One of the fastest cryptocurrencies at the heart of a decentralisation controversy. What’s all the hype about?
What is SOL?
Solana is a Layer 1 blockchain that prides itself on speed, security and its resistance to censorship.
You may also know it by its native token“the ETH killer” or as one of the top 10 tokens on CoinMarket Cap (CMC).
Like other top crypto tokens, it’s decentralised meaning no one person has direct control over the network.
It’s also classified as permissionless meaning any user can anonymously join the blockchain.
Some quick facts for those not yet acquainted:
- Market Cap — $28 Billion (9th most valuable crypto token)
- Current price of $82.60
- Public blockchain
- Both a cryptocurrency and flexible platform dApps and DEXs
Why use SOL?
It was created in 2017 to accomplish the goal of creating an infinitely scalable blockchain which could handle an almost unlimited number of transactions.
For context’s sake, here’s Solanas proposed throughput (speed) in comparison to other popular blockchains:
Ethereum (ETH)— 15 Transactions Per Second (TPS)
Bitcoin (BTC) — 7 TPS
SOL — 65000 TPS (fastest known active blockchain to date)
SOL is evidently much faster than it’s competitors. It’s also much cheaper:
Average Eth Gas fee: $54.18 | Average SOL fee $0.00025
So SOL’s main USP’s over competitors are it’s speed and efficiency. It’s hard not to be bullish when the evidence is that damning. But how did it get to a stage where SOL was that much faster than it’s competitors?
How SOL works
SOL works a little differently from other blockchains.
I’m sure you’ve heard of Proof of Work (PoW) & Proof of Stake (PoS) before, but Solana utilises both the PoS protocol and something entirely new — Proof of History (PoH)
To explain Proof of Stake (PoS) very quickly:
- Users can stake their tokens (meaning their liquidity is locked) to validate transactions and thus earn passive income.
- In SOL’s case, the more you hold, the higher chance you have of earning.
- Staking essentially upholds the blockchain and allows individual users to earn passive income by locking their tokens within the ecosystem.
What SOL does in addition, which is different from other blockchains, is that it also utilises Proof of History (PoH):
This is where timestamps are integrated in every transaction approval meaning the system serves as a cryptographic clock for the network.
It’s difficult to explain without diving too much into some pretty complicated terminology but basically every other blockchain runs sequentially whereas SOL can validate transactions simultaneously.
Imagine thousands of production lines in comparison to one.
Although SOL has received massive support from the community, it’s also had it’s fair share of naysayers, and for good reason too.
One of the biggest, and entirely justified, criticisms of SOL is its institutional backing.
Some of the VC’s that first invested were: a16z, Coinshares, Alameda Research, Coinfund and Parafi Capital.
Unfortunately, unlike many of its competitors, 48% of SOLs initial token supply was distributed back to the institutional backers, leaving less than 10% for the general public.
This presents a problem. Can a token that claims to be decentralised truly claim this when such a large percentage of their tokens are held by an institutional group of investors?
Does this represent economic democracy?
At the time of writing SOL’s price is settling around $82.
There’s a multitude of price predictions for the token but reputable sources quote prices of $434 by the end of 2025 and $3058 by the end of 2030 (Always take with a pinch of salt).
Although price predictions are bullish, SOL will face strong competition as ETH rolls out PoS in 2023 and other competitors such as AVAX challenge them for market share.
What’s your thoughts on SOL?
Let me know below.