Solana’s Uncertain Future Does Not Make It a Long-Term Buy

Solana - Solana’s Uncertain Future Does Not Make It a Long-Term Buy

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Solana (SOL-USD) is known for its fast transaction speeds and almost nonexistent fees. Its network is seen as an answer to Ethereum’s (ETH-USD) shortcomings. However, Solana’s current advantages come at a sacrifice to its security. Moreover, the release of Ethereum 2.0 will likely harm Solana’s future growth potential. Ethereum is already the de-facto currency for the vast majority of non fungible tokens (NFTs) and many other smart contracts. Thus, Solana would have to fight an uphill battle if it wishes to compete in the long-term.

Solana’s primary advantage over Ethereum is its fees. Admittedly, the network is indeed fast and very cheap. Solana has a transaction per second (TPS) of 50,000 compared to Ethereum’s 15 TPS. However, Solana will likely lose this advantage once Ethereum’s Layer-2 projects become more widely used. Moreover, Ethereum’s blockchain prioritizes security over transaction fees and speed. Thus, Layer-2 will solve Ethereum’s transaction problems while retaining its Layer-1 security.

In addition, competing with Ethereum 2.0 will also be another problem for Solana. Ethereum’s founder says that Ethereum 2.0 will have a TPS of 100,000 once it is released. Unlike Solana, it will still preserve its security due to its 300,000-plus validators. In comparison, Solana has just 1,698 validators.

The Ethereum network is already well-established and the vast majority of Web3 development occurs on the network. Therefore, developers are unlikely to ditch Ethereum for Solana. In addition, ETH’s demand is still very high. All NFTs, decentralized applications (Dapps), and over 516,755 ERC-20 tokens on the Ethereum Blockchain pay gas fees in ETH. Thus, I do not believe that Solana can compete with Ethereum in the long-term.

Nonetheless, I still think that Solana will keep growing in the short-term. Solana’s market capitalization of $33.7 billion holds a lot of growth potential. Moreover, the company is still in beta, and any announcement of a full release will likely increase its value. Furthermore, Ethereum needs a long time until it succeeds in resolving its current problems. Thus, Solana still has a window of opportunity to make itself a more attractive and valuable investment.

Thus, I believe that Solana is a buy for the short-term. However, I advise prioritizing your crypto portfolio toward Bitcoin (BTC-USD) and Ethereum. Both BTC and ETH are time-tested and most crypto investors are confident in their longevity.

Disclosure: On the date of publication, Omor Ibne Ehsan 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.

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 self taught investor. You can follow him on LinkedIn.


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