Solana

Should you buy Solana now? Probably not.

Concept art of the Solana (SOL-USD) blockchain.

Solana (SOL-USD) is currently the ninth largest cryptocurrency by market cap. Solana saw a rapid rise in value in the fourth quarter of 2021, reaching an all-time high of over $260 in November before declining steadily to the current price of around $79. Solana is the only major cryptocurrency blockchain that uses proof-of-history (PoH) consensus.

Source: Shutterstock

However, despite Solana’s uniqueness, there are serious issues to consider before buying it. Solana promises high scalability, security, and stability. However, it has faced multiple network outages since September 2021, rendering the entire network unusable for hours at a time.

According to Solana’s official website, in the past 90 days, nine recorded downtime.

It can be understandable that the network is still in beta. However, what is even more understandable, investors do not want to see their money tied up for long periods of time, especially if it is losing value.

Naturally, Solana has faced a lot of criticism from the cryptocurrency community. A lot of people don’t seem to trust the Solana Foundation either, as Solana is one of the most centralized cryptocurrency projects. People have also accused the foundation of lie about circulating supply and that the network was confronted DDoS attacks.

If any of these accusations are true, it only sows more doubt. This invalidates the idea that Solana is a truly decentralized cryptocurrency. What I mean is that Solana is in muddy waters because of all the skepticism surrounding her. Once a cryptocurrency project loses its credibility, it is not easy to regain the trust of its potential investors.

Usefulness Doesn’t Guarantee Solana’s Success

Certainly, Solana is excellent in terms of transactions per second (TPS) and fees. However, the success of a project is not limited to the costs and the number of TPS. For example, Nano (NANOUSD) enables instant and hassle-free paymentsbut the draft is still more than 95% below its 2018 high of $37.62.

Of course, every time you try to get lower fees, you’ll have to sacrifice decentralization and security in one form or another. He is called the “Scalability Trilemma” by the founder of Ethereum (ETH-USD), Vitalik Buterin. The Solana network seems to prioritize scalability over decentralization and security.

The reality is that crypto isn’t something you normally use to buy coffee, at least not yet. Massive GST numbers and low fees are great. But they do not compensate for the risk you will take by investing in an unstable network. I would be happy to pay a few extra dollars in fees if it ensures that my investments are stable and cannot be controlled by anyone.

If cryptocurrencies become the main means of payment, cryptocurrencies such as Ethereum, Bitcoin (BTC-USD) and Ripple (XRP-USD) already have plans for scalable Layer 2 solutions. By doing so, these cryptocurrencies can secure the main blockchain and provide fast and cheap transactions at the same time.

Can Solana compete?

As I mentioned above, Solana’s lower fees are a double-edged sword due to their risk. To explain more simply, layer 2 moves this risk from the main blockchain to a secondary network. On the contrary, Solana can reach these incredible speeds on the main blockchain. However, the main blockchain will also have less centralization and less reliability. Going forward, a Layer 1 Solana is expected to rival the Layer 2 speeds and Layer 1 security of its competitors. It has the speed to do it, but not the decentralization or the security.

A much more likely scenario is that people will use cryptocurrencies on a large scale with the help of external networks. Most transactions will no longer depend directly on the main blockchain. In fact, it is already becoming the case since exchanges such as Coinbase (NASDAQ:PIECE OF MONEY) and Crypto.com do not charge crypto-gas fees to their users. All transactions take place on their platform. Plus, most people are already using cryptocurrency exchanges instead of private wallets.

Solana’s emphasis on speed and low fees is undoubtedly bona fide. However, it simply cannot compete with its more secure and more decentralized competitors in the long run. Solana’s bad reputation won’t do her any favors either.

I think Solana is too risky an investment both in the short and long term. I would rather invest in more tried and tested cryptocurrencies such as Ethereum or Bitcoin. They are popular for a reason, and that is their safety and reliability.

At the date of publication, Omor Ibne Ehsan had not (directly or indirectly) any positions in the securities mentioned in this article. the the opinions expressed in this article are those of the author, subject to InvestorPlace.com posting guidelines.

Omor Ibne Ehsan is a writer at InvestorPlace. He is also an active contributor to a variety of finance and crypto related websites. He has a strong background in economics and finance and is a strong advocate for blockchain technology. You can follow him on LinkedIn.