PayPal was a huge innovation in the payment processing industry. The financial brainchild of Peter Thiel, Max Levchin, and eventually Elon Musk, it was ahead of its time by enabling instant payments between customers, businesses, and more while using the Internet.
Solana (SOL) Pay is considered by many to be the next innovation in the payment processing arena, facilitating payments while taking into account non-replaceable tokens (NFTs) and Web3. Some even go so far as to call Solana’s new payment protocol Web3’s Visa or PayPal. This post will break down Solana Pay and how it works so you can decide if the project is all it is.
But first, it is essential to understand Solana before accessing the digital payment platform Solana Pay.
Related: What is Web3: A Beginner’s Guide to the Decentralized Internet of the Future
What is Solana?
Solana was founded in 2017 by Anatoly Yakovenko, a software engineer with a background at Dropbox and other major technology companies.
Yakovenko believed that while other blockchains are efficient or at least work towards efficiency, many of them do not take time into account. Instead of each block relying on a standardized clock, each block runs at the local time of their relevant node.
Why is this a problem? Without a standardized clock, transaction timestamps for each block will vary and the time of confirmation is yet another factor that all nodes must validate. The more factors a node has to validate, the slower the transaction time.
On Solana, all nodes run on the same clock, removing one validation factor and speeding up the network. Yakovenko refers to this consensus method as proof-of-history (PoH) – a modified version of proof-of-stake (PoS) that takes time into account for verification purposes.
Validation works similar to proof-of-stake in the case of Solana. Solana simply uses time as historical evidence in addition to the proof-of-stake method. This allows Solana to process an average of 65,000 transactions per second at minimal cost.
Solana is also a smart contract decentralized finance (DeFi) platform that competes with Ethereum (ETH). Both platforms offer all kinds of decentralized financial DApps, some with their cryptocurrencies too. Instead of Ether at the center of it all, the Solana token is SOL.
SOL is used to transact within the Solana network, to wager for governance purposes and is given as a reward to validators. Otherwise, Solana has its own decentralized exchanges to trade the various tokens built on top of its platform. Every DApp built on Solana certainly has its own SOL-compatible token, and on-chain decentralized exchanges provide an accessible way to buy said tokens
Because Solana’s PoH consensus enables it to process tens of thousands of transactions per second at no cost, Solana Labs is building Solana Pay to bring that transaction power to the masses.
History of Solana Pay
While Solana Labs was a big part of the Solana Pay development process, other companies were involved as well. According to Shere, Circle, Checkout.com, Citcon, Phantom, FTX and Slope have all played a role in laying the groundwork for the digital payment platform Solana Pay.
Team Circle states that “73% of businesses believe accepting digital payments is fundamental to growth in 2022,” according to a survey by Visa. The same survey found that 59% of those businesses are “already using or planning to use digital payments only within the next two years”. These stats were part of the foundation for Solana Pay as Solana Labs, Circle and their other partners want to be ready for these early adopters. Shere joined Solare Labs on Solana Pay in 2021.
How does Solana Pay work?
Digital payment platform Solana Pay offers businesses and customers instant, free transactions that reportedly have no impact on the environment by leveraging the power of the Solana blockchain network. The network claims to support 65,000 transactions per second and provides an easy-to-implement software development kit that allows businesses to integrate the product.
Developers building DApps on Solana can integrate Solana Pay for easy transactions, just like traditional retailers can implement if they have a Solana wallet. That accessibility is why many compare Solana to PayPal, arguing that Solana can do for crypto payments what PayPal did for traditional online payments.
Related: What Is Solana (SOL) And How Does It Work?
Benefits of Solana Pay
Of course Bitcoin (BTC), ETH and other cryptocurrencies claim to provide near instant crypto payment, but these networks (especially Ethereum) are expensive and not as instant as they would claim. For example, Bitcoin has an average of seven transactions per second, while Ethereum has an average of thirteen transactions per second. Both Bitcoin and Ethereum are also harmful to the environment. Solana’s network is faster and cheaper, which is attractive to companies and customers.
Solana Pay allows users to pay in real-time in SOL or any other supported Solana token, such as real-time payments in USD Coin (USDC), without the involvement of a third party such as a bank or payment processor. In addition, Solana Pay does not allow chargebacks, eliminating a costly problem that traditional merchants often face.
Solana Pay is also ideal for merchants and provides detailed reports on each transaction such as wallet destination, currency type, transaction amount and text fields for the merchant to describe the transaction. This data is kept completely private from the rest of the network so that both the customer and merchant can transact without prying eyes.
As the head of payments at Solana Labs, Sheraz Shere, says in his blog post: to announce Solana Pay, the Solana team wants the world to see Solana Pay as something bigger than allowing users to “pay with crypto”. Instead, Shere sees Solana Pay as a platform where “all currencies are on-chain and used for a wide variety of transactions,” he says.
Disadvantages of Solana Pay
Solana Pay, in addition to the Solana network, is itself in an early stage of development. Companies that switch to Solana Pay run the risk of losing their assets due to, for example, a programming error or an attack on the network. It is possible to lose assets due to simple user mistakes if the company is not aware of cryptography as managing a crypto wallet is not easy for everyone.
While Solana is faster than many of its competitors, Ethereum is still a much larger platform overall. Ethereum has many more DApps and a larger user base than Solana, and the eventual move from Ethereum to Ethereum 2.0 could also be problematic for Solana.
Solana Pay for Sellers
While Solana Pay may sound complicated, integration for merchants is quite simple. For starters, a trader needs to set up a Solana wallet, which they can do separately or through the FTX exchange.
From there, the trader must: implement some Solana Pay code in their website and encode their subsequent crypto payment request link in a QR code. Now customers can pay for goods and services both digitally and in person by simply scanning a QR code into their SOL-supported wallet.
Solana Pay for developers
While Solana Pay has its basic use case to provide traders with a way to easily accept crypto, the Solana community can suggest changes and present new use case. Documentation from Solana Pay invites users to open a Github issue if they want to suggest changes and updates.
In his blog post on Solana Pay, Shere notes that Solana Pay could facilitate physical and digital transactions through NFTs. His example revolves around buying a pair of shoes. A customer can buy a pair of shoes with Solana Pay and walk out of the store with two NFTs.
The first NFT allows her to use those shoes in the metaverse, and the second is a receipt for her purchase. That coupon also serves as access to the retailer’s exclusive club of NFT holders who receive discounts and other bonuses from the retailer.
Wallets that support Solana Pay
Solana Pay is currently supported in three wallets: Phantom, Crypto Please, and FTX. Phantom is a Solana-only wallet for to buy, holding and trading crypto and NFTs. Crypto Please is another Solana-focused wallet that allows users to send crypto via Telegram, WhatsApp and more. Finally, FTX is an exchange that: supports all types of cryptocurrencies, including Solana. More wallets that support Solana Pay will be coming soon.