Many crypto investors are hoping their cryptocurrency portfolios will go to the moon. But with the growth of Solana (SOL), perhaps they should be aiming for the sun (“sol” in Spanish), instead.
Solana is a relatively new cryptocurrency that, until recently, didn’t garner much attention. And given that there are so many new types of cryptocurrency out there, with more hitting the market seemingly every day, it’s hard to blame investors for missing it.
But Solana is now on most crypto traders’ radar. But what is Solana, what does it have to do with blockchain, and how can you invest in it? We’ll cover it all below.
What is Solana Crypto?
Solana is a platform built on a blockchain network that allows users to build decentralized applications. In that respect, it’s similar to (and also rivals) Ethereum, which is designed to do more or less the same thing.
Solana utilizes a proof-of-stake blockchain system — as opposed to Bitcoin’s proof-of-work model — to validate and secure its network. Solana’s native token is called SOL, and the network’s main purpose is to handle smart contracts, which allows it to facilitate transactions of SOL and other assets, like non-fungible tokens (NFTs). It’s fast and secure, thanks in part to its distinct “proof of history” concept, which makes it attractive to those in the crypto space.
Recommended: What Are NFTs (Non-fungible Tokens)?
History of Solana
Solana dates back to November 2017, when founder Anatoly Yakovenko published a paper describing the “proof of history” concept, which timestamps each transaction, so they’re recorded on the blockchain chronologically. The goal: to create faster transaction times.
In February of 2018, Yakovenko and colleagues Greg Fitzgerald and Stephen Akridge launched a prototype of the project, originally called Loom. It was soon rebranded “Solana” after the small town in California where the three men had lived for a few years.
From there, the project grew legs and found funding, and in a few years it has become one of the better-known blockchain networks and cryptocurrencies.
Solana’s Price Surge
Solana wasn’t a big market-mover for some time. But that changed during late summer of 2021. In mid-August, Solana’s price was around $44, but by September 8, it peaked at nearly $215 — a roughly 489% increase. It did come down a bit shortly after, however.
As of late September 2021, SOL’s price is bouncing around between $140 and $160, and its market capitalization, or market cap, is roughly $43.5 billion. But, as any crypto investor knows, that can change quickly.
This surge in price is one of the reasons that Solana has become a household name for crypto investors.
Features of Solana That Make it Unique
So, what exactly makes Solana such a big deal? The answer is that it’s faster and cheaper to use than its competitors, including Ethereum. Solana can handle more transactions than Ethereum can, and it can process those transactions more quickly.
Solana’s proof-of-history feature plays a big role in speeding up consensus on the blockchain. Proof of history acts as a sort of clock that creates timestamps and moves transactions faster to get recorded on the blockchain.
How Does Solana Work?
Solana uses a proof-of-stake validation system in conjunction with a couple of components called “tower consensus” and “verifiable delay record”, timestamping transactions and efficiently recording them in blocks on the blockchain.
Solana sequences and organizes data, and then verifies and confirms it, using its timestamp ability. The timestamp feature also frees up nodes to start creating the next block in the blockchain, without worrying about keeping order among the transactions in the queue. The network already knows the correct order because of the timestamp.
As a result, the entire network can move along at a speedier pace.
What Does Solana Do?
The Solana blockchain has a couple of key potential use cases.
1. It could be used to create a decentralized finance (DeFi) network. Traditional financial networks sometimes use intermediaries and outdated protocols — two areas where Solana believes it can modernize and make more efficient and transparent. In fact, many DeFi projects are already using Solana’s network to do just that.
2. It could create NFT marketplaces. NFT investors and collectors are using Solana to create digital marketplaces. Solana was even the official blockchain of Lollapalooza, which created its own “Lolla NFT Marketplace ” specifically for artists and fans at the event.
As for Solana Coin’s use cases, they can primarily be used to stake, or pay transaction fees on the network — similar to Ether.
Solana Benefits and Disadvantages
Solana has pros and cons, like all other cryptocurrencies and networks. Here are the highlights.
Benefits of Solana
• Transaction speed: Speed is the biggest advantage that the Solana network has over similar networks.
• Scalability: The network’s design is built to overcome congestion issues, thanks to timestamps. That scalability gives it an advantage over other networks, which are more likely to get log-jammed by slow transaction speeds.
• Economies of scale: Solana has a big user base, with millions of users already on the network, and a goal of reaching a billion users overall.
Disadvantages of Solana
• Beta stage: For prospective investors, it’s worth knowing that the project is still in beta.
• Network outages: In September, the Solana Network saw a transaction overload and was out of service for more than 16 hours. So there are still some kinks to work out.
Solana vs. Ethereum
How does Solana stack up against Ethereum? It’s often referred to as an “Ethereum killer.” It all comes back to the fact that Solana was designed to excel where Ethereum falls short in terms of speed and costs.
Recommended: What is Ethereum and How Does it Work?
Solana’s throughput is 50,000 transactions per second (TPS), with average block times of 0.4 seconds. The average cost per transaction is $0.00025. Compare that to Ethereum: Throughput is 15 TPS, and average transaction costs are more than $3.70, depending on network congestion.
How to Invest in Solana
Getting started investing in Solana is relatively easy. You can sign up for and use a crypto exchange to buy Solana Coins. This is the easiest and most low-effort way to add Solana to a crypto portfolio. From there, it’s a matter of transferring your holdings to a crypto wallet.
Another way to get your hands on Solana is by staking. Staking is a process that involves “locking up” your coins or tokens and earning rewards. The Solana network supports staking (not all networks do). Assuming your wallet is supported by the network, you can delegate your coins to stake either through an exchange or on your own.
Recommended: A Guide to Crypto Staking
Solana may still be technically in its beta stage four years after it was created, but thanks to its proof of history concept, it’s getting a lot of attention for being faster and cheaper than competitor Ethereum.
For investors looking to trade Solana, SoFi Invest® may be a good place to start. With SoFi, you can trade cryptocurrency like Solana, Enjin Coin, Bitcoin, Cardano, Litecoin, and more.
Photo credit: iStock/PeopleImages
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A., or SoFi Lending Corp.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.