As the second most valuable cryptocurrency in the world, Ethereum certainly has some influence in the world of digital assets. Since its launch in July 2015, the best programmable blockchain has skyrocketed over 100,000%, a return even Bitcoin cannot match during the same period.
Following in the footsteps of Ethereum, other blockchains are having smart contract functionality, attracting developers, and building use cases. Solana (CRYPTO:SOL) is the one that stands out, and he’s starting to make a name for himself in the cryptocurrency space. Plus, it still has the potential for stellar returns in years to come.
If you missed Ethereum, you might want to take a serious look Solana.
Launched publicly in April 2020 by former Qualcomm engineers Anatoly Yakovenko and Greg Fitzgerald, Solana is trying to solve some of Ethereum’s biggest problems, especially around speed and scalability. Solana has skyrocketed over 12,000% in value in its short history, and it is now the eighth most valuable cryptocurrency in the world with a market capitalization of over $35 billion.
Unlike Ethereum (although an upgrade is in progress), Solana runs on a proof of stake consensus mechanism. This simply means that holders of SOL, Solana’s native token, can stake their holdings in order to validate transactions (and earn rewards) on the network. It is more durable and energy-efficient than the proof-of-work method and its huge need for computing power used by Bitcoin and Ethereum.
But Solana has an innovative feature, called proof-of-history, which allows it to theoretically process up to 50,000 transactions per second at an average cost of fractions of a penny. Proof of history essentially adds a timestamp to each block, eliminating the need for all computers on the network to agree on the chronological order of transactions. This is a special feature that separates Solana from other cryptocurrencies.
The long-term relevance of a cryptocurrency depends entirely on its potential to create real-world use cases. Solana, with its fast transaction speeds and low costs, is a promising blockchain for the development of decentralized finance (DeFi) protocols.
DeFi hopes to disrupt the outdated, expensive and slow traditional financial services industry by removing the need for intermediaries. Consider saving and borrowing without a bank controlling the whole process or charging high fees for basic services. Rates offered by top DeFi services like Aave and Compound can be much more favorable for consumers. However, since they both run on the Ethereum network, they are limited by its slow transaction processing times, as well as high “gas” fees.
This scenario makes Solana, and its strengths, an extremely attractive blockchain protocol to help bring DeFi, the most promising cryptocurrency use case, to the mainstream. For example, Serum is a decentralized exchange that emphasizes speed and low fees. And it is the most popular decentralized application on Solana, with around 10.1% of the total $8.5 billion value locked (the amount deposited in DeFi protocols) on the network.
And the introduction of the Solana Pay platform, a payment protocol intended to create a seamless peer-to-peer connection between merchants and consumers, is a catalyst. Solana Pay can revolutionize the way merchants communicate with customers and can introduce new opportunities for loyalty, offers and rewards.
There are still risks
But since it is still a new technology and DeFi users are not protected by insurance, the risk of losing your deposited funds is always present. Last week, Wormhole, a bridge that connects Ethereum and Solana blockchains, was exploited by a hacker who stole over $320 million worth of wrapped Ether, the coin that powers the Ethereum blockchain. It’s a tough lesson that proves how much safety and security is still lacking when it comes to digital assets.
Nonetheless, Solana shows real promise of becoming a big winner in the cryptocurrency industry. An analyst from Bank of America even said that Solana could become the “Visa of the digital asset ecosystem. Analyst Alkesh Shah believes Solana is optimized for micropayments and gaming, and will take market share from Ethereum. That’s not a bad endorsement.
For those who missed out on Ethereum, Solana is a valuable addition to a well-diversified, long-term focused portfolio.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.