $12-$13 in the second week of November.

The reason? Bankruptcy was filed by leading exchange FTX on November 11 and leading to a spectacular crypto market shakeup.

Bitcoin’s value fell by about 19% and Ether’s by 20% but it was Solana that suffered the most by losing 40% of its value in 24 hours.

The alleged reason for the Solana crash is that FTX and its sister firm Alameda Research dumped large amounts of SOL tokens to prop up FTX’s token FTT. This was done in an attempt to keep the now-bankrupt exchange afloat at the time.

Another reason is the fact that Solana had been deeply linked to FTX and its founder-CEO Sam Bankman Fried so much so that Solana was colloquially known as a “Sam coin” in the crypto world. It refers to those cryptocurrencies that Sam Bankman-Fried either invested in or were majorly backed by him.

It seems like FTX’s advocacy for the Solana one-layer blockchain came back to bite the latter.

Despite Anatoly Yakovenko’s assurances that Solana Labs had no assets held-out on FTX and had 30 months’ financial runway, developers and investors seem to be inclined toward an exit from the platform.

Despite its market cap shrinking from $11 billion in November 2022 to $5 billion in December, it is probably better for Solana that the connection with FTX and Bankman-Fried is severed now.

Though SOL is struggling to recover its value since the FTX crisis began, there are hopes that it might sail through and emerge stronger in the long run.

The Bottom Line

Solana was an ambitious project when it was launched. It put forward an ecosystem that proposed a solution to the scalability issues plaguing platforms like Ethereum. Promising fast transaction processing at a nominal cost, Solana was a lucrative option for developers to develop their dApps.

Solana worked its way up from scratch and was growing in a positive direction but the FTX crisis hit it particularly hard. It lost more than 50% of its value in just one week. The gaps in its security architecture and the numerous hacks have not done its reputation any favors either.

It remains to be seen whether Solana will bounce back or not but it would be in the interests of its investors for Solana to come back stronger from this crisis.

More from author


Please enter your comment!
Please enter your name here

Related posts


Latest posts

What is Crypto Winter?

Remember the spectacular crash of TerraUSD and Luna stablecoins at the beginning of 2022? Sure, it seems like it was a lifetime ago but...

What is Cryptocurrency Lending? |Can we Lend Crypto|

The cryptocurrency industry has grown by leaps and bounds in the past few years. One of the latest and quite popular offerings is cryptocurrency...

Best Must Have Crypto ChatGPT Plugins in 2024

Artificial Intelligence(AI) models are becoming smarter and more complex day by day. The AI chatbot ChatGPT is at the forefront of these advancements. It...

Want to stay up to date with the latest news?

We would love to hear from you! Please fill in your details and we will stay in touch. It's that simple!