Robert Steinadler, a year ago

Solana explained: What is it and why are transactions so fast?

Solana was maybe one of the most outstanding blockchain technologies in terms of price movement in the year 2021. With over 35.000 % price increase from its all-time low in 2020, Solana is not only one of the top-performing coins, but also in the top 10 according to its market cap. Many smart contract platforms have tried to challenge Ethereum and none have succeeded so far. Solana is not necessarily another “Ethereum killer” because it offers a technology that has its own merits. Still, when it comes down to decentralized finance, Solana has to offer a similar range of products and protocols like Ethereum.

The unique selling point of Solana is its speed and transaction throughput. Apparently, this has caught a lot of attention. Former First Lady Melania Trump and Justin Bieber are offering their NFTs on Solana and Michael “Air” Jordan has announced to start a platform built on Solana to connect athletes and their fans.

But what is really behind the technology and is it going to last despite a few attempts from stars to monetize on the NFT hype?

What is Solana?

Solana is a blockchain that is developed by Solana Labs and was founded in the year 2017. While the company is responsible for its initial development the Solana blockchain itself is open-source. The Solana Foundation watches over the development and is based in Geneva, Switzerland while the company that started Solana is based in San Francisco.

Solana’s primary use case is decentralized applications that offer large scalability. The self-declared goal is to onboard 1 billion people in the Solana ecosystem of decentralized apps. Solana is capable to handle a large number of transactions at a minimal cost.

While it can theoretically handle up to 710.000 transactions per second, it still manages to handle 50.000 transactions per second on average in the main net. It is worth mentioning that the software is still considered to be in beta status and that Solana faced an outage after heavy bot traffic in September 2021. Reaching a peak of 400.000 TP/s was too much for the network and it had to shut down for several hours.

The native currency of Solana is the SOL token and the smallest denomination is 1 Lamport which equals 0,000000001 SOL. The smallest unit is named after the computer scientist Leslie Lamport who is known for his work in distributed systems.

Proof of history – A new concept

Unlike Bitcoin, the Solana blockchain is not based on proof of work (PoW) and is also not exactly a classic proof of stake (PoS) blockchain either. It is powered by a mix between proof of stake and a new solution called proof of history (PoH).

Proof of history introduces a cryptographic timestamp that enables every validator in the network to identify the correct order of transactions or events. It allows creating a historical record that proves that an event has happened. In effect, all nodes on the Solana blockchain can agree on the time in the network without the need to communicate and agree with each other on what time it is.

Instead, each validator is required to run its own clock by constantly solving a SHA256-based verifiable delay function. The nodes can agree on the time prior to consensus about the transactions, thus creating an environment that can handle more transactions than any other blockchain technology.

Proof of history is not a consensus mechanism from a technical standpoint, but it is critical to Solana’s speed since it allows its proof of stake blockchain to scale better than many other blockchain technologies.

Solana offers staking

Solana offers also the option to create additional income through staking. Stakers have to delegate their SOL tokens in order to gain income through block rewards. This system is very similar to Ethereum 2.0 or Polkadot, where investors are able to take part in staking by delegating their funds.

In effect, Solana staking becomes accessible even to retail investors since they are able to stake small amounts. Staking pools or liquid staking pools will usually offer an annual rate between 4 % and 6 %.

It is notable that common wallets for Solana like Phantom have a built-in staking function allowing users to choose between predefined staking pools and making it very easy, convenient, and intuitive to get into staking.

Solana offers a vast DeFi ecosystem

At the time of writing, the Solana blockchain has a total value locked of approximately 12 billion US-Dollars and an increasing amount of DeFi protocols. These protocols offer a variety of use cases and services, among them lending, trading, and even margin and derivatives trading. With the unmatched transaction speed and the low costs for transactions, many of these applications can offer services that are not possible on other layer-one-solutions or would require them to opt for a second layer.

Some notable protocols are:

  • Raydium
  • Serum
  • Solend
  • Solfarm (formerly known as Tulip)

Please note that those examples are provided only for informational purposes and that none of these protocols are endorsed by LiteBit or our staff. There are a total of 41 protocols active at the time of writing and it is to be expected that this number will increase throughout the year 2022.

Is Solana the “Ethereum killer”?

As soon as a blockchain is offering smart contract capabilities the term “Ethereum killer” is somehow thrown around in the media. This has also been the case with Solana and also many other platforms. There is no direct competition between both technologies but it is true that they both offer DeFi and NFT platforms.

Both have been a factor in the growth of Ethereum. There are a few points that are speaking for Solana and a couple of points that speak against it.


  • Transaction fees are as low as 0,00025 US-Dollars on average
  • Transactions are confirmed within a few seconds
  • Solana handles around 50.000 TP/s compared to Ethereum’s 15 TP/s


  • Solanas network broke down once and is still in beta status
  • Ethereum has the bigger network in terms of users and protocols
  • Ethereum 2.0 might eliminate certain advantages that Solana has at this point

At the end of the day, there is no clear winner comparing both technologies. It seems it remains for the market to decide which one is going to win the race if there is any. It is also absolutely possible for both technologies to coexist.

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