There’s little reason to believe that Solana’s (CCC:SOL-USD) recent outage is a longer term problem. Rather, this cryptocurrency’s growing pains are an opportunity to establish a position in the future Ethereum (CCC:ETH-USD) challenger, or add to current positions.
The DeFi (decentralized finance) landscape has been on alert as it relates to Solana and the future of cryptocurrency and blockchain. However, nascent projects can stumble. It’s natural. So, if you believe like I do that the recent SOL outage was only a stumbling block, then consider buying it today.
Let’s put some context to that outage, which ultimately took the blockchain network offline for 17 hours.
Solana: A Network Overwhelmed
The Solana network reportedly has the ability to process 65,000 transactions per second. But it was a surge in those transactions that led to the network crashing a week ago. Specifically, transactions increased to a rate of 400,000 per second, causing the freeze. According to Barron’s, part of the reason for that surge was related to a social networking protocol called Grape.
The company will release further details of the causes of the outage, but the damage is already done. SOL-USD immediately suffered, falling below $140. The positive news, though, is that prices have somewhat rebounded. Right now, the crypto is approaching the $150 mark once more.
I would characterize this as a temporary hiccup. The idea that Solana will continue to eat away at Ethereum’s position is still valid. That will ensure that it continues to garner attention and rise in demand.
How It Compares to Ethereum
While Solana is capable of processing 65,000 transactions per second, Ethereum can process nowhere near that. If Ethereum 2.0 ever takes off, however, speculation is that it will then be able to process 100,000 transactions per second.
The first phase of 2.0 launched in December 2020. However, there are two phases remaining and current predictions estimate that the full release won’t occur until sometime in 2022. Plus, although Ethereum jumped out to an early lead, there are indications that the crypto may not maintain that position forever.
Solana has already been tapped as a prime candidate to usurp Ethereum’s position. Cardano (CCC:ADA-USD) has also been mentioned in that conversation.
The Ascent
Let’s put some numbers to the paradigm shift currently underway with Ethereum. Cardano founder Charles Hoskinson recently laid things out in an interview.
Ethereum currently hosts 3,000 of the estimated 3,800 decentralized applications (dapps) in the entire cryptocurrency space. The network is responsible for roughly 80% of dapp usage and value transactions as well. That’s an astounding position. But it’s one that is rapidly changing.
While the vast majority of dapps are currently hosted by Ethereum, new dapps are avoiding it. In 2020, a mere 31% of new dapps chose to be hosted on Ethereum.
Hoskinson was implying that Cardano will be the main beneficiary of the shift, but Solana is the other oft-mentioned network in that conversation.
Which of the two goes on to grab a bigger share of the pie remains to be seen. But Solana has proven to be the greater growth story thus far. It has risen an astounding 7,700% in 2021 as of today. Cardano has risen a less dramatic (though still impressive) 1,100% year-to-date (YTD).
What to Do with Solana
I’ve already laid my cards on the table. I believe Solana is worth investing in right now. Sure, the recent crash clearly isn’t a great sign. However, there is a silver lining here: demand was massive.
There’s little to no indication that Solana will have the ability to process 400,000 transactions per second anytime soon. But it at least indicates that the network has built the utility consumers want.
So, chalk the recent news up to growing pains. Investors need to realize that Solana has an established place in a much bigger game. It is gunning for Ethereum and, despite this hiccup, that potential for it to do so remains as evident as ever.
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On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
