Crypto

What is Solana Crypto? And What Don’t You Know About It

And what can you do with it?

If you are involved in the cryptocurrency or NFT space, you may have heard about Solana. Solana is a type of digital currency or cryptocurrency that exclusively exists online. It was released in April 2019 and was initially traded at under $1 per coin.  Since then, as has been the case with many cryptocurrencies, the price has risen rapidly, and it hit a high in November 2021 of over $200. It also comes in at seven on the list of CoinMarketCap’s list of the top cryptocurrencies by market cap.

So, let’s go through what Solana crypto is, and what you need to know about how it operates.

What is Solana?

There are more than 10,000 cryptocurrencies in the world right now, and the Solana platform is one of the most popular options. The individual unit of Solana is called a SOL. Solana was created by Anatoly Yakovenko, and it operates on a blockchain, which is a decentralized computer network that uses a ledger. This database tracks and manages the currency, records every transaction made in it, and basically acts as a big receipt. The computer network then verifies the integrity of the data that is obtained from the transactions.

This type of setup (decentralized) allows the network to be more robust, and transactions can be made without an intermediary, unlike other cryptocurrencies (you know which one I’m talking about). Solana claims that it is the fastest blockchain of all cryptocurrencies and flaunts its ability to handle 65,000 transactions every second, with each transaction costing a fraction of a cent.

Many think of cryptocurrency as a coin that you can’t physically hold, but it is much more than that. It is more accurate to think of Solana (or a SOL) as a token, that can enable and/or power other applications on the platform. For instance, Solana can power decentralized finance apps, NFTs, smart contracts, and more.

What can Solana actually do?

Solana might be able to do more than you think, it can power a multitude of applications that allow users to avail of many different features:

• Currency – Using a cryptocurrency wallet, you can utilize Solana to send or receive SOL, or transfer it to other wallets in exchange for goods and services 
• Decentralized finance – You can use and create payments that do not require permission, and avoid government or centralized control
• Digital applications – Solana also supports the development and creation of applications involved in investing, games, social media, and others
• Non-fungible tokens (NFTs) – A hot topic in the cryptocurrency world, you may have heard NFTs being described as “digital art.” NFTs can be powered by Solana, allowing consumers to buy them from artists, and buy and sell them on secondary marketplaces
• Proof of history approach – Solana is referred to as a “censorship-resistant” network. Along with having a proof of stake approach to validating transactions, timestamps are enabled in order to eliminate the ability of re-ordering transactions
• Smart contracts – These are applications that execute a contract’s terms automatically when the conditions of the contract have been satisfied

To reiterate, Solana is a token that does much more than act merely as a currency, transferring monetary values from one person to the next.

Where Did Solana Come From?

In November 2021, there was about 302 million SOL in existence. Similar to many cryptocurrencies, Solana is limited in its annual issuance, as Solana coins are given to those who support the platform. It has also begun to increase the supply of SOL by eight percent a year, but that eight percent figure will decline every year by 15 percent, until the fixed ongoing issuance will increase by 1.5 percent a year.

This is significantly different from other cryptocurrencies like Bitcoin, which has a fixed supply of 21 million coins with no increase, and Dogecoin, which doesn’t have any limit on issuance.

Transactions are verified in Solana using a “proof of stake” system. To be involved in this system, you must own the cryptocurrency and then you can earn rewards for aiding in the operation of the platform. You must trust in a validator to stake your coins and also authorize your transactions. 

In return, users will receive rewards once their transactions are validated, in the form of coins and a cut of the rewards, like a commission. They must also pass on these rewards to those who have staked with them, proportionally to their ownership. 

Is It Safe to Invest in Solana?

During its brief time on the trading exchanges, Solana has consistently risen, so even people who have invested in it recently have likely made money on it. However, instead of having FOMO (Fear Of Missing Out) and/or looking at the recent gains, it is very important to understand what you are investing in. If you buy Solana (or any cryptocurrency) you are buying something that is not backed by cash flow assets. Let’s explain.

If you think that cryptocurrency is just a more volatile version of stocks, then you are mistaken. A stock is classed as fractional ownership of a business or company, and the growth or success of the stock depends on the overall success of the company. If the profit of the company increases, everyone makes money. 

In contrast to this, Solana (along with the vast majority of popular cryptocurrencies) is not backed by any assets, whatsoever. What makes the value of a cryptocurrency like Solana grow is the speculation, optimism, and “hype” of its traders. Investors in cryptocurrency that are targeting to buy at a certain price and sell to another trader at a higher price at a later date, are using what’s called the “greater fool theory of investing.” I’ll leave it to you to discern what the meaning of that statement is!

Are you looking to start investing in cryptocurrency, but don’t know where to begin? Fear not, Nas Academy is now providing a web3 learning community that are looking to find their feet in this uncharted territory. Check it out now to learn about all of this digital gold!