Smart contracts in blockchain: what they are and how they work

The crypto market is full of bold statements. “Solana Blockchain – Our Future!”, “Ethereum Killer”, “Web3 Revolution” – sound familiar? But does this platform really change the rules of the game? Let’s figure out how Solana (SOL) works and assess its real prospects.

Solana History: Path to Speed

The Solana project started in 2017 when Qualcomm engineer Anatoly Yakovenko wondered: why are blockchains so slow? Inspired by technical solutions in the telecommunications industry, he proposed the concept of Proof of History (PoH) – a mechanism that would allow the network to operate faster without compromising security.

In 2020, the Solana blockchain was officially launched, and the Solana cryptocurrency appeared on exchanges. Thanks to its speed and low fees, the platform instantly caught the attention of DeFi developers and NFT enthusiasts.

How Does Solana (SOL) Work?

Imagine a multi-lane highway where cars speed without stops and traffic jams. This is the main metaphor of Solana. Unlike traditional blockchains that require each node to confirm transactions, the blockchain uses Proof of History – a mechanism that records the chronology of events, thereby simplifying block validation.

The method allows the blockchain’s scalability to reach 65,000 transactions per second. Instead of complex block confirmation procedures, PoH creates an ordered system of timestamps, significantly speeding up transaction processing. Combined with Tower BFT and Sealevel, the network gains an advantage in speed, multi-threaded processing, and load distribution.

Solana’s operation principle is based on the use of eight key technological innovations, including Turbine, Cloudbreak, and Archivers, which help the platform maintain efficiency under high load. Thanks to these tools, the Solana blockchain processes transactions faster and cheaper than Ethereum or Bitcoin.

Solana Advantages

One of the platform’s main advantages is its high speed. Transactions are processed almost instantly, making Solana attractive for DeFi projects, games, and NFT platforms.

Another important plus is low fees. Unlike Ethereum, where transaction costs can reach tens of dollars, Solana blockchain has minimal fees, making it accessible for mass usage.

The platform also has a flexible architecture supporting decentralized applications that can operate without network congestion. Developers get powerful tools for creating smart contracts, while users have the opportunity to interact with the ecosystem without high costs.

Solana Disadvantages

Despite its obvious advantages, Solana has significant drawbacks. The main one is network instability. Over the past few years, the blockchain has faced numerous outages, undermining user and investor trust.

Another important downside is centralization. Although Solana is positioned as a decentralized blockchain, a large part of validators is controlled by a limited circle of participants, which may jeopardize decentralization principles.

Competition from Ethereum, Polkadot, and Avalanche poses additional challenges for the Solana blockchain. ETH continues to develop its ecosystem, offering upgrades, while new blockchains attract developers with their unique solutions.

SOL: Why is the Token Needed?

The SOL cryptocurrency performs three main functions:

• pays transaction fees;
• participates in staking to help secure the network;
• used in smart contracts and decentralized applications.

Low fees and high speed make the token convenient for DeFi and NFT operations. However, the absence of a strict supply limit raises concerns about inflation.

Additionally, the SOL token plays a key role in ecosystem governance. Owners have the opportunity to participate in voting on network development issues, making the platform partially decentralized. This allows the community to influence the further development of the Solana blockchain.

Solana Issues

Despite advanced technologies, Solana’s issues regularly come to light. One of the key drawbacks has been frequent network failures. In 2022, the platform experienced several shutdowns due to technical glitches, undermining user trust.

High performance requires significant resources, creating challenges for decentralization. In the Solana network, there is a smaller circle of validators compared to Ethereum, increasing the risks of centralization and attacks. In addition, competition from Ethereum 2.0, Polkadot, and Avalanche puts pressure on Solana’s market position.

Solana’s Future

What future awaits Solana? There are several development scenarios. If the team addresses the issues of resilience and decentralization, the platform can solidify its position among the leaders. Otherwise, Solana risks losing users and yielding to more stable blockchains.

Currently, the project’s ecosystem continues to expand. New enhancements are being developed, such as Firedancer – a new network client designed to enhance its reliability and security. More DeFi projects and NFT platforms are choosing the Solana blockchain due to its high speed and low fees.

Key Takeaways

How does Solana (SOL) work? Today, the blockchain is a powerful but not yet perfect technology. Its speed and innovative mechanisms give hope for a bright future, but issues with resilience and decentralization remain a serious challenge. Will Solana dominate in Web3 or yield to competitors? Time will tell.

The development of technologies continues unabated, and it is becoming increasingly important for each of us to understand them. In this article, we will try to explain in a simple, beginner-friendly way what blockchain is and how it works. This technology is the basis for most cryptocurrencies, such as Bitcoin and Ethereum, but its possibilities are not limited to the financial sector.

Historical background and development of technology

To understand what blockchain is and to be able to give a simple explanation to beginners, it is important to look at its history. In 2008, an anonymous developer under the pseudonym Satoshi Nakamoto introduced Bitcoin to the world, the first cryptocurrency that uses blockchain technology to store data. The idea was to make the system decentralised and transparent, so that no one could change the data without the consent of all network participants. This concept immediately attracted attention and revolutionised the financial world.

Before the advent of blockchain, all data was stored in central systems: banks and companies managed the information. The new format offers a solution where there is no need for intermediaries and network participants can communicate with each other directly, securely and without the risk of counterfeiting. With the development of blockchain, it was not only used for cryptocurrencies, but also in other areas: logistics, healthcare and art.

What is blockchain in simple terms? – Explained for beginners

The technology consists of a chain of blocks, each block storing information about a transaction. Each block is linked to the previous one by a cryptographic hash: a unique string that links the blocks together into an unbroken chain. If someone tries to change the data in a block, they change the hash and the entire chain becomes invalid.

How does blockchain work?

1. The transaction is the first thing that happens. For example, one person sends money to another.
2. Transaction verification: When a transaction is sent across the network, it is verified by other participants (or ‘nodes’).
3. Block formation: When transactions are verified, they are combined into a block.
4. Proof of consensus: Network participants (or miners, in the case of proof of work) agree that a block is correct and add it to the chain.
5. Update ledger: The new block updates the ledger on all devices in the network and the transaction is considered complete.

Each block contains a link to the previous block. If you change the data in one block, you have to recalculate the data in the following blocks. This makes the system virtually invulnerable to hackers.

Advantages of blockchain technology

To answer the question of what is blockchain in simple terms for beginners, we should discuss the advantages of the platform. It is impossible to change data in the database due to the static nature of the records: any attempt to change one block leads to a violation of the integrity of the entire chain, which provides protection against forgery. The transparency of the system is ensured by the fact that all transactions are available for verification by every participant. This creates a high level of trust and allows for quick verification of transactions. Due to the absence of a central governing body, the blockchain is decentralized. This significantly reduces the risk of manipulation and ensures the stability of the system even if individual nodes fail.

The use of advanced cryptographic methods enables a level of data protection that is virtually invulnerable to external attacks. In addition, the use of smart contracts automates the execution of transaction terms without the intervention of intermediaries. This speeds up the process considerably, saving time and money. By eliminating intermediaries, transaction costs are significantly reduced, saving you money and time when making transactions.

Disadvantages of the system

Like any technology, blockchain has its disadvantages:

1. Scalability: The larger the network, the slower the transactions can be, requiring more computing power.
2. Energy consumption: Some blockchain systems, such as Bitcoin, require a lot of energy to maintain the network.
3. Difficulty of implementation: Using blockchain requires a certain level of technical knowledge, as well as a significant investment in infrastructure.

Application of technology

Blockchain is used in many different areas:

1. Financial services. The scheme underlies the cryptocurrencies Bitcoin and Ethereum. Blockchain systems enable bankless transfers, reducing costs and speeding up the process.
2. Logistics. Businesses can use technology to track products throughout the supply chain. This helps prevent fraud and improve transparency.
3. Identity management. Blockchain can be used to store and verify personal data in passports and driver’s licenses. It increases data security and eliminates the possibility of counterfeiting.
4. Voting. In some countries, blockchain is used to organize elections. This provides transparency and protects against fraud, because every vote is recorded on the blockchain and cannot be changed.
5. Smart contracts. Smart contracts allow for the automatic execution of transaction terms without intermediaries, saving time and costs.

Conclusion

Our simple, beginner-friendly explanation of what blockchain is means that anyone can understand the technology without having to learn a lot of new words. We also explain why blockchain is gaining popularity so quickly and is being applied in a variety of areas.

In the future, the system will continue to develop and find new areas of application that can significantly change the economy and everyday life. The application of blockchain in a variety of sectors, from finance to healthcare and government, underlines its versatility and potential. However, it is important to keep in mind that the technology is still in development and its implementation requires a careful approach and competent technical support.