A little over two months ago Solana (CCC:SOL-USD) stock looked like the rarest of unicorns.
That’s because it was able to rise in price while all of the crypto space fell dramatically. It’s understandable that this ignited a lot of new interest in the company and the cryptocurrency.
That isn’t to say that interest wasn’t there prior to it bucking the price downtrend in April.
Solana had already caught fire in late December. It had basically traded between $1 and $2 before then. It took off from there, skyrocketing from $1.50 in December to $58 by mid May.
Over the course of the last year it has appreciated in price by 4,255%.
Didn’t Escape Recent Trouble
Ultimately Solana couldn’t escape the broad crypto downdraft that began in mid May. Yet, there’s plenty of news that suggests it has real potential.
That potential means that it should likely rise from this latest downturn.
Interest remains high in Solana in any case. A good portion of that interest is a product of SOL’s inherent strengths.
Many pundits are repeating the idea that Solana may be an alternative to Ethereum (CCC:ETH-USD).
In an effort to understand cryptocurrency economists have drawn comparisons from our current financial and economic systems. Ethereum is attempting to establish itself as the energy source, or “oil” for the internet and the decentralization of finance.
But there are problems with ETH as internet oil. Like oil, ETH is expensive. The average transaction fee associated with Ethereum over the last 24 hours is $3.51.
According to Coinlist it costs $10 for 1 million transactions through SOL. So, $10 for 1 million transactions through SOL as opposed to $10 for roughly 3 transactions through ETH.
Solana Versus Ethereum
Then there’s the issue of transaction bandwidth. This is essentially speed or how much can be processed in a given period of time.
Solana claims that it can process up to 50,000 transactions per second. Ethereum supports about 1.2 million transactions over 24 hours. That works out to 13.88 transactions per second during that period.
It is said that the Ethereum 1.0 network can support a maximum of 30 transactions per minute. The Ethereum 2 network upgrade is anticipated to support upwards of 100,000 transactions per second. But the transition to Ethereum 2.0 may not occur until late 2021 or perhaps into 2022.
The argument is that SOL and its 50,000 current transactions per second make it much more attractive than waiting for Ethereum 2.0, which may or may not reach that 100k per second transaction throughput.
Thus, some have gone so far as to suggest that Solana will be an ETH killer because of its speed and transaction costs.
Users are certainly complaining about the transaction costs of ETH. But at the same time, they’re willing to pay for security in these early days of crypto. Thus, ideas that suggest Solana can usurp Ethereum quickly or easily are overblown.
Bright Future?
There are several signals indicating Solana has a bright future. Traditionally, venture capital investment is considered a strong indication that a project has the right ingredients for success.
From that perspective Solana is in good company. Solana recently raised $314 million to fund its technological development. Andreessen Horowitz, one of the biggest Silicon Valley venture capital firms led the round of funding.
There have also been suggestions that Solana could be used to develop high-frequency trading algorithms which could benefit from its high TPS. All of this makes Solana worth paying attention to for crypto enthusiasts.
Demand should rise as the crypto market learns more about SOL. There will be more liquidity in the markets as a consequence, and SOL prices should therefore run higher.
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.
