Should you invest in Solana (SOL)? | Stock market news
Solana may be the victim of her own success. Cryptocurrency had been hot lately, with backers calling it “the Solana summer” thanks to the token’s sizzling gains. On Tuesday, September 14, however, Solana – whose symbol on crypto exchanges is SOL – faced major network instability issues. The organization’s Twitter account blamed “resource depletion”, in part caused by an unusually high number of transactions on the network.
This unexpected activity flooded the network and caused it to malfunction. The failure looked like a distributed denial of service attack, or DDoS, although it’s not clear who, if any, was causing the outage. Solana’s price fell 15% that day in response to the negative news.
In the grand scheme of things, however, this is arguably the best kind of problem an emerging cryptocurrency could face. Too much activity on the network is testament to Solana’s incredible success in attracting developers, decentralized finance or DeFi, projects and end users to the platform in just a few months. Solana has leveraged this growing user buzz to make it one of the most impressive pricing tables of the year. Even with the recent sell-off, SOL is up about 1000% over the past six months.
Despite recent network outages, why has Solana generated so much buzz in the crypto community and become one of the top 10 tokens by market cap? And should we invest in Solana?
How Ethereum and Solana are disrupting finance
For a long time, Bitcoin has been the undisputed champion of the cryptocurrency arena. Over the past year, however, Ethereum’s value has appreciated strongly against Bitcoin. Much of this is due to a very active developer community and an ever-growing number of Ethereum-based apps. Ethereum has led the way by offering smart contracts, DeFi, non-fungible tokens, known as NFT, and more.
Bitcoin retains a large loyal fan base due to its first-come advantage and powerful brand. However, when it comes to real utility in financial transactions, Ethereum has become the dominant force in recent times.
This is where Solana comes into play. Solana has become one of Ethereum’s main rivals. Others have certainly tried. Cardano, for example, can theoretically solve many issues related to resource usage and the high transaction fees that currently limit Ethereum. But Cardano has rolled out smart contracts and other advanced features at a slow pace.
Solana, on the other hand, had no problem converting its technological promise into tangible results. Blake Richman, senior portfolio manager at Sarson Funds, highlighted activity on Solana. “There are now nearly 400 dApps (decentralized applications) on Solana; similar to what you would find on Ethereum, including DeFi, NFT, and games. There are now nearly $ 12 billion stuck in DeFi apps on Solana, dropping from $ 2 billion in 30 days. “said Richman.
Solana has made particular inroads with the NFTs. His Degenerate Ape art collection, for example, was a huge success. Some degenerate monkey NFTs have sold for over a million dollars each. And it’s far from the only social activity that is gaining popularity on Solana. “It feels like there’s a new NFT strike event on Solana every day, and there are a few highly anticipated blockchain-based games coming out on Solana, like Star Atlas,” Richman says.
A big reason why Solana is exploding in popularity is due to its very low transaction fees. Ben Weiss, CEO and co-founder of Bitcoin ATM operator CoinFlip, noted that the average transaction cost on Solana is only $ 0.000025. It’s orders of magnitude cheaper than Ethereum and other leading cryptocurrencies. “The ability to process so quickly and inexpensively sets Solana apart from the rest in many ways,” Weiss said.
It has become a critical issue this year as the so-called “gas” charges for using the Ethereum network have skyrocketed. While Ethereum still works well enough for big smart contracts or NFT purchases, it has put a damper on many types of trading.
For applications like gaming and micropayments, Ethereum’s current pricing structure will not cut it. The Ethereum community has put in place a roadmap to try to remove this obstacle. For now, however, there is a great opportunity to take market share from Ethereum. Solana is making the most of the opportunity, and this is one of the main reasons the price of SOL coin has recovered.
SOL: More than just costs
Solana also has other strengths. While its developer community is still much smaller than Ethereum’s, Solana’s easy-to-use Rust programming language could help drive community adoption. The combination of low fees and a faster learning curve could be the winning combination. “In the current state of blockchains, Solana is the most efficient according to the majority of metrics,” says Weiss.
This optimistic shot is not an isolated view. Josh Goodbody is the COO of Qredo and previously served as Director Europe, Middle East & Africa at Binance. Goodbody also sees SOL as a strong competitor to Ethereum. “The characteristics of Solana are the speed of transactions and low fuel costs, thanks to an innovative proof of history protocol. Using this powerful infrastructure, they have raised over $ 300 million this year from a16z and Polychain, ”says Goodbody.
Goodbody foresightedly warned that Solana would need to decentralize more and get more network validators. This weakness has emerged recently as a result of Solana’s widespread network problems. Despite this, with her strong backers and swift trading network, Solana has a good chance of bouncing back.
However, not everyone is so in love with Solana. Andrew Keys, co-founder and managing partner of Darma Capital, believes Ethereum retains its leadership position in the market.
“The work Solana has done and the technology they have developed is cool, but they have made significant compromises to do so, providing a more centralized solution similar to a traditional server. Solana will work well for a number of cases. ‘use, but ultimately the base layer for the majority of DeFi and Web3 will be Ethereum amplified by layer 2 (scaling solutions), ”says Keys.
While investors should heed this caveat, there is still a lot to like about SOL. “The future of Solana is exciting, as its speed and low costs provide a better user experience. In addition, Solana could ultimately be a better environment for certain financial applications that require high transaction or data transfer rates, ”says Richman.
Solana is recovering from a significant and embarrassing technical problem with her network. If its engineers cannot improve the stability of the network, the value proposition of the SOL coin could be impaired. Still, this seems to be the kind of growing pain that a rapidly expanding network would face.
There are tons of apps and users on Solana; it is much more relevant in the real world than meme tokens such as Dogecoin or Safemoon. Solana deserves to be taken seriously, and if it sells more due to its technical issues, traders should consider buying the downside.