Solana has been a top performer in 2021, rising through the ranks of altcoins to become the fourth-most-valuable cryptocurrency in the world. Solana is a type of digital currency that exists exclusively online. Initially released in April 2019, Solana started trading at less than $1 per coin. Since then, its price has risen remarkably fast, and as of November 2021, Solana has been trading for over $200.
Now – Solana’s value is $64.2 billion, and its growing community of investors is excited about how the digital currency’s technology compares to market leaders Bitcoin (BTC) and Ethereum (ETH).
What are the features of Solana?
Solana can power several applications that offer a variety of features:
- Cryptocurrency wallet: With a cryptocurrency wallet, you can use Solana to send or receive the coin or transfer it in exchange for goods and services.
- Smart contracts: With Solana, you can automatically execute the terms of the contract when its conditions have been fulfilled.
- Non-fungible tokens (NFTs): Powered with Solana, NFTs allow artists and others to sell them to consumers.
- Decentralized finance: With Solana, you can create and use permission-less payments, so as to avoid centralized or government control.
- Digital apps: Besides its several features, Solana supports the development of a range of other apps such as games, investing, social media, etc.
1. Speed and fees
Solana can support tens of thousands of transactions per second compared to only about 13 transactions for Ethereum, which currently operates on a proof-of-work, or PoW, model that requires miners to complete complex calculations to validate transactions. Solana’s proof-of-history, or PoH, and proof-of-stake, or PoS, models verify transactions based on coin ownership. This ease of verification also helps Solana have lower fees than Ethereum. Solana’s average fee is less than 1 cent per transaction.
2. NFTs and smart contracts
Ethereum was the first cryptocurrency to introduce smart contracts, which is code that allows blockchain platforms to run decentralized applications or dApps. However, the popularity of smart contracts and dApps has led to congestion on the Ethereum network, opening the door for faster alternatives. Solana is also rapidly gaining market share in the high-growth non-fungible token world. NFT marketplace Solanart runs on the Solana network, allowing NFT buyers to enjoy faster transaction speeds and lower fees than buyers on the Ethereum network. Booming demand for smart contracts and NFTs could open the door for both Ethereum and Solana to succeed in the long term.
Because Solana has a smaller community of users and a shorter track record than Ethereum, investors may not be able to rely as much on the network’s stability. In September, Solana’s reputation took a hit when the Solana Foundation tweeted that the Solana blockchain was experiencing “intermittent instability.” Solana Labs CEO Anatoly Yakovenko said that the network had experienced similar stability issues in the previous week as well. The company blamed “resource exhaustion” for the problems and said its engineers were resolving the issues. Reliability is key for cryptocurrency investors, many of whom weren’t happy with the relatively vague explanation.
2. Fewer projects
Ethereum’s first-mover advantage means that the network has far more projects than Solana. There are currently 2,887 Ethereum dApps, according to the website State of the dApps. Solana claims to have about 350 total projects on its network. These projects include decentralized finance, or DeFi, applications, NFT projects, and gaming apps. The more word of Solana’s speed and low fee structure spreads, the more new projects may choose Solana over Ethereum. However, it remains to be seen just how valuable Ethereum’s first-mover advantage is and whether or not Solana can build up its network of programs enough to truly compete with Ethereum.
So, is Solana a good investment?
Solana – like most popular cryptocurrencies – is not backed by any fundamental assets. If you’re looking to speculate in Solana or other cryptocurrencies, you can trade them directly or you can invest in the companies that could profit from the growing interest in the sector.
So, if you’re looking to trade Solana, however, it’s important to understand the risks, and you could potentially lose your whole investment.