Solana: What It Is and How It Differs from Ethereum

What Solana is, how it works, why its fees are low and what the risks are. A comparison with Ethereum for beginners.

FinBoss.io editorial team·· 2 min read
Illustration for the article: Solana: What It Is and How It Differs from Ethereum

Solana is a blockchain designed for fast and cheap transactions. Its own cryptocurrency is called SOL. It is used for payments, decentralized applications, tokens and NFTs, and is one of Ethereum's biggest competitors.

How Solana works

Solana uses proof of stake: validators lock up SOL and receive a reward for confirming blocks. To speed things up it adds a mechanism called proof of history, which helps order transactions in time. As a result it can handle a large number of transactions and the fee for one is usually a fraction of a cent.

Solana and Ethereum: the main differences

  • Speed and fees. Solana processes transactions quickly and cheaply. Ethereum tends to be more expensive on its main network, with cheaper options on layer 2 networks built on top of it.
  • Network design. Ethereum is more decentralized and has a longer security record. Solana emphasizes performance, which puts high demands on validators' hardware.
  • Ecosystem. Ethereum has the largest set of applications and liquidity. Solana has a fast-growing ecosystem, mainly in token trading, games and payments.
  • Reliability. Solana has suffered several network outages in the past. Ethereum has had fewer.

Risks worth knowing

  1. The price swings sharply. Cryptocurrencies can lose or gain tens of percent within weeks.
  2. Technical risks. Network outages or bugs in applications can cause losses.
  3. Regulation. The rules for cryptocurrencies are still evolving in Europe and around the world.
  4. Custody. Anyone who holds SOL on an exchange does not own the private keys. Larger amounts belong in your own wallet.

How to follow the price

The current price of Solana is on the Solana price page, and the comparison with the second largest cryptocurrency on the Ethereum price page. Both networks allow staking, see What is staking. Curious about their older sibling? Read Bitcoin vs Ethereum.

Frequently asked questions

Is Solana better than Ethereum?

The priorities differ. Solana emphasizes speed and low fees, Ethereum decentralization and a large ecosystem. "Better" depends on what you expect from a network.

Can I stake Solana?

Yes, Solana uses proof of stake. The reward and the terms differ by provider and are not guaranteed.

How much of a portfolio should go into cryptocurrencies?

Cryptocurrencies are very risky and should make up only a small part of your wealth, see Portfolio diversification.

How are profits from these cryptocurrencies taxed?

That depends on the country you live in. Keep records of your trades.

This is not investment advice. Trading cryptocurrencies is risky.

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Disclaimer: This content is for general information and is not investment, tax or legal advice. Investing is risky and you can lose part or all of your investment. Verify figures in current sources.