The Solana blockchain is so cheap, fast and scalable that it can be
of cryptographic networks, according to
Solana competes against Ethereum and other “tier 1” blockchains as a platform for trading and launching digital assets, DeFi applications, and trading protocols. It’s booming for NFTs, or non-fungible tokens. Since its launch in March 2020, it has generated more than $50 billion in transactions on its network, with $10 billion in cryptocurrency now locked to it, according to DeFi Llama.
What makes Solana a major threat to existing financial networks is its speed, cost, and scalability. The network is built on a “Proof of Stake” system that does not require as much computing power as the current version of Ethereum, which, like Bitcoin, is built on a “Proof of Work” consensus mechanism to validate transactions.
Solana can process 65,000 industry-leading transactions per second, or TPS. (It currently processes 1,954 transactions per second.) Their fees are minimal – averaging just $0.00025 per transaction. Solana says its scalability ensures that fees stay at less than $0.01 per transaction for both developers and users. By contrast, Ethereum has become so crowded that it processes 16 transactions per second at an average cost of $14 per transaction, according to Etherscan.
Because of its low cost, speed and scalability, Alksh Shah, head of digital asset strategy at Bank of America, said in a note published on Tuesday, “It could become the ‘Visa’ of the digital asset ecosystem.”
Shah points out that Solana has introduced a “proof of history” algorithm and other innovations that can improve its performance and expand use cases. More than 400 projects are being built on the network, including Serum, a high-frequency trading platform, and Metaplex, an application for creating and hosting NFT storefronts, he writes. Shah notes that the music streaming platform, Audious, is also being built on Solana, allowing songwriters to retain some ownership rights to their works.
Solana faces obstacles to its widespread adoption. The network, which is run by the Switzerland-based Solana Foundation, has experienced some outages and performance issues. Its network is now less decentralized than Ethereum, and this could make it more vulnerable to security issues or hacks.
Moreover, Ethereum has a great lead. It is the second largest blockchain network after Bitcoin, with a token worth $397 billion at a recent price of $3,320 each. Ethereum is also a DeFi giant for trading and lending/borrowing, with over $150 billion in value locked onto its network. Its developers are planning a major upgrade, aiming to turn the network into a proof-of-stake consensus mechanism this year. This can sharply lower transaction fees and boost settlement times.
But as Shah sees it, this is not a zero-sum game. Solana could thrive for microtransactions and NFTs, while the potentially more robust Ethereum network could make it ideal for high-value transactions, identity, data storage, and supply chain uses, he notes.
Investors seem to be betting on Solana as a major competitor. Its original token, SOL, now has a market cap of $49 billion, having risen 6140% in the past 12 months from $2.50 to $156.
Visa (Ticker:V), for its part, aims to be a player in crypto as well. As Visa Chief Financial Officer Vasant Prabhu said in a recent interview BaronIts network can process 65,000 transactions per second. “Real cryptocurrencies are not fast enough for purchases,” he said. “The cost of transacting with fiat currency on the Visa network is negligible compared to Bitcoin and Ether.”
Visa itself is also a connective tissue between banks, cryptocurrency exchanges, and custodians. “We are trying to be the bridge not only between the world of digital currencies and cryptocurrencies, but even within the crypto world,” Prabhu said.
Solana, Ethereum and others aim to build bridges connecting traditional payment and financial networks with the new decentralized world of blockchain. Investors who do not want to choose a side should spread their bets across players already in the system – such as Visa,
Master Card Credit Card
(SQ) – and startups aiming to squash them by buying their tokens.
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