February 9, 2025
Reviews

Solana (SOL)

  • Price: $154.72
  • Market cap: $73 billion

What is Solana and How Does it Work?

Solana is a type of cryptocurrency that exists only in digital form. Launched in April 2019, it began trading at less than $1 per coin but rapidly rose in value, surpassing $200 before dropping during the cryptocurrency downturn of 2022. As of August 2024, Solana trades around $134, making it one of the top 10 largest cryptocurrencies by market capitalization, according to CoinMarketCap.

Here’s a breakdown of what Solana is and how it operates.

What is Solana?

Solana is a popular cryptocurrency, part of a group of over 10,000 digital currencies. The Solana platform operates on a decentralized network using blockchain technology, while the individual unit of currency is called a sol.

Created by Anatoly Yakovenko, Solana’s blockchain records every transaction on its decentralized network, functioning like a permanent digital receipt. This system ensures data integrity without the need for intermediaries, making it a robust, secure way to handle transactions.

Solana is known for its speed, claiming to process up to 65,000 transactions per second at a cost of less than a penny each. It can also support various applications beyond simple currency transactions, such as decentralized finance (DeFi), smart contracts, and non-fungible tokens (NFTs).

What Does Solana Do?

Solana’s platform offers several key functionalities:

  • Currency: With a compatible cryptocurrency wallet, users can send, receive, or trade Solana for goods and services.
  • Smart Contracts: These self-executing contracts automatically fulfill conditions once predetermined terms are met.
  • Non-Fungible Tokens (NFTs): Solana can power NFTs, allowing creators to sell digital art and other assets.
  • Decentralized Finance (DeFi): Solana enables permissionless payments, bypassing centralized financial institutions or government control.
  • Decentralized Apps (dApps): The platform supports a variety of applications, from games and investing tools to social media platforms.
  • Proof of History (PoH): In addition to using a proof of stake (PoS) system, Solana timestamps its transactions to prevent tampering, making it resistant to censorship.

Solana serves as more than just a digital currency; it powers an ecosystem of decentralized applications (dApps) and services.

Where Do Solana Coins Come From?

As of August 2024, there are approximately 465 million Solana coins in circulation. Solana has a limited annual issuance schedule, initially increasing supply by 8% annually, but gradually reducing to a fixed rate of 1.5% each year. This contrasts with coins like Bitcoin, which has a total cap of 21 million coins, and Dogecoin, which has no supply limit.

Solana operates on a proof of stake system, where users can earn rewards by staking their Solana tokens to help validate transactions. Validators who successfully validate transactions receive new coins as rewards, which are distributed among those who have staked their tokens.

Is Solana a Good Investment?

Solana’s price surged dramatically after its launch but faced challenges alongside other cryptocurrencies as markets reacted to rising interest rates in 2022. It rebounded in 2024, but Solana, like other cryptocurrencies, is not backed by any tangible assets. Its value is driven largely by speculation—traders buy it hoping to sell it at a higher price later.

This lack of backing is a key difference between cryptocurrencies like Solana and traditional investments such as stocks. Stocks represent fractional ownership in a business with legal claims to assets and profits. In contrast, Solana’s price depends on market sentiment, which can make it highly volatile.

Bottom Line

Investing in Solana or other cryptocurrencies carries significant risk. While it offers the potential for high returns, it is highly speculative, and you could lose your entire investment. It’s crucial to only invest money that you can afford to lose and to be aware of the volatility and risks inherent in cryptocurrency trading.