Crypto -

What is solana?

Solana (SOL) is one of the largest and popular cryptocurrencies on the market. According to Coinbase, solana had a market value of 107,5 billion DKK in July 2022, which places solana among the 10 largest cryptocurrencies.

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And that’s even despite the cryptocurrency only launching in 2017. In April 2020, one solana coin was worth about 3,5 DKK, according to Coinbase, and in July 2022, the value had risen to 282,5 DKK - an increase of 7.971%.

Solana’s high point was in November 2021, where a single coin had a price of 1671,75 DKK. Compared to April 2020, that’s a 47.664% increase.

Are you new to cryptocurrency, and interested in learning more? Then solana could be a great place to start.

Table of contents:

  • What’s the idea behind solana?
    • Proof-of-work
    • Proof-of-stake
    • Proof-of-history
  • Smart contracts, decentralised apps, crypto games, and NFTs
    • Smart contracts
    • Decentralised apps
    • Crypto games
    • NFTs
  • The solana story: Who created solana?
  • How to get started trading solana

What’s the idea behind solana?

Solana - and its blockchain - is primarily designed to support the development and use of smart contracts, decentralised apps, NFTs, and crypto games and other blockchain based projects.

The special thing about solana here is that the blockchain theoretically speaking can handle up to 65,000 transactions per second. In comparison, ethereum can handle about 30 per second, and bitcoin 7 per second.

This is because both bitcoin and ethereum use the method proof-of-work to validate transactions in the blockchain. The method solana uses is a combination of proof-of-stake and proof-of-history.

Proof-of-stake is a more well-known and widely used method which many of the large cryptocurrencies also use - such as cardano and polygon . But proof-of-history is a new method that solana took the lead in developing.

With a transaction speed of 65,000/s, solana tries to solve one of the biggest challenges that cryptocurrencies and blockchain has faced since the beginning: Scaling the technology.

Because if a cryptocurrency like bitcoin for example should become the most widely used payment method worldwide, it would mean - using bitcoin’s currency blockchain technology - that only seven transactions could be processed every second.

In comparison, the payment service giant Visa completes about 24,000 transactions per second.

But blockchains aren’t just used for “basic” transactions - such as buying and selling.

Blockchains are also being used to facilitate more complex transactions - in the form of smart contracts, decentralised apps and so forth.

In blockchain-lingo, a transaction is an exchange of information. That information could for example be payment data - that’s how bitcoin is put together.

The information could also be concerning the ownership of a certain digital art work - that’s how solana and NFTs work for example. More about that later in this blog post.

To make the use of the blockchain’s features available to the whole world, the number of transactions per second needs to be rather high. Otherwise, bottle necks would occur and the wait time to get your transaction processed would be so long that you would probably just drop it, and find alternative solutions.

But what decides the amount of transactions per second?

That is up to the blockchain’s validation method - which among others could be proof-of-work, proof-of-stake, or proof-of-history.

Proof-of-work

Before transactions can be added to a proof-of-work blockchain, they need to be validated with a hash-code. The code is unknown and the only way to find it is by guessing.

The reward for a correct guess is a payout of the blockchain’s coin - such as bitcoin . Naturally, some people are very interested in this reward.

But only one person can make the correct guess and get the reward. That’s why there’s also a race to be the first correct ‘guesser’.

On top of that, bitcoin - like gold - is a limited resource. The developers behind bitcoin have set a limit on the number of bitcoins in circulation, which means that there can only be 21 million bitcoins mined in total - ever.

So for every new bitcoin being mined - which is the same as saying that for every new block of transactions added to the blockchain - it would get harder to find the next one.

Just like it will only get harder and harder to find gold, as gold diggers use up the earth’s resources.

Read more about bitcoin mining here .

In the same way, crypto-mining becomes harder and harder, and the amount of resources which is needed to mine becomes larger and larger. That’s why it takes so long to complete transactions.

This is the problem that proof-of-stake tries to solve.

Proof-of-stake

With proof-of-stake, the validation goes through a different process. Every participant in the network is also participating in a lottery draw about who gets to be responsible for finding the next code.

Like that, there won’t be thousands of computers trying to crack the same code. Here, it’s just one person/computer per block, which makes proof-of-stake less energy-intensive than proof-of-work.

A “Stake” is a lot. The more stakes you have, the more lots you have in the draw. The stakes are based on how many coins or tokens you have. When a person is selected to validate a transaction, they charge a fee - or a gas fee - for their trouble.

It’s then the collection of gas fees that makes up the motivation for participating in the draw. Should a person try to trick the network with a faulty code, their stake is taken away from them.

For example:

If Jake tries to trick the solana blockchain with a corrupt hash code, the network would sooner or later see that the data isn’t consistent. Now, Jake’s stake will be taken away from him, and he will lose his money.

In order for Jake to successfully trick the system, he would have to - in addition to being randomly selected by the staking mechanism - trick a majority of the blockchain network with his hash code.

The hash code actually just covers all the transactions being made on the blockchain, since the last block was added. All transactions are registered in the blockchain’s ledger, which all participants in the network can see.

So when Jake forwards his block of transactions to the rest of the network, they will quickly be able to see that there’s a transaction that doesn’t match the information in the ledger. The network will then reject the block and Jake will pay the price for this - which is the amount of crypto he chose to stake.

Proof-of-history

Proof-of-history is a further development of proof-of-stake. The difference is found in way that the two methods calculate time.

Imagine, that a proof-of-stake blockchain receives 10 transactions that needs to be validated. Besides validating them through cryptographic hashing, the network needs to decide the sequence of the transactions.

The selected validator suggests a sequence which is sent to the rest of the network. Now, the network needs to use time and resources to confirm or disconfirm the validation, but also the sequencing of the transactions.

With proof-of-history the last part - confirming the sequence - is done automatically. This happens though a technology called verifiable delay function.

In short, solana’s verifiable delay function ensures that transactions get a digital time stamp, where the rest of the network can see which sequence the transactions should be in order of. This saves the network a lot of the time spent validating.

Solana’s blockchain is thus using a combination of proof-of-stake and proof-of-history to create a technology that theoretically can handle upwards of 65,000 transactions per second.

Smart contracts, decentralised apps, crypto games and NFTs

Solana is to a great extent being used to develop and facilitate the use of crypto projects: Smart contracts, decentralised apps, crypto games, and NFTs

So on top of being a cryptocurrency you can buy and sell , solana is a technological platform that supports crypto projects. This is contrary to bitcoin, which is exclusively developed and used as a decentralised payment method.

But what are these crypto projects?

Smart contracts

Smart contracts are decentralised contracts between two parties, who’d like to make a deal with one another.

Today, most trades are facilitated by some sort of middleman. When you purchase a house, the bank, state and a lawyer all play their part - and will naturally also get a piece of the cake in the form of fees, taxes and so forth.

When you purchase a car, there’s the dealer, state and lawyer again.

Basically all legally binding contracts today are facilitated by someone - which is exactly what makes them binding. Because if not the bank, state and lawyer could vouch for the contract’s contents, who would ensure that all parties actually kept their end of the bargain?

Example:

If you were to sell your car to Peter, all the centralised middlemen would ensure that you actually get the money you’re supposed to receive. If Peter tries to trick you, you could turn him in to the police. The middlemen have documentation that Peter attempted breach of contract, and you could prosecute him.

Smart contracts:

Now imagine that it wasn’t the bank, state or lawyer that vouched for the validity of the contract, but instead a piece of code on a blockchain.

That’s the idea with smart contracts.

The code for a smart contract between Nate and Peter could look as such, for example:

Car = 100,000 DKK.

If Nate receives 100,000 DKK

Then the registration papers are automatically delivered to Peter.

A smart contract is thus a list of demands that needs to be fulfilled. If the demands aren’t fulfilled, the contract is void, and the trade won’t be completed.

Where with a centralised trade you’d need to trust the middleman, you would need to trust the code when it comes to smart contracts. That’s also one of the most important aspects of blockchain technology: You don’t need to have trust in central authorities, but you need to trust technology instead.

Another derived effect is also the fact that smart contracts generally are more cost-effective than hiring a banker, a state official, a used car dealer and a lawyer.

Decentralised apps

Decentralised apps (also known as dApps) are like normal apps, but instead of being connected to a single central computer, the app is spread across an entire network of computers via the blockchain.

For example, when you use your Twitter app, the technology is centrally stored with Twitter. That’s why Twitter has 100% autonomy over the platform, and if they wish to ban a person from using the platform, which was the case with Donald Trump, they can do so.

If Twitter were a decentralised app, it wouldn’t be possible to ban Donald Trump from the platform - unless the majority of the blockchain network agreed upon it. In this light, decentralised apps can be described as democratic, since it’s the network that has autonomy over the platform.

Crypto games

Games today are also typically connected to a central computer. Let’s say you’re purchasing an extra feature in a game - such as a skin - after the purchase it’s still technically under the game’s copyright. You can’t take your skin with you “out of the game”, and you’re typically not able to resell it.

Meaning that you’ve paid real money for something you don’t actually own, because the game is connected to a central computer, and owned by the manufacturer.

With crypto games the idea is that the game is spread out to several different people via a blockchain. The game isn’t owned centrally in one place, but is instead a common project, existing on every single computer participating in the network.

This also means that the add-ons purchased in the game actually belong to the people who buy them.

An example of a popular crypto game is Axie Infinity . The game is reminiscent of Pokémon, where you need to catch different characters which you can then train and use in battle against other players.

The characters - or “Axies” - make up digital assets that the player gets full ownership of. Axes can then also be bought and sold on an online marketplace to other players, who are interested in owning that particular character.

NFTs

NFTs are “digital barcodes” that ensure the copyrights for assets. An asset could for example be a digital artwork from the SolPunks collection, which is one of the first NFT collections made on solana’s blockchain.

Let’s say you own one of the artworks from the collection - such as SolPunk_#3435 . How could we trust that?

The digital barcode ensures that the image file you have on your computer is the original image file. There won’t be any doubt, because the barcode is embedded in the blockchain which is controlled and verified by a large network of participants.

That’s why it’s not just you, who could prove the authenticity of artwork. So can everyone else in the network.

With regular artworks, such as the Mona Lise, it’s practically impossible to prove that the version on display at the Louvre actually is the real deal. With a digital barcode - or NFT - it would be easy to prove.

The solana story: Who created solana?

The creator behind solana is Ukrainian born Anatoly Yakovenko who moved to the United States with his family as a child. Here, he got an education in data sciences, and was later hired with the tech-giant Qualcomm. He was there for 13 years until 2016 - and in 2017 he published his white paper on proof-of-history, which was the building blocks for solana.

Anatoly Yakovenko was concerned with bitcoin and ethereum’s big challenge - scaling the amount of transactions per second up to a level that makes it possible to use blockchain technology on line with Visa.

Theoretically, he has solved this problem, but practically there’s still a way to go. In July 2022, the average of actual transactions per second was around 2,700. So even if the technology in theory could handle up to 60,000 transactions per second, there’s simply not enough demand for it yet.

How to get started trading solana

With Lunar Block , you can get started trading solana in a matter of minutes. All you have to do is download the Lunar app for free and sign up to Lunar Block.

You need to take a test in connection with the sign up, where we will ask questions about the risks of cryptocurrency. You can get to know the risks in the Lunar app, before you take the quiz.

When you’re approved, you can trade solana right away.

Get started with solana now

  • 1

    Download Lunar for free

    Go to App Store or Google Play and download the Lunar app. Find your photo ID, as you need that to sign up.

  • 2

    Sign up to Lunar Block in the app

    Find Lunar Block under “Products” and sign up. You’ll be asked to take a test about crypto first - among others things, it’s to see if you’re aware of the risks. You can learn more about the risks in the app before you take the test.

  • 3

    Buy solana with a single swipe

    When we’ve approved you, you can buy solana and other popular cryptocurrencies immediately. Choose your cryptocurrency in the app and buy with a single swipe.

Cryptocurrencies can rise and fall

When you trade cryptocurrencies, you need to be aware that it carries a large risk. The value of your cryptocurrency can both rise and fall, and you can risk losing the entire amount you’ve invested in cryptocurrencies.

Cryptocurrency trading is done through Lunar Block. Lunar Block is not regulated by the Danish Financial Supervisory Authority (Finanstilsynet). That means you won’t have the same protection as when trading e.g. stocks or other regulated assets.

We do not counsel

We do not advise on currencies and do not make recommendations for either buying or selling. We can provide factual information about the different currencies, but past price developments are not an indication of future developments.

No information from Lunar Block should therefore be considered as recommendations and all decisions are up to you alone.