The demand for Ethereum has skyrocketed this year, but it appears that other crypto projects refuse to stay behind. One of these projects that are making an effort to compete against the ever-popular ETH is Solana, a blockchain featuring a native cryptocurrency known as SOL.
According to Bitwise Asset Management’s chief investment officer Matt Hougan, Solana is considered by many to be the best or leading Ethereum competitor. It’s the project that actually stands a chance at surpassing Ethereum. And it seems that Hougan isn’t the only one who’s rooting for Solana—in fact, the overall market seems to be showing support for the ‘Ethereum killer.’
According to CoinGecko, Solana has skyrocketed up to almost 12,000% this year and is considered the fourth-largest crypto by market value. Last Saturday, the project also hit a new all-time high of almost $259.96, and its current market cap is more than $74 billion.
There are several reasons why Solana and Ethereum are constantly compared with one another. For one thing, both projects have smart contract capabilities. These are essentially collections of code that follow a set of given instructions within the blockchain. Smart contracts are essential for decentralized finance or DeFi as well as non-fungible tokens or NFTs.
That said, it’s still important to understand the possible risks that investing in Solana holds, even though it has been doing so well lately. After all, cryptocurrency, in general, has been and always will be risky and volatile.
What Is Solana?
Solana was officially established in March of last year by Anatoly Yakovenko. He designed the project to support smart contracts along with the creation of decentralized applications. Solana operates under two models, namely a proof of history (PoH) and proof of stake (PoS).
With PoS, validators can easily verify transactions based on how many coins they’re holding. On the other hand, PoH ensures that those transactions are timestamped and verified at a much faster pace.
So, when you combine these two models, Solana is able to do a lot more transactions per unit of time. Not only that, it has much lower fees compared to other projects—specifically Ethereum. At the moment, Ethereum runs on a proof of work (PoW) model. This is where miners have to solve various complicated puzzles if they want to validate their transactions.
Solana vs Ethereum
So, how do Solana and Ethereum compare to each other? Even though Ethereum is much older and renowned than Solana, president of FTX US Brett Harrison considers it as a “viable competitor.” One reason for that is because Ethereum can only support a limited number of transactions per second, which means that its capabilities for global-scale applications are also limited.
Solana, on the other hand, is capable of supporting around tens of thousands of transactions in a second, while Ethereum can only do about 13 transactions. As mentioned, Solana also is more affordable in terms of fees compared to Ethereum, which is one of the main complaints against this popular crypto.
That said, Ethereum also has quite a few advantages of its own, too. For instance, Ethereum has a lot more already-existing applications as well as more users compared to Solana. Since the project has already been around for quite some time now, it also offers more stability. Ethereum has an advantage called the “first mover-adjacent advantage,” which refers to the theory that projects that are first to join a market immediately have a massive edge over the other competitors who join later on.
That said, it seems that Ethereum won’t be losing without a fight. After the release of the Eth2 upgrade some time during 2022, Ethereum supports say that it will become not only more secure but more scalable too. During this time, the blockchain will be moving to a PoS model, too.
Supporters also believe that Solana still has a long way to go because it can even be on the same level of quality as Ethereum. Still, Alameda Research’s co-CEO Sam Trabucco believes that both projects have a good chance of making it on top.
Are There Any Risks?
As a general rule of thumb, experts always want enthusiasts to avoid investing too much in crypto. You should always only invest what you can afford to lose, especially since the crypto market will always have significant risks. Solana, specifically, has its fair share of risks.
For instance, the project has appreciated drastically in only a short period. So, just like the other projects, you need to keep in mind that Solana has the potential for major price swings, which means that it can crash just as fast.
Critics also worry about how capable Solana’s decentralization is, especially after there was a 17-hour outage last September. During this time, nobody could process any transactions, and the developers claimed that it was because of “resource exhaustion.”
Overall, you have to remember that Solana is up against major blockchains that have been around for quite some time, and they know how this entire industry works like the back of their hands.
