Cryptocurrency Solana has tremendous momentum.
Solana has been a top performer in 2021, rising through the ranks of altcoins to become the fourth-most-valuable cryptocurrency in the world. Solana is now valued at $64.2 billion, and its growing community of investors is excited about how Solana’s technology compares to market leaders Bitcoin (BTC) and Ethereum (ETH). Investors should remember that Solana is a relative newcomer, however, and the crypto’s extreme volatility in 2021 suggests that it is still a high-risk speculative investment at this point. For investors willing to take on the risk, here are three pros and three cons to buying Solana
Pro: Speed and fees
Perhaps the biggest selling point of Solana is its transaction speed. Solana may be the best potential Ethereum rival among altcoins, largely because of its speed. Solana can support tens of thousands of transactions per second compared to only about 13 transactions for Ethereum, which currently operates on a proof-of-work, or PoW, model that requires miners to complete complex calculations to validate transactions. Solana’s proof-of-history, or PoH, and proof-of-stake, or PoS, models verify transactions based on coin ownership. This ease of verification also helps Solana have lower fees than Ethereum. Solana’s average fee is less than 1 cent per transaction.
Con: Stability
Because Solana has a smaller community of users and a shorter track record than Ethereum, investors may not be able to rely as much on the network’s stability. In September, Solana’s reputation took a hit when the Solana Foundation tweeted that the Solana blockchain was experiencing “intermittent instability.” Solana Labs CEO Anatoly Yakovenko said that the network had experienced similar stability issues in the previous week as well. The company blamed “resource exhaustion” for the problems and said its engineers were resolving the issues. Reliability is key for cryptocurrency investors, many of whom weren’t happy with the relatively vague explanation.
Pro: NFTs and smart contracts
Ethereum was the first cryptocurrency to introduce smart contracts, which is code that allows blockchain platforms to run decentralized applications, or dApps. However, the popularity of smart contracts and dApps has led to congestion on the Ethereum network, opening the door for faster alternatives. Solana is also rapidly gaining market share in the high-growth non-fungible token world. NFT marketplace Solanart runs on the Solana network, allowing NFT buyers to enjoy faster transaction speeds and lower fees than buyers on the Ethereum network. Booming demand for smart contracts and NFTs could open the door for both Ethereum and Solana to succeed in the long term.
Con: Inflation
One of the biggest reasons investors flocked to cryptocurrencies in 2020 was to seek refuge from inflation. Many cryptocurrencies have hard caps on the total number of coins that will ever exist. Bitcoin, for example, is limited to 21 million coins, and the final coin is expected to be mined in 2140. Solana, on the other hand, does not have a fixed number of coins. Solana started out increasing its supply by 8% annually. That inflation rate declines by 15% annually until it reaches 1.5%, where it will remain indefinitely. Crypto investors seeking zero inflation should look elsewhere.
