Try Quests to earn SOLsolana part 1
Introduction
What Is Solana (SOL)?
Solana is a blockchain platform designed to host decentralized, scalable applications. Founded in 2017, it is an open-source project currently run by Solana Foundation based in Geneva, while the blockchain was built by San Francisco-based Solana Labs.
Solana is much faster in terms of the number of transactions it can process and has significantly lower transaction fees than rival blockchains like Ethereum. The cryptocurrency that runs on the Solana blockchain—also named Solana (SOLUSD) and using the ticker symbol SOL—soared almost 12,000% in 2021 and at one point had a market capitalization of over $66 billion, making it the fifth-largest cryptocurrency by this measure at the time.
Despite its popularity, SOL did not escape the cryptocurrency bloodbath of 2022. By Oct. 3, 2022, SOL had dropped to about $11.71 billion in market capitalization. It also fell to ninth place in market capitalization.3 Learn more about Solana and what makes it unique among thousands of imitators.
Proof-of-History Concept
Solana co-founder Anatoly Yakovenko published a white paper in November 2017 describing the proof-of-history (PoH) concept. PoH is a proof for verifying order and passage of time between events, and it is used to encode trustless passage of time into a ledger.
In the white paper, Yakovenko notes that blockchains that were then publicly available did not rely on time, with each node in the network relying on its own local clock without knowledge of any other participants' clocks in the network. The lack of a trusted source of time (i.e., a standardized clock) meant that when a message timestamp was used to accept or reject a message, there was no guarantee that every other participant in the network would make the exact same choice.
Solana's Technology
Solana's architecture aims to demonstrate a set of software algorithms that eliminate software as a performance bottleneck when combined with a blockchain. The combination enables transaction throughput to scale proportionally with network bandwidth.
Solana's architecture satisfies all three desirable attributes for a blockchain: it's scalable, secure, and decentralized. Its architecture describes a theoretical upper limit of 710,000 TPS on a standard gigabit network and 28.4 million TPS on a 40-gigabit network.9
Solana's blockchain operates on both a proof-of-history (PoH) and proof-of-stake (PoS) consensus model. PoS permits validators (those who validate transactions added to the blockchain ledger) to verify transactions based on how many coins or tokens they hold; PoH allows those transactions to be timestamped and verified very quickly.[1]
Introductions
What Is Solana (SOL)?
Solana is a blockchain platform designed to host decentralized, scalable applications. Founded in 2017, it is an open-source project currently run by Solana Foundation based in Geneva, while the blockchain was built by San Francisco-based Solana Labs.
Solana is much faster in terms of the number of transactions it can process and has significantly lower transaction fees than rival blockchains like Ethereum. The cryptocurrency that runs on the Solana blockchain—also named Solana (SOLUSD) and using the ticker symbol SOL—soared almost 12,000% in 2021 and at one point had a market capitalization of over $66 billion, making it the fifth-largest cryptocurrency by this measure at the time.
Despite its popularity, SOL did not escape the cryptocurrency bloodbath of 2022. By Oct. 3, 2022, SOL had dropped to about $11.71 billion in market capitalization. It also fell to ninth place in market capitalization.
Learn more about Solana and what makes it unique among thousands of imitators.
Proof-of-History Concept
Solana co-founder Anatoly Yakovenko published a white paper in November 2017 describing the proof-of-history (PoH) concept. PoH is a proof for verifying order and passage of time between events, and it is used to encode trustless passage of time into a ledger.
In the white paper, Yakovenko notes that blockchains that were then publicly available did not rely on time, with each node in the network relying on its own local clock without knowledge of any other participants' clocks in the network. The lack of a trusted source of time (i.e., a standardized clock) meant that when a message timestamp was used to accept or reject a message, there was no guarantee that every other participant in the network would make the exact same choice.
Solana's Technology
Solana's architecture aims to demonstrate a set of software algorithms that eliminate software as a performance bottleneck when combined with a blockchain. The combination enables transaction throughput to scale proportionally with network bandwidth.
Solana's architecture satisfies all three desirable attributes for a blockchain: it's scalable, secure, and decentralized. Its architecture describes a theoretical upper limit of 710,000 TPS on a standard gigabit network and 28.4 million TPS on a 40-gigabit network.9
Solana's blockchain operates on both a proof-of-history (PoH) and proof-of-stake (PoS) consensus model. PoS permits validators (those who validate transactions added to the blockchain ledger) to verify transactions based on how many coins or tokens they hold; PoH allows those transactions to be timestamped and verified very quickly.
Transaction Fees
The small fees paid to process instructions on the Solana blockchain are known as "transaction fees".
As each transaction (which contains one or more instructions) is sent through the network, it gets processed by the current leader validation-client. Once confirmed as a global state transaction, this transaction fee is paid to the network to help support the economic design of the Solana blockchain.
> NOTE: Transaction fees are different from account rent! While transaction fees are paid to process instructions on the Solana network, rent is paid to store data on the blockchain.
Why pay transaction fees?#
Transaction fees offer many benefits in the Solana economic design described below. Mainly:
- they provide compensation to the validator network for the CPU/GPU resources necessary to process transactions,
- reduce network spam by introducing real cost to transactions,
- and provide potential long-term economic stability of the network through a protocol-captured minimum fee amount per transaction
> NOTE: Network consensus votes are sent as normal system transfers, which means that validators pay transaction fees to participate in consensus.
Basic economic design#
Many current blockchain economies (e.g. Bitcoin, Ethereum), rely on protocol-based rewards to support the economy in the short term. And when the protocol derived rewards expire, predict that the revenue generated through transaction fees will support the economy in the long term.
In an attempt to create a sustainable economy on Solana through protocol-based rewards and transaction fees:
- a fixed portion (initially 50%) of each transaction fee is burned (aka destroyed),
- with the remaining fee going to the current leader processing the transaction.
A scheduled global inflation rate provides a source for rewards distributed to Solana Validators.
Why burn some fees?#
As mentioned above, a fixed proportion of each transaction fee is burned (aka destroyed). The intent of this design is to retain leader incentive to include as many transactions as possible within the leader-slot time. While still providing an inflation limiting mechanism that protects against "tax evasion" attacks (i.e. side-channel fee payments).
Burnt fees can also help prevent malicious validators from censoring transactions by being considered in fork selection.
Example of an attack:#
In the case of a Proof of History (PoH) fork with a malicious, censoring leader:
- due to the fees lost from censoring, we would expect the total fees destroyed to be less than a comparable honest fork
- if the censoring leader is to compensate for these lost protocol fees, they would have to replace the burnt fees on their fork themselves
- thus potentially reducing the incentive to censor in the first place
Calculating transaction fees#
Transactions fees are calculated based on two main parts:
- a statically set base fee per signature, and
- the computational resources used during the transaction, measured in "compute units"
Since each transaction may require a different amount of computational resources, they are alloted a maximum number of compute units per transaction known as the "compute budget".
The execution of each instruction within a transactions consumes a different number of compute units. After the maximum number of computer units has been consumed (aka compute budget exhaustion), the runtime will halt the transaction and return an error. Resulting in a failed transaction.[2]
If you’ve been in the crypto space for a little while now, you may have heard the term “staking.” You might still have some questions around what it means, how it works, the risks associated with staking, and which cryptocurrencies offer stalking rewards. Not to worry, in this blog post, we’ll go over the basics of staking for you.
But first, we’ll start by saying that crypto staking is the process of putting a set amount of cryptocurrency you already own as collateral to support the verification of blockchain transactions. Participants that offer up their crypto are rewarded for doing so.
Another way to think about it is that participants are incentivized to earn rewards by maintaining the integrity of the blockchain without a centralized party. While staking is a great way to build your cryptocurrency portfolio, it does come with some risks.
Read on to learn more about how staking works, the risks involved, and how to get started.
What is Crypto Staking?
Like we mentioned above, crypto staking is the process of offering your crypto assets to help verify transactions. When you stake crypto, you are essentially putting your crypto up as collateral to help validate these transactions.
As a token of appreciation for your support, you earn rewards in the form of new crypto tokens. The amount of crypto you earn and the payout interval will depend on the crypto asset you stake, the length of time you stake it for, and the network’s overall health.
Not all cryptocurrencies can be staked though.
Only cryptocurrencies that use a Proof-of-Stake (PoS) algorithm can be staked. Proof-of-Stake is a consensus mechanism that requires participants to stake coins in order for them to be randomly selected as a validator of the network. Because participants have to give up their crypto assets, the network is thought to be less susceptible to hacks. After all, participants would not want to tamper with the blockchain, lose their crypto assets and the potential for rewards for the sake of hacking it.
PoS is one of different ways blockchains can process and verify transactions. Another method is called Proof-of-Work, which we will explain later. For now, keep in mind that PoS keeps the blockchain distributed, decentralized and secure.
Crypto staking can be a great way to earn passive income from your crypto holdings while helping to secure a blockchain network, which can be a noble contribution.
How Does Crypto Staking Work?
To stake crypto, you need to have a crypto wallet that supports staking. Not all crypto wallets or cryptocurrencies support staking, so be sure to check that your wallet allows you to stake.
Once you have a compatible wallet, you will need to deposit the cryptocurrency you wish to stake into your wallet. If you bought crypto from the Netcoins platform, then you’d need to withdraw your crypto from Netcoins and deposit them into your wallet.
Once your crypto is in your wallet and ready to be staked, the actual process of staking will vary depending on the crypto asset you are staking and the platform you are using and the directions provided to you. When your crypto is in your staking account it will start earning rewards.
You can choose to stake your crypto for a specific length of time. For example, you may wish to stake your crypto for one year to receive the maximum amount of rewards. Or, you may decide to unstake your crypto at any time (depending on the platform and blockchain) but doing so will likely forfeit any rewards that you have earned up until that point.
It’s important to note that crypto staking is not the same as mining. With mining, you use your computer’s processing power to help validate transactions on a blockchain rather than offer up existing coins. On the other hand, with staking, you are simply holding crypto in your wallet as collateral. You are not using your computer’s processing power or solving complex mathematical problems (like in mining).
Generally speaking, when you stake crypto, your crypto assets are used to help validate transactions on a blockchain network.
The Rewards You Get for Staking Crypto
The amount of crypto you earn from staking will mostly depend on the crypto asset you stake and the length of time you stake it for.
As an example, if you stake Cardano for 12 months, you may earn around 3% to 6% per year. But if you stake it for two months, you might make just 1% to 2%. If you stake a less well-known crypto asset like PIVX, you could earn over 6% per year. But you could expose yourself to more volatility and risk. That’s why it’s important to do your due diligence on ease of staking, reward pay-out, and risks involved.
It’s also important to remember that crypto prices and rewards are volatile and can go up or down at any time. A safer bet can be staking stablecoins tied to a fiat currency (like the U.S. dollar). With stablecoins, you can earn staking rewards without the worrying too much about volatility.
Often times, staking cryptocurrencies can also grant you voting rights over proposals, changes and the future direction of that crypto.
The Risks of Crypto Staking
Staking cryptocurrencies provides passive income to crypto stakers, but it also has some potential downsides.
When you stake crypto, you are essentially locking up your crypto asset for a period of time. This means that you cannot sell or trade your crypto while it’s being staked. If the price of crypto goes up while your crypto is staked, you could miss out on those gains. Inversely, if the crypto assets you have staked lose value, you could lose money.
Finally, if the blockchain network you are staking for experiences a hack or an attack, your crypto could be at risk too[3].
