Solana (SOL): What It Is and How It Works

History of Solana

Anatoly Yakovenko, a former engineer at Qualcomm, published the Solana whitepaper, "Solana: A new architecture for a high-performance blockchain", in November 2017. Before Solana he spent years at Qualcomm working on CDMA wireless chips, which let many transmitters share one channel, and he saw a similar timing problem in blockchains. Raj Gokal joined in December 2017, the team switched its code from C to Rust early on, and the company took its name from Solana Beach near San Diego. Its central idea, Proof of History, came from a problem he saw in distributed systems: nodes spend a lot of time agreeing on when things happened before they can agree on what happened.

Yakovenko co-founded Solana Labs with Raj Gokal, and the network launched as Mainnet Beta in March 2020. Its low fees drew DeFi and NFT projects during the 2021 bull market, but the network also suffered several outages in which block production stopped and validators had to coordinate a restart.

Activity returned in the following years, driven by payments, stablecoin transfers and a wave of memecoins such as Bonk and dogwifhat. Development continues through several independent validator clients, including Jito's fork of the original client and Firedancer, which reduce the risk that one software bug stops the whole network.

How Solana works

Solana's design combines several ideas:

• Proof of History (PoH). A leader runs a continuous chain of SHA-256 hashes. Because each hash depends on the previous one, the sequence works as a verifiable clock: inserting a transaction into it proves that it happened after one point and before another. Validators can agree on ordering without first exchanging messages about time.
• Proof of stake with Tower BFT. SOL holders stake with validators, who vote on blocks. Votes are weighted by stake, and PoH's clock lets validators lock in votes with growing timeouts, which is how blocks become final.
• Leader schedule. Validators take turns producing blocks according to a schedule known in advance, so transactions can be forwarded straight to the next leaders instead of waiting in a global mempool.
• Parallel execution (Sealevel). Each transaction declares which accounts it will read and write. Transactions that do not touch the same accounts run at the same time on different CPU cores.

The result is short block times and fees that are usually a small fraction of a cent. The trade-off is that running a validator needs powerful hardware and high bandwidth, which raises the cost of participating compared with some other chains.

SOL token: uses and supply

SOL has three main jobs:

1. Fees. Every transaction pays a small base fee in SOL, plus an optional priority fee in busy periods. Part of the base fee is burned.
2. Staking. Holders delegate SOL to validators without giving up custody and share in the rewards; staked SOL is what secures the network. Liquid staking tokens let stakers keep using their position in DeFi.
3. Rent and base asset. Storing data in an account needs a small SOL deposit, and SOL is the main trading pair across the ecosystem.

SOL has no maximum supply. New tokens are issued as staking rewards under an inflation schedule that started higher and declines every year toward a long-term floor, while fee burning removes some SOL from circulation. Circulating supply and market cap change every day; current values are on the Solana price page.

According to the Solana documentation, the base fee is 5,000 lamports per signature (1 SOL = 1 billion lamports, so 0.000005 SOL), and half of that base fee is burned while the other half goes to the validator. The inflation schedule started at 8% a year, falls by 15% of its value each year, and settles at a long-term 1.5%. That is nominal inflation on total supply; what a staker actually earns depends on how much of the supply is staked and on the validator's commission. Slots, the network's block intervals, last about 400 milliseconds.

What Solana is used for

• DeFi: exchanges and aggregators such as Jupiter, lending markets and perpetual futures venues built directly on-chain.
• Payments and stablecoins: fast, cheap transfers of stablecoins such as USDC.
• Memecoins and token launches: the low cost of creating and trading tokens made Solana the home of many memecoins.
• NFTs and consumer apps: compressed NFTs make large collections cheap to mint; Solana Blinks let on-chain actions run from ordinary links.
• DePIN: networks that reward people for providing physical infrastructure, such as wireless coverage or mapping.

Examples by sector include Jupiter, Raydium and Orca for trading, Magic Eden and Tensor for NFTs, Solana Pay for payments, Helium (wireless) and Hivemapper (mapping) for DePIN, and games such as Star Atlas. The 2023–2024 memecoin wave, led by tokens such as BONK and WIF, sharply raised network usage. Together these built a user base centred on frequent, small, low-fee transactions rather than a direct copy of Ethereum's.

Solana vs Ethereum

Solana puts speed and low cost on a single chain; Ethereum spreads activity across rollups while keeping its base layer easier to verify. Each design makes different trade-offs between performance, cost and decentralization.

How SOL is stored

SOL and Solana tokens are kept in wallets that support the network, such as Phantom or Solflare, or on hardware wallets connected to them for cold storage. A Solana address can hold SOL and any SPL token. Always confirm you are sending on the Solana network: sending SOL to an address on another chain, or through an unsupported network, can lose the funds.

Risks to keep in mind

• Outage history: block production stopped several times in 2021–2022. Later upgrades and additional validator clients aim to make this rarer, but a high-performance design is complex.
• Validator hardware: running a validator needs high bandwidth and powerful hardware, which can push out smaller operators and concentrate the validator set.
• Large-holder overhang: FTX and its affiliate Alameda Research, which collapsed in November 2022, held significant amounts of locked SOL; sales from the bankruptcy estate were watched as a source of selling pressure.
• Inflation: with no hard cap, holders who do not stake are diluted over time.
• Ecosystem froth: memecoin and speculative trading make network activity volatile, and rug pulls are common in that segment.

This is general information, not a recommendation to buy or sell SOL.