Holy cow, I do not know how we got this far into creating animated videos of cryptocurrency topics without hearing of Solana. I mean, I definitely heard of it, but wow I am surprised that we haven’t covered it yet, and probably for good reasons, if you type “What is Solana” into Youtube, you get 50 price predictions, 3 videos explaining proof of history and a bunch of interviews, no single good video that simply goes over what Solana is as a whole.
Before we get into the technical stuff of Solana, let’s talk about why it’s amazing and who created it. Anatoly Yakavenko is the man behind the first whitepaper. One of the only things you need to know about him is that he’s quite smart and worked at the company Qualcomm for like a decade. I tried reading the whitepaper and it is quite technical, with some understandable sentences here and there. His blockchain is named after the Solana Beach he appreciated, but let’s get into why Solana’s price has skyrocketed in the past few months.
First of all, Solana has a block time of 400 milliseconds, which means they are very fast, compared to Ethereum’s blocktime of 10 seconds and Bitcoin’s 10 minutes. Also, Solana boasts they can handle up to around 710,000 transactions per second, which is like 30 times the amount that Visa handles, although they have only ever been able to actually up to 50,000 in the past. This doesn’t mean they can’t do 710,000… it just means they haven’t tried. So the Solana network is fast, it’s monstrous… and it’s also cheap. I would say it’s comparable to the Matic network, with transaction fees around one hundredth of a penny.
Next up, let’s get into what makes them so fast and cheap. The first thing we must explain is their consensus mechanism, which is a fancy way of saying how everyone agrees what the blockchain should be. They don’t use Proof of work, and they don’t really use Proof of stake, Anatoly actually described a new system called Proof of History in his whitepaper. It’s basically Proof of Stake, but it adds the special variable of time.
Proof of History
Basically, Proof of History is not a consensus mechanism, but is a way of integrating time into the blockchain data. We use something called “Timestamps” to place a specific date and time onto blocks, it also allows a very fast sequencing validators, so they know their order without having to communicate back and forth.
One big problem that other blockchains have is that they have to agree on the time. We all take this for granted, but computers have to constantly be going “what time is it really?” since they can’t do things like look at their phone or even the sun to determine it.
On other blockchains, the nodes (which is a word that means computers) on the network have to chat back and forth to agree on the time, before submitting a block, and this can take up a lot of time. Solana fixes this using Proof of History to have everyone timestamp their blocks and using cryptographic proof that they don’t have to wait for everyone to agree on the time. We can agree on the organization of the data in the blocks after the fact, meaning we don’t have to wait for other validators to check and approve our work.
Think about it like this, if you want everyone in your family to send you a letter, one day after the other, you first have to send a letter to them, and then they all have to send their letters to you. The time that both of your letters are in the mail is a long period of time. What if next time you saw them you just said “Hey, send me a letter at 4pm on January 3rd”... you would know that it’s coming in and wouldn’t have to waste time or resources asking for them to.
Long story short, you could set it up so that your uncle sends a letter on January 3rd, your aunt on January 4th, your cousin on January 5th, and your grandma on January 6th. We want to read them in this order, but the issue is that they each used different mail providers, you know UPS and Fedex, sometimes they take different amounts of time and your uncle is on a work trip, so he’s a few thousand miles away. By having them all send their letters on the days they were supposed to, they may not arrive in the exact order, but… they wrote the time they sent their letters in the letters, so you can organize them when you get them.
Basically, Proof of History allows nodes to just throw a bunch of blocks at us, and since some people have faster internet than others, we can’t assume they’re telling the truth about their sending date and organize them after we get them… then add them to the blockchain. There is a little more that goes into Proof of History, but that deserves it’s own video, so make sure to hit that subscribe button if you haven’t already!
Of course, in this analogy, our aunt, uncle, cousin, and grandma, were actually different people sending in blocks, and we can use math that our uncle actually wrote his letter on January 3rd. Solana actually has like 25 blocks being validated by 25 people at once, it is how they are able to surpass Visa by such a large factor.
Speaking of how they were similar to proof of stake, one thing that I personally like about Solana is that there are no requirements to be a validator. Before I explain this, if you don’t understand Proof-of-Stake, check out our video on it to understand some of these next terms. To compare Ethereum 2.0, you must stake 32 Ethereum, which is equivalent to around $100,000. On Solana, you only need to hold a very small amount of the coin and pay a fee to vote each day. There’s a catch, though. The voting fee is the only thing I don’t like, right now it’s like 1 SOL per day, so around $70,000 a year which seems ridiculous, but I mean there’s over 1000 people doing it so maybe they know something I don’t.
Next up, let’s talk about something new that no other big blockchain has tried yet… it’s called SeaLevel. Technically, this is just their fun term to describe that validators can actually run smart contract code in a parallel way. If you’re not a developer, let me explain it in simple terms.
Let’s say you have to do the dishes, switch the laundry, and sweep the floor. A human would have to do each one of those things in order, because they are only one human, we call this a serial task, one after the other. In terms of Solana, the word parallel, means you can do them all at the same time. So if I could make 2 more copies of myself and actually do the dishes, switch the laundry, and sweep the floor at the same time, that is essentially what Solana can do when processing their smart contracts.
Something else I caught on their website was this quote, which describes how they are not bottlenecked by software or ideas, but instead bottlenecked by hardware: “Every time Nvidia doubles the number of SIMD lanes available, our network will double in computational capacity.” It will be interesting to see how Bitcoin and Ethereum handle the supercomputers we have in 10 to 50 years from now.
One last thing before we get into the Tokenomics of SOL, is that you should know Solana has vastly different smart contracts than Ethereum. Ethereum uses a virtual machine type system to run its Solidity code, while Solana uses the Rust programming language. Rust is a very low-level language, meaning it is more powerful, but requires more work to create things. One downside of this is that they can’t copy/paste their dApps and projects like many other blockchains can from the Ethereum network, everything must be coded from scratch… however they have more power than Ethereum smart contracts.
Finally, let’s get into tokenomics, as I know a lot of people watch our videos to get an idea of how a coin or project works to invest in it. This is a reminder that we will never offer investing advice, we will reach out to you to ask for money, and we will NEVER post our whatsapp number in the comments, the spams are so bad lately.
So the coin of the Solana network is the SOL coin, it is used for transaction fees and used all over the blockchain ecosystem. From as far as I can tell, Solana is both inflationary and deflationary. It’s deflationary because for a long time 100% of all transaction fees were burned, and now 50% are burned. It’s inflationary because they recently approved an inflation schedule where staking rewards are paying out around 8%, but they get cut every few days by a very small amount until the final staking rewards hit 1.5% in 10 years.
In terms of total supply, they initially started with around 500 million tokens, and of course it will keep increasing due to the proof of stake rewards.
Also, on the topic of early distribution, there are 4 private funding rounds before their initial ICO. Those 4 funding rounds and ICO sold 36% of their supply and at a very cheap price too, up to 25 cents each, while the price currently sits at almost $200. 13% went to the founders of the project. 10% went to the Solana foundation. And the remaining 39% went to fund community initiatives, held currently through the Foundation. Some weird thing I also found was that there was a Solana wallet holding like 13 million tokens, and nobody knew why, so they just burned most of them.
One more thing worth mentioning is that Solana actually went down for around 6 hours in December 2020. Honestly this is a little scary because a decentralized protocol should never go down, it means everyone participating in the network had a bug. This did absolutely nothing to the price though, it seems nobody panic sold due to this news.
Lastly, Solana is still in a beta stage, so if you’re an investor or want to develop a dApp for them, you should definitely know that.
Before I end this video, I wanted to let you know if you’re interested in coin and token research, including some guides on Decentralized Finance that I’ve put together to walk you though from the beginning of knowing nothing to understanding how to make money yield farming and avoiding scams… check out WhiteboardCrypto.com for our very first free guide.
Thanks for watching, we hope you enjoyed this video, we really hope you learned something, and most of all… we hope to see you in our next video!