Solana blockchain explained
Solana is a leading blockchain-based platform that provides smart contract functionality for developers to create their own decentralized applications.
Blockchains like Solana allow a network of users to track information in a peer-to-peer way. Solana is not reliant on a single intermediary, like a person or a company, to verify information stored on its blockchain. Instead, this information is collectively shared and updated across the blockchain network itself.
Smart contracts, like those used on Solana, allow individuals to define and automatically execute actions based on pre-defined conditions. Smart contracts are the building blocks of much of the functionality on the Solana blockchain. Leveraging these smart contracts, blockchain developers can create their own unique decentralized applications (dApps), crypto tokens, and other services on the Solana blockchain for others to use.
SOL cryptocurrency explained
The native cryptocurrency of Solana is SOL.
To use different products and services that exist on the Solana blockchain, the network charges users a small fee. Many similar blockchains refer to this transaction fee as a gas fee, but Solana refers to it as a transaction fee. Solana network users pay this fee using the native asset of the Solana blockchain, the SOL cryptocurrency.
Aside from being the native currency of the Solana blockchain, SOL plays many other important roles.
SOL tokens serve an important role in Solana's proof-of-stake consensus mechanism. The staking process is one method blockchains use to reliably store information in a decentralized and immutable way. SOL holders can take part in this process by dedicating their tokens to the network in a process known as staking. Solana staking uses a series of incentives that encourage SOL holders to accurately record and store information on the blockchain. In return for their contributions and honesty, SOL stakers can earn periodic rewards for helping to secure the network.
SOL holders can also can also use their SOL to participate in Solana's network governance structure.
Governance tokens give holders a say in the strategic management of the network. In short, SOL holders can raise and vote on proposals that change the way the Solana blockchain operates. This governance functionality is becoming an increasingly important consideration for crypto market participants, as they look for blockchain projects that have a transparent and decentralized governance structure.
What makes Solana unique?
Solana has differentiated itself from other blockchain networks by offering a platform that has faster transaction speeds and lower fees than many other blockchains.
Although Bitcoin and Ethereum are still the projects with the largest market capitalizations in the cryptocurrency market, Solana's focus on increasing speed and lowering fees has helped it rise within the blockchain space. Solana's ability to process a comparatively high number of transactions per second with lower transaction fees has helped it become a popular choice for decentralized finance (DeFi) and non-fungible token (NFT) projects.
In contrast to many newer blockchains that still developing an ecosystem of apps and projects, Solana offers a vibrant community of different products and services. This ability to integrate with and build alongside projects with existing userbases has made Solana an attractive blockchain for many new crypto project developers.
Who created Solana?
The original co-founders of the Solana blockchain include Anatoly Yakovenko, Greg Fitzgerald, Eric Williams, and Raj Gokal.
Anatoly Yakovenko is the CEO of Solana Labs and was previously a software engineer at Qualcomm for several years before co-founding Solana.
In 2017, Yakovenko began working on the Solana blockchain project. His goal was to create a high-performance, scalable blockchain network that could support decentralized applications and other blockchain-based projects. He believed that the existing blockchain networks were not capable of supporting the level of transaction volume needed for widespread adoption of decentralized applications.
Greg Fitzgerald is the Chief Technology Officer and principal architect of Solana, and has a background in software engineering and architecture. Before co-founding Solana, he worked as a Chief Scientist at Qualcomm.
Eric Williams is a Berkeley University graduate and the former Director of Data Science at Omada Health.
Raj Gokal is a serial entrepreneur. Formerly the co-founder of Sano, and the Director of Product at Omada Health, Gokal now sits as a board member for the Solana Foundation.
Launched in March 2020, the public blockchain network has attracted the attention of thousands of retail and institutional investors alike. In November 2021, Solana's market capitalization reached an all-time high of $63 billion. This cemented the project as one of the strongest-performing top 10 cryptocurrency projects in the market at that time.
How does Solana work?
Solana is a blockchain platform that operates on a proof-of-history (PoH) consensus mechanism.
Blockchains use a network of computers, called nodes, to verify new pieces of information entering the database. Consensus algorithms are programs that make sure these decentralized nodes verify information in the correct way. Consensus mechanisms allow blockchains to automate processes that previously relied on some form of centralized intermediary. They are also what makes blockchains a highly tamper-resistant and reliable way to store information.
Solana's PoH mechanism timestamps transactions with a cryptographic clock. This cryptographic technique allows transactions to be added to and verified on the blockchain in a way that reduces the need for real-time communication between nodes.
Solana also uses a second consensus mechanism called proof-of-stake to settle and finalize transactions. While PoH records, organizes, and tracks the time between events, PoS is used to finalize all transactions and build consensus among the network regarding the validity of those transactions.
This combination of proof-of-history and proof-of-stake allows Solana to process significantly more transactions per second than many other blockchains on the market today. Many see Solana's focus on speed and efficiency as the most important factors that have contributed to Solana's growth.
It also allows Solana to be more energy-efficient than proof-of-work (PoW) consensus mechanism blockchains, such as Bitcoin, Litecoin, and Monero.
The Solana blockchain ultimately serves as the foundation upon which other blockchain-based decentralized applications can be built. Solana allows these applications to rely on their blockchain infrastructure as their developer teams create their own unique functionality.
In this way, Solana serves a purpose similar to a computer's operating system. By setting this foundation and building out this operating system, developers can build different applications serving their own unique purposes.
How does SOL work
SOL, the native token of the Solana blockchain, plays an important role in allowing the Solana blockchain to operate.
Many individuals primarily use SOL as the medium of exchange to transfer value between each other using the Solana blockchain. Solana's transaction processing system is designed to be low-cost and fast. These characteristics make SOL the ideal medium for sending transactions. Compared to traditional currencies and methods like bank transfers, people can send SOL around the world faster and more cost-efficiently.
Holders can also use SOL to pay for transaction costs that users incur while using Solana's ecosystem of products, services, and decentralized applications. This network transaction fee serves as an incentive, which helps to make sure that transactions and information associated with these services are maintained in an accurate way.
SOL also plays an important role in helping to make sure information is recorded in an accurate way. This process, also known as staking, allows SOL holders to earn a reward for their contributions in helping to secure the Solana blockchain.
While this speed and cost efficiency is certainly important for the SOL token itself, it also makes Solana a go-top choice for decentralized finance (DeFi) applications.
The Solana blockchain serves as the foundation upon which hundreds of different decentralized financial service products are created. From decentralized exchanges to lending and borrowing platforms, Solana has one of the most robust offerings of DeFi services in the market today.
The Solana public blockchain network supports a range of different ways to store and protect cryptocurrencies, including SOL. These custody options include mobile wallets, desktop wallets, and hardware wallets.
The platform allows users to create and exchange other types of cryptocurrencies, non-fungible tokens (NFTs) as well as other types of digital currencies such as stablecoins.
The market determines the prices of SOL coins based on the demand for the coin. Overall cryptocurrency market sentiment can also impact SOL prices. Price volatility can also influence SOL token prices, which is a measure of how much the price of a cryptocurrency changes over time.
Solana Pay is a payment processing system that allows merchants to accept payments in SOL digital coins. The price of SOL coins is an important factor for merchants who accept payments in the cryptocurrency, as it can impact their revenue and profitability.
Crypto users can purchase SOL from a wide range of platforms, including digital asset exchanges and mobile crypto applications. Often times, traders will choose a crypto platform like Kraken when purchasing their SOL.
Solana's tokenomics
The Solana protocol automatically regulates how new SOL coins enter into circulation. Initially, the protocol inflation rate was set to 8%. Each year, the protocol is set to drop this rate by 15%. Each time a person uses SOL coins to pay for a transaction, the protocol automatically burns 50% of the tokens involved. This token burning feature also helps to reduce the inflation rate of SOL tokens.
Despite these features, SOL is not considered a deflationary asset. SOL has an unlimited maximum supply, and the issuance rate of SOL coins is often much higher than the burn rate.
As a result, rising supply may negatively impact SOL prices over the long-term if demand for the digital asset falls.
Solana price history
The SOL price history is a relatively short one, as the Solana team launched the project in March 2020. Initially, the SOL token price was at around $0.22 per token. By the end of 2020, the SOL price had already surpassed the $1 mark as trading volume increased.
In 2021, the SOL price experienced a significant surge, reaching an all-time high of $260 in September of that year. This increase was largely due to the increasing adoption of Solana as a blockchain platform for DeFi applications and NFTs.
Like many other cryptoassets, SOL's price fluctuates throughout the year and can be impacted by macroeconomic factors and events. In the fallout of the FTX collapse, SOL experienced significant price and trading volume declines.
Even still, Solana is still one of the largest blockchain projects by market capitalization. Multiplying the total number of units of an asset in circulation by the market price of each unit calculates the market cap. Solana's comparatively large market cap demonstrates the wider crypto community's belief in the future of the Solana ecosystem.
Crypto market participants that see a long-term prospect in the Solana blockchain may choose to dollar cost average (DCA) in SOL tokens. For those not interested in timing the market or finding the perfect time to buy, dollar cost averaging may be the most effective strategy for accumulating SOL.
By setting up a recurring buy of SOL, you can accumulate SOL regularly over time. Those that believe in the potential of the Solana blockchain over the long term may choose to simply set up a recurring buy of SOL tokens on a regular basis rather than making a large, one-time purchase of SOL all at once.
Solana NFTs
Of all the blockchain networks that exist, Solana has one of the most active and extensive NFT offerings on the market. Many choose to host and trade NFTs on Solana for the same high throughput and low-cost motivations that drive them to use it's DeFi applications as well.
However, the reasons people choose Solana for NFTs over other networks like Ethereum or Polygon do not end there. Solana's NFT marketplace is full of active collections that people can trade across other secondary marketplaces like Kraken NFT.
Well-known Solana NFT collections include Solana Monkey Business and Degenerate Ape Academy.
Degenerate Ape Academy represents a collection of 10,000 unique ape-inspired artworks. When the collection first launched in 2021, it attracted a huge following. The artworks sold out in eight minutes and achieved a sale volume of $5.9 million. The frenzy pushed SOL prices to a new all-time high of $63 shortly after the sale.
Solana Monkey Business continues to be one of the most expensive and sought-after collections launched on the Solana blockchain.
In April, 2023, a decentralized autonomous organization (DAO) consisting of Solana Monkey Business NFT holders bought the collection's intellectual rights for $2 million. Known as the MonkeDAO, the proposed deal received a 96.6% approval rate from voters. This deal gave members of the DAO full legal rights over the creative works, and enables them to produce things like merchandise or new related collections.
These collections feature vibrant online communities where members share their passion for the project on forums such as discord and reddit. These online environments allow NFT community members to network, share ideas about new ways to grow the project, and participate in real-life events as well.
Check out the Solana NFT collections page to see all of the exciting NFT collections that are available for you to explore, collect, and trade.
What to consider before buying Solana
Before buying Solana, you may want to consider some important factors. First, you should do your own research (DYOR) on the project. While we have already outlined many of the key facts you will need to consider, you should feel empowered to check these points yourself as well.
It is best to understand both the upside and downside potential of purchasing SOL tokens.
First, it is best to check out Solana's website to understand their overarching mission and objectives. There, you can find specific documentation on how the project operates and what makes it unique. You will also be able to find the Solana white paper that lays out all of the technical details of how the protocol operates from their site as well.
It is important to consult several different sources when evaluating a cryptocurrency to make sure that you have a clear and unbiased overview of the asset. Be sure to evaluate the quality of the sources by verifying the key points against other sites as well.
Consider your goals with your Solana purchase as well. Since SOL's market price can change significantly during short-term periods of market volatility, it is best to keep this in mind when making your purchase. Because Solana is still in its comparatively early days in terms of global adoption and integration into daily life, it may be best to take a long term view on your purchase.
Another factor you should consider before buying SOL is where you will keep the asset. There are a variety of different custody methods available for you.
In short, hot wallets are crypto wallets that remain connected to the internet. These wallets are convenient for people that may be actively transacting with their SOL on a regular basis. However, because they maintain a connection to the internet at all times, they can be more at risk to different types of cyber attacks.
A vast majority of cryptocurrency hacks, including high-profile exchange breaches, have occurred because of infiltrated hot wallets. It's important to remember that cyber criminals can target anything connected to the internet.
Cold wallets represent a more secure alternative to hot wallets. These physical devices remain offline until they are connected to the internet to perform transactions. Cold wallets resemble USB sticks, or small handheld devices, and can be stored in vaults or safes to increase security. This makes them much more resilient against different types of online attacks, but also means that they can require users to complete additional steps to transfer funds to another wallet or crypto platform.
Ultimately, choosing which wallet is best for you comes down to what you plan to do with your SOL. If you're looking for convenience and ease-of-use, then perhaps hot wallets are a more appropriate option for you. However, if you're concerned about security, then cold wallets might be better suited to your needs.
Regardless of your decision, it is still important to think about how you will be keeping your SOL safe before you decide to make your purchase.
How to buy Solana
After you have determined your goals with your Solana purchase, done your own research, and selected the right custody method, the exciting part begins! You are ready to buy SOL.
The Kraken Learn Center offers a complete, step-by-step guide for How to buy Solana (SOL).
You can get started by checking out that article or following the steps below.
Thankfully, Kraken makes buying SOL a simple three-step process.
- Create your free Kraken account
- Connect your funding method
- Buy Solana with as little as $10
Once you have created your Kraken account and connected your preferred funding method, buying SOL or even setting up recurring buys to dollar cost average your SOL purchases is as easy as buying nearly anything else online.
Dollar cost averaging refers to the process of systematically buying a fixed amount of an asset per a strict schedule. For instance, you might decide to buy $10 worth of SOL every Monday at 00:00 UTC. Over time, this strategy can sometimes help to mitigate the effects of price volatility and result in a better average purchase price when compared to investing the total amount in one go.
To make things easier, Kraken fully automates this process for you. Simply select the recurring buy option in the Kraken trading app and configure it based on how much you'd like to buy, and what frequency you'd like to repeat the purchase.
What can you do with SOL
Across the Solana ecosystem and wider cryptocurrency economy, there are several ways SOL holders can use their SOL tokens.
- Send SOL to others: Because SOL can be sent around the world nearly instantly and with minimal fees compared to traditional services, many see SOL as an ideal cross-border medium of exchange.
- Pay transaction fees on the Solana blockchain: Even with all of the other functionality that SOL has, SOL is most often used to pay for transaction fees when interacting with decentralized applications and different types of services that exist within the Solana ecosystem.
- Stake SOL to earn rewards: SOL holders can decide to stake their SOL rather than simply holding it. This step allows SOL holders to help secure the Solana network and earn a reward for their contributions in return.
- Trade NFTs with SOL: NFT traders can use SOL to buy, sell, or trade NFTs. There are hundreds of NFT collections available on the Solana blockchain. SOL can be used to purchase these NFTs from several different NFT marketplaces, including Kraken NFT.
- Margin trade with SOL: Also referred to as trading with leverage, margin trading allows traders to borrow additional funds to increase the size of their positions. While margin trading can be complex and risky, it can also help to increase the potential earnings from profitable trades.
- Trade SOL over-the-counter (OTC): For those looking to place a large trade with private and personalized services, SOL can be bought over-the-counter from an OTC desk such as Kraken OTC.
Why does Solana have value?
Solana draws its value from several different factors.
Many blockchains draw their reliability and functionality from adoption. As more nodes join the network from around the globe, the network becomes increasingly more secure. This security provides users with peace of mind that the Solana blockchain will operate as expected.
Blockchains like Solana that are able to provide a reliable and stable platform upon which developers can reliably build different products, services, and functionality have often been well received in the market.
Beyond deriving value from the trust people have in the network's ability to continue operation, SOL draws value from other places too. Like all cryptocurrencies, holders can use SOL to pay for different types of goods and services. In a private sale between individuals, it's possible to use SOL in the place of any other form of traditional payment. This flexibility allows individuals to transfer value directly between each other, without the need to involve a financial institution like a bank in the transaction.
However, many feel that SOL's real value lies in its ecossystem of decentralized applications. As the native cryptocurrency of the platform, SOL serves as the local currency to interact with different types of decentralized applications. On Solana, most decentralized applications will use SOL in some capacity to help pay fees, purchase items, or for a number of other purposes. Most people purchase SOL to harness the power of blockchain technology as they take part in the the different services available across the Solana ecosystem.
