PayPal was a massive innovation in the payment processing industry. The financial brainchild of Peter Thiel, Max Levchin and eventually Elon Musk aimed way ahead of its time, facilitating instant payments between customers, businesses and more while using the internet.
Solana (SOL) Pay is considered by many to be the next innovation in payment processing, making payments easier while accommodating non-fungible tokens (NFTs) and Web3. Some go so far as to call Solana’s new payment protocol Web3’s Visa or PayPal. This article will break down Solana Pay and how it works so you can decide if the project is all it’s meant to be.
But first, it is essential to understand Solana before embarking on the Solana Pay digital payment platform.
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 big tech companies.
Yakovenko believed that while other blockchains are efficient or at least work towards efficiency, many of them are not time sensitive. Instead of each block relying on a standardized clock, each block runs in the local time of its relevant node.
Why is it a problem? Without a standardized clock, transaction timestamps will vary for each block, and confirmation time 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 a validation factor and thereby 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 similarly to Proof of Stake in Solana’s case. Solana simply uses time as the historical record of proof in addition to the proof-of-stake method. As a result, Solana can process an average of 65,000 transactions per second with minimal fees.
Solana is also a decentralized smart contract finance (DeFi) platform that competes with Ethereum (ETH). Both platforms offer all sorts of decentralized financial DApps, some with their cryptocurrencies as well. Instead of Ether at the center of it all, the Solana token is SOL.
SOL is used to transact within the Solana network, to participate 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. Each DApp built on Solana is guaranteed to have its own SOL-compatible token, and decentralized on-chain exchanges provide an accessible way to purchase said tokens
Now, because Solana’s PoH consensus allows 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 played an important role in Solana Pay’s development process, other companies were also involved. According to Shere, Circle, Checkout.com, Citcon, Phantom, FTX and Slope all played a role in establishing the foundations of the Solana Pay digital payment platform.
team circle States that “73% of businesses believe accepting digital payments is fundamental to growth in 2022,” according to research from Visa. That same study found that 59% of these businesses “already use or plan to use only digital payments 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 in 2021 to work on Solana Pay.
How does Solana Pay work?
The Solana Pay digital payment platform offers businesses and customers immediate and free transactions that would have no effect on the environment by harnessing 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 for companies to integrate the product.
Developers building DApps on Solana can integrate Solana Pay for easy transactions, just like traditional retailers can implement it if they have a Solana wallet. This accessibility is why many are comparing Solana to PayPal, claiming that Solana can do for crypto payments what PayPal has done for traditional online payments.
Related: What is Solana (SOL) and how does it work?
Advantages of Solana Pay
Sure, 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 might claim. For example, Bitcoin offers an average of seven transactions per second, while Ethereum averages thirteen transactions per second. Bitcoin and Ethereum are also harmful to the environment. Solana’s network is faster and cheaper, which is attractive to businesses and customers.
Solana Pay allows its users to pay in real-time in SOL or any other supported Solana token, such as USD Coin (USDC) real-time payments, without involving a third party such as a bank or payment processor. Additionally, Solana Pay does not allow chargebacks, which eliminates a costly problem that traditional merchants often face.
Also great for merchants, Solana Pay offers detailed reports on each transaction, such as wallet destination, currency type, transaction amount, and text fields for the merchant to describe said transaction. These details are completely private from the rest of the network, ensuring that both the customer and the merchant can transact without prying eyes.
As Head of Payments at Solana Labs, Sheraz Shere, states in his blog post announcing 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 range of transactions,” he says.
Disadvantages of Solana Pay
Solana Pay, alongside the Solana network itself, is in an early stage of development. Companies that switch to Solana Pay run the risk of losing their assets due to a programming error or an attack on the network, for example. It is possible to lose assets due to basic user errors if the company is not familiar with crypto, as managing a crypto wallet does not come naturally to everyone.
Additionally, while Solana is faster than many of its competitors, Ethereum is still a much bigger platform overall. Ethereum has many more DApps and a larger user base than Solana, and Ethereum’s eventual move to Ethereum 2.0 could also prove problematic for Solana.
Solana Pay for Merchants
Although Solana Pay may seem complex, the integration for merchants is quite simple. To get started, a trader needs to create a Solana wallet, which they can do individually or through the FTX exchange.
From there, the trader must enforce certain Solana Pay codes on 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 in their SOL-supported wallet.
Solana Pay for Developers
While Solana Pay has its core use case providing merchants with a way to easily accept crypto, the Solana community can come up with modifications and introduce new use cases. Solana Pay documentation invite users to open a Github ticket if they want to suggest changes and updates.
In his blog post regarding Solana Pay, Shere notes that Solana Pay could facilitate physical and digital transactions via NFTs. His example revolves around buying a pair of shoes. A customer can purchase a pair of shoes using Solana Pay and walk out of the store with two NFTs.
The first NFT allows him to use these shoes in the metaverse, and the second is a receipt for his purchase. This receipt also serves as entry 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 wallet only for purchase, hold and trade cryptos and NFTs. Crypto Please is another Solana-focused wallet allowing users to send crypto on Telegram, Whatsapp and more. Lastly, FTX is an exchange that supports all types of cryptocurrencies including Solana. More wallets supporting Solana Pay will be available soon.