What is Solana?

Solana is a public blockchain that runs smart contracts, which are programs that carry out transactions automatically. It competes with Ethereum and was designed to handle a much larger number of transactions at a lower cost each. Its built-in coin is called SOL.

How does Solana work?

Solana was conceived by the engineer Anatoly Yakovenko in 2017 and its main network went live in March 2020. Two ideas sit at its core.

The first is proof of history. This is a running sequence of calculations that works like a clock, giving every transaction a verifiable timestamp. Because the order of events is already settled, the computers on the network spend less time exchanging messages to agree on it.

The second is proof of stake. Under this system, validators, the computers that confirm blocks, are chosen according to how much SOL has been deposited with them as a security bond. Holders who do not run a validator can delegate their SOL to one and share in the rewards, a form of crypto staking.

What is SOL used for?

SOL pays the network's transaction fees, which are low by design, and it is the coin that is staked. New SOL is issued to validators and stakers as a reward, so the supply has no fixed cap.

What is Solana used for?

• Meme coins. Low fees made Solana a main venue for launching and trading meme coins, tokens built around jokes and online communities, especially during 2024.
• Payments. Dollar stablecoins, tokens designed to stay worth one dollar, move across the network, and payment companies including Visa and PayPal have used it for stablecoin transfers.
• Trading and apps. Decentralized exchanges, NFT marketplaces and games run on Solana as they do on Ethereum.

What are the trade-offs?

Speed has a price. Validators need powerful, expensive computers and fast internet connections, which limits who can run one. Critics argue that this makes Solana less decentralized than networks that can be checked on modest hardware.

The network has also stopped working several times. It halted for about 17 hours in September 2021 and suffered further outages in 2022 and in February 2023. On February 6, 2024, it went down for 4 hours and 46 minutes because of a software bug, according to the Solana Foundation. During a halt, no transactions can be processed until validators coordinate a restart, though the foundation says funds were not at risk. Developers have since changed the software with the aim of preventing a repeat.

Solana was closely tied to the exchange FTX, whose founder was a prominent backer, and the price of SOL fell steeply when FTX collapsed in November 2022. The heavy meme coin trading on the network has also drawn criticism, because many of those tokens lose nearly all their value and some are outright scams.