What Is Solana (SOL) and Should You Invest in This Cryptocurrency?

Solana has become one of the most popular cryptocurrencies in the market, with a massive influx of retail and institutional investors over the past year. Solana provides much faster transactions than both the Bitcoin and Ethereum networks, as well as an entire ecosystem for building decentralized applications and creating non-fungible tokens (NFTs), making it a formidable competitor to Ethereum.

Although Solana is not the only Ethereum competitor, it has become one of the favorite platforms for users due to its high transaction speed and low fees. This has created a massive demand for the Solana native token (SOL), and a huge jump in price over the past few years.

In the article, we’ll be covering what Solana is, how it works, why it has become a major competitor in the cryptocurrency space, and how to invest in Solana.

What Is Solana (SOL)?

Solana is a blockchain-based platform that operates on a decentralized network and powers a wide range of decentralized applications (dapps). Its native token, SOL, is a cryptocurrency that powers the Solana blockchain, and is used to pay for transactions, secure the network and earn rewards through staking, as well as trade or make purchases.

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Solana is built on a decentralized network of computer nodes (servers) that process the transactions and maintain the Solana blockchain. Solana offers much faster transaction speeds than either the Bitcoin or Ethereum networks, with the ability to process up to 710,000 transactions per second. With Ethereum only averaging 15 transactions per second, and even payment processor Vias only able to handle 60,000 transactions per second, Solana far exceeds today’s standards for transaction processing.

Solana is an open-source project run by the Solana Foundation. The nonprofit foundation maintains the project and also manages a grant program for funding efforts to improve Solana’s censorship resistance. 

History of Solana

The idea for Solana came from Anatoly Yakovenko in 2017 when he published a white paper and introduced a concept called “proof of history.” The idea was to create a way for a decentralized network of computers to stay in sync with each other, allowing for a much faster way to process transactions than existing blockchains such as Ethereum and Bitcoin.

Yakovenko partnered with Greg Fitzgerald, a programmer who had previously worked with him at Qualcomm, and in 2018, released the first version of Solana, originally called Loom. On the test network, Fitzgerald demonstrated that Solana was capable of processing and validating 10,000 transactions in under one second.

Shortly after this demonstration, another of Yakovenko’s colleagues from Qualcomm, Stephen Akridge, showed how Solana’s speed could be improved by using graphics processors to provide signature verifications on transactions. All of this cultivated in Solana launching on cloud-based networks in mid-2018 with the ability to process up to 250,000 transactions per second (in short bursts), making it the fastest blockchain available.

The Solana token (SOL) launched in early 2020, and is used to pay for transactions on the Solana network. There are 511 million tokens in total supply, and currently just over 310 million in circulation.

Solana has become one of the premiere crypto platforms for developers, with over 1,000 projects built on top of the Solana network. The native SOL token has also become one of the most valuable, with over $30 billion in market cap value as of 2022 and the value of each token going from just under $1 to over $100 in 2021 alone.

How Solana Differs From Bitcoin and Other Cryptocurrencies

The key to Solana’s success is its ability to use “proof of history” to sync all the transactions across its decentralized network. This idea was proposed in a whitepaper written by Solana’s founder, and fully-realized by developer Greg Fitzgerald when Solana launched in 2018.

Proof of history gives every transaction on the Solana network a unique timestamp, which allows the blockchain to function faster because every node on the network stays in sync. With this improved speed, Solana payments and transfers happen at a speed over 10,000 times faster than most competitors (notably Bitcoin and Ethereum).

Solana transactions are also built to process with very low fees, typically less than $0.01 per transaction. In comparison, Ethereum’s fees can be as high as $100 for a single transaction, sometimes much higher. This massive difference in fees makes Solana an attractive platform for developers and end users alike.

Finally, Solana offers multiple NFT marketplaces, which have grown in popularity. Although NFTs are still mostly launched on the Ethereum blockchain, Solana has over 800 NFT projects, a total that is growing weekly.

Should You Invest in Solana?

Solana saw explosive growth in 2021, with its SOL token rising in value over 10,000%, making it one of the hottest projects of the year. With its proven ecosystem, massive adoption by developers, and expanding offerings (such as NFTs), Solana is gaining more mainstream attention, as well as institutional investor interest. 

But should you invest in Solana? Is it too late?

Although Solana has seen a massive increase in adoption and a huge valuation increase, it also still has room to grow. From a purely market capitalization standpoint, Solana is still only 1/10th the size of Ethereum, its main competitor. With over 1,000 new projects, and the competitive advantage of much higher transaction speeds, Solana may see more future growth.

That being said, for anyone considering investing in Solana — or cryptocurrencies in general — it is considered a speculative investment. While Solana could see massive growth, it could also see a massive downside swing, as the entire crypto market is naturally more volatile than most other investments. If you choose to invest in Solana, make sure to understand the risks involved, and consult with an investment professional if desired.

Where to Buy Solana

Solana (SOL) tokens can be purchased on most major exchanges, including Coinbase Binance, and FTX. Solana is also available for trading on decentralized exchanges like Raydium.

Buying from a decentralized exchange may be preferable if you want to keep your crypto holdings in your own digital wallet. You can connect a Solana wallet to the Raydium platform, for example, and exchange crypto in your wallet (such as Bitcoin) for SOL tokens.

Buying from a centralized exchange comes with more protections, such as secure storage of assets, identity verification to prevent fraud, and account security protections like two-factor authentication. Some exchanges may also allow you to earn interest on your Solana holdings.

Solana can also earn interest via staking directly on the Solana platform. This allows Solana investors to earn rewards by locking up their SOL tokens for a period of time, similar to a certificate of deposit. To do this, a user must transfer SOL tokens to their own Solana digital wallet, and then stake some of their SOL tokens on the platform.

Final Word

Solana is an increasingly-popular cryptocurrency that offers extremely fast transactions for a fraction of the cost of other crypto networks. With a growing list of applications and a budding NFT marketplace, Solana is continuing to take market share from competitors such as Ethereum and Cardano.

While Solana offers many improvements over other blockchain-based projects, it is still one of the newer ecosystems, and is continuing to grow and improve its offerings. The Solana NFT marketplace is perhaps one of the fastest growing pieces of the platform, and contributes to the bulk of the projects on Solana currently. There are also hundreds of decentralized finance applications in progress, furthering Solana’s reach as a financial platform.

Overall, Solana is one of the most promising projects in the cryptocurrency space today, but time will tell if it continues its rapid growth into the future.

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