Cryptocurrency enthusiasts consider Solana to be the main competitor to Ethereum in terms of investment, thanks to its fast transactions and minimal fees. While Ethereum can handle only 14 transactions per second (TPS), Solana can support 50,000 TPS. Despite Ethereum’s transition from proof-of-work to proof-of-stake consensus process due to high gas costs, Solana still outperforms in terms of transaction prices and speeds.
Advantages of investing in Solana:
1. The third-largest futures market: Solana currently holds the third-largest position in open futures interest, a crucial statistic in derivatives contracts. Despite a decline in price value, its futures interest has remained stable, indicating strong market participation.
2. Smart contracts and NFTs: Solana entered the NFT market immediately to tap into the fast-growing business potential. Solana’s low costs and quick transactions make it an attractive option for NFT enthusiasts. Solanart, a member of Solana’s NFT market, is expanding its market share.
3. Market dominance in TVL, users, and derivatives: Solana has seen tremendous activity in its on-chain data and derivatives market. Over the past six months, its Total Value Locked (TVL) has increased by more than 15%. The gap between TVL, active users, and the derivatives market is narrowing rapidly.
4. Institutional appeal: Solana’s market valuation surpasses that of Avalanche and Terra combined, making it appealing to institutional investors. The investment community for Solana is expanding in 2021, indicating increased institutional adoption.
Disadvantages of investing in Solana:
1. Lack of decentralization: Solana currently has only 1,000 validators compared to Ethereum’s approximately 200,000 validators. A higher number of validators enhances network security, making Solana less decentralized.
2. Fewer projects: Ethereum has more projects than Solana due to its first-mover advantage. Solana currently hosts around 350 projects, including decentralized finance, NFT initiatives, and gaming applications. More new ventures may choose Solana over Ethereum if they recognize its quick transactions and minimal costs.
3. Inflation: Unlike most digital currencies with a hard limit on the total number of coins, Solana does not have a consistent supply of money. The inflation rate of Solana’s SOL tokens will decrease by 15% until it reaches 1.5%, after which it will stop falling further. Developers have increased the annual supply of SOL tokens by 8%.
4. Unstable network: Solana’s investment scene is still in its early stages, and the cryptocurrency’s reputation suffered when its network experienced instability. Compared to Ethereum, Solana has a less established track record, which may make investors hesitant to choose it. Reliability is crucial for cryptocurrency investors, and this issue sets Solana apart from its significant competitors.
5. Testing phases: Although Solana has ambitious plans for the future, many of them are currently in the beta stage. The effectiveness of the coin cannot be accurately predicted until the corporation executes these plans.
Solana is an interesting cryptocurrency that distinguishes itself from others with steady growth and promise. However, investors should carefully consider the risks associated with cryptocurrency investing before diving in.
