What is Solana (SOL)?

Solana is a blockchain network that aims to solve for the blockchain trilema of balancing security, scalability and decentralization. Solana aims to deliver a high performing blockchain that can process hundreds of thousands of transactions per second, while still keeping fee to just a few cents. 

Solana serves a range of use cases, including decentralized finance (DeFi), non-fungible tokens (NFTs), payments and gaming.

Solana leverages smart contracts written in the Rust programming language to enable the creation of decentralized applications (dApps) and execute complex, autonomous agreements on its network.

Solana’s native token, SOL, is classified as an infrastructure token. These types of projects focus on enhancing the functionality, efficiency, and security of blockchains (in this case, Solana) and their dApps.

More specifically, Solana falls under the layer-1 token category and specifically seeks to cover network transaction fees associated with using applications on the Solana blockchain.

Holders can also stake their tokens with validator nodes to earn rewards, as well as transaction fees from the network’s users (denominated in SOL).

Kraken offers SOL, as well as 250+ other types of cryptocurrencies.

Solana achieves relatively high transaction throughput with low transaction fees compared to other Layer-1 blockchain platforms thanks to its Proof of History (PoH) consensus mechanism. 

Additionally, users can stake SOL tokens to contribute to the decentralized network’s security, while earning rewards for doing so.

Solana’s main components are:

• Dual Consensus: This consists of the PoH mechanism paired with a delegated Proof of Stake (DPoS) one. PoH allows for more efficient transaction timestamping, meaning the network can theoretically process many thousands of transactions per second. Solana is the first network to implement the PoH consensus mechanism. DPoS encourages community participation and decentralization by allowing token holders to delegate their voting power to trusted validators, who are responsible for validating transactions and maintaining the network. This delegation process ensures that the network remains secure and robust, as validators are incentivized to act in the best interests of the community to maintain their reputation and position.

• Cryptographic Timestamps:The Solana blockchain employs cryptographic timestamps to ensure precise timing for each transaction by generating a unique hash, or digital fingerprint, for every transaction. These hashes are sequentially added to the Proof of History (PoH) chain, creating a verifiable chronological record of the blockchain's history. When a new transaction occurs, network validators confirm its validity and timestamp by verifying that its hash aligns with the current hash on the PoH chain.

• Tower Byzantine Fault Tolerance (BFT): Solana's implementation of Practical Byzantine Fault Tolerance (PBFT) aims to prioritize network availability over data consistency. Tower BFT uses Solana's PoH as a clock to reduce communication overhead and latency.

Solana is engineered for mainstream use thanks to its scalability (the ability to grow) and efficiency (the ability to get the most information across with the least amount of resources).

Here's a closer look at its key features:

• Quick transactions: Solana’s transaction speeds enable it to process thousands of transactions per second, making it an ideal environment for real-time applications like gaming and high-frequency trading on decentralized exchanges (DEXs). In fact, Solana can theoretically handle up to 710,000 TPS (transactions per second) on a standard gigabit network and 28.4 million TPS on a 40-gigabit decentralized network.

• Low Fees: Transactions on Solana cost a fraction of a penny, making it useful for micropayments.

• Scalability: Technologies like PoH and Tower BFT allow Solana to handle increased transaction volumes without sacrificing speed or efficiency.

• Energy efficiency: Solana prioritizes the use of resources to ensure that it can handle high-throughput applications while minimizing its environmental impact.

Solana bypasses slow, expensive, and energy-intensive validation mechanisms with its delegated proof of stake and proof of history consensus mechanisms.

This allows Solana to process transactions efficiently (thousands of transactions per second) and cheaply (transaction fees under $0.01), while minimizing overall energy consumption.

Someone may wish to purchase SOL for the following reasons:

• Participate in protocol governance: SOL is used to empower the community to actively participate in the decision-making process of its protocols, ensuring a more democratic and inclusive approach to project management. 

• Stake SOL: staking allows SOL owners to earn potential rewards by actively participating in the validation of transactions. 

• Use Solana’s dapps: SOL is used to participate in blockchain-based services like purchasing in-game items and accessing decentralized exchanges.

• Pay for transaction fees: These fees compensate validators for their work in processing and verifying transactions.

• Transfer value: SOL can be sent to other users as a form of payment (for example, using Solana Pay) or to transfer value across the Solana network.

Solana was launched on March 16, 2020, by founding members Anatoly Yakovenko, Raj Gokal, Greg Fitzgerald and Stephen Akridge.

Key Founders

Anatoly Yakovenko

• Title: Co-founder

• Professional Background/Qualifications: Yakovenko came up with the original idea for Solana in 2017 while working in the field of distributed systems design for semiconductor manufacturer, Qualcomm. 

• Key Contributions: His inspiration for Solana, and specifically its novel proof of history consensus mechanism, came from his realization that network synchronization could be simplified by a reliable clock. While traditional networks and even some blockchains use a centralized source as their clock, Yakovenko wanted to apply this in a decentralized way to a blockchain platform. Serving as a decentralized clock is the core function of the proof of history consensus mechanism, allowing Solana to process transactions at a greater speed than legacy blockchains, as well as global payment systems like Visa. In 2017, Yakovenko published a whitepaper describing the proof of history system, which would become the foundational blueprint for the Solana blockchain.

Other Contributors

Raj Gokal 

• Raj Gokal is the Chief Operating Officer of Solana Labs and co-founded the company with Anatoly in 2017. His expertise lies in scaling businesses, demonstrated by his medical device startup, Sano, which raised over $20 million in funding. Additionally, he played a pivotal role in product management at Omada Health, where he oversaw a tenfold growth during his tenure.

Greg Fitzgerald 

• Before Anatoly Yakovenko developed the foundational design of Solana, he collaborated with Greg Fitzgerald at Qualcomm. Fitzgerald convinced Anatoly to apply his concept of a reliable network clock to blockchain technology. In 2018, Fitzgerald prototyped the ideas presented in Anatoly's proof of history whitepaper. On February 28, 2018, he successfully demonstrated that 10,000 signed transactions could be verified and processed in roughly half a second using proof of history.

Stephen Akridge 

• Stephen Akridge worked alongside Greg Fitzgerald and Anatoly Yakovenko at Qualcomm before joining them as a co-founder of Solana. Leveraging his experience in GPU optimization, Akridge significantly improved Fitzgerald’s initial proof of history network prototype by demonstrating that throughput could be greatly enhanced by offloading signature verification to graphics processors.

Solana receives support from several foundations and organizations committed to the development of the blockchain:

Solana Labs – Develops products, tools, and reference implementations for the Solana blockchain. 

Solana Foundation – A non-profit foundation based in Zug, Switzerland, dedicated to the decentralization, adoption, and security of the Solana ecosystem.

To fund the launch and development of the platform, the Solana team raised capital from external investors:

Starting with a seed round in January 2018, the project steadily secured investments through multiple private and validator sales, raising approximately $15 million. In July 2019, Solana completed a Series A round, securing $20 million from investors such as Rockaway Ventures, Foundation Capital, and Multicoin Capital. In June 2021, Solana conducted an Initial Coin Offering (ICO), raising $314.15 million from prominent investors, including a16z, Jump Trading, and Polychain Capital.

Solana does not have a maximum token supply limit, and has over 570,000,000 tokens in circulation, as of July 2024.

An initial supply of 79,250,000 SOL token were released at launch, which was distributed as follows:

• 15.86% to seed sale.

• 12.63% to founding sale.

• 5.07% to validator sale.

• 1.84% to strategic sale.

• 1.60% to public auction sale.

• 12.50% to Solana team.

• 12.50% to the Solana foundation.

• 38.00% to community reserve.

SOL began with an annual inflation rate of 8%, increasing the circulating supply each year by 8% to incentivize network participation and development. However, this inflation rate is not fixed and decreases by 15% every two years until it stabilizes at a permanent rate of 1.5%. As of 2024, the inflation rate is approximately 5.427%.

Additionally, transaction fees are partially burned, with the remainder collected by the validator that produced the block containing the corresponding transactions. Specifically, 50% of the fees are burned, and the other 50% are distributed to the validator, contributing to SOL's deflationary characteristics.

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