Heading into 2021, Solana (CCC:SOL-USD) was trading for less than $2 per token. By June, Solana delighted its holders, as it reached $30. As it turns out, that was just the beginning. What traders have dubbed “Solana Summer” soon kicked into high gear; the price of SOL topped $200 per token.
After a more than 100-fold return, Solana finally has corrected a bit. The token has sold off around 30% in recent weeks. For traders, this could be an ideal buy-the-dip opportunity. After all, Solana has more than price action going for it; it has also spawned a host of real-world use cases. However, a technical glitch has temporarily slowed Solana’s rising trajectory.
Solana: Cheap Transactions Are A Killer App
One of Solana’s biggest advantages is that it is a fast network with rock bottom transaction costs. You can often buy or sell on Solana for fractions of a penny per transaction. That’s a massive advantage compared to legacy cryptos such as Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD).
Indeed, Ethereum’s huge gas fees have been a massive stumbling block to the broader crypto ecosystem. When it might cost $20 or even $50 to buy something, that greatly limits uptake.
People might not mind a $50 transaction fee to buy a $5,000 non-fungible token (NFT), but any sort of mundane purchases aren’t going to happen on a network charging outlandish prices for transactions. For cryptos to work in gaming and other such microtransactions, lower fees are a must.
The Downside of Cheap Networks
Solana’s great advantage comes with a drawback, however. Solana is less stable as a network than Bitcoin or Ethereum. In some ways, you could liken Solana to operating more like a central database rather than a decentralized platform.
Ethereum and Bitcoin have a lot of redundancy built into their networks. Having users store their own copies of the blockchain and cryptographic register takes up a large amount of computing resources. However, the use of all that computing power creates a more robust and hack-proof network.
Solana has cut out a huge chunk of the infrastructure cost of operating a global cryptocurrency-based payments network. However, it’s not certain that Solana has enough technical backbone to support a mass market payments network, either. Put it another way, transaction fees do help support a cryptocurrency’s ecosystem.
Ethereum’s transaction fees are much too high, and Ethereum’s backers are making moves such as switching to a proof-of-stake protocol to help address them.
However, the right level of transaction fees probably isn’t zero, either. Solana and other emerging cryptos will need to strike the right balance between cheap fast transactions and reliable and secure processing.
The Recent Solana Network Technical Failure
This need for balance came to light in dramatic fashion recently. On September 14, the Solana network had a massive service failure. Solana was unable to complete transactions for 17 hours. While no funds were lost, it was a major blow to confidence in the Solana community, and the price of SOL dropped as much as 15% during the network outage.
Solana blames a spike in activity on the network, which it likened to a distributed denial of service (DDoS) attack. With too many transaction attempts at once, Solana’s system entered a memory overflow. The validators — which ensure the integrity of the network — were unable to come to consensus and thus Solana stopped processing any orders.
The Solana community quickly came to an agreement to make a hard fork of the blockchain to regain a common consensus. Once this was reached, the network could effectively be rebooted and things returned to normal.
Thanks to more than 80% of Solana holders agreeing in short order on a course of restorative action, the community was able to get the currency up and running again with minimal long-term disruption. Still, critics will suggest that Solana is not yet robust enough to compete with Ethereum for hosting key decentralized finance (DeFi) and NFT projects.
Solana is an extremely promising cryptocurrency project. Unlike the vast majority of its rivals, Solana has already achieved vast amounts of real-world user adoption in 2021.
Solana isn’t selling investors some vision of potential future use. There is all sorts of DeFi and NFT transactions occurring with Solana right now. That sort of dynamic marketplace sets Solana apart from its peers.
Sure, there are real technical questions about Solana’s ability to scale. Can its engineers get the code and infrastructure where it needs to be to support such a robust range of transactions? We’ll see. However, the fact that Solana is having these sorts of problems speaks to the success it has already achieved. If Solana’s biggest issue is improving network capacity to meet rising user demand, that says only good things for its long-term outlook.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.