Best cryptocurrencies like Bitcoin (BTC-USD) and Ethereum (ETH USD) bounced back strongly in 2023, with year-to-date gains of 123% and 69% respectively. Beyond the two largest cryptos, other assets such as Solana (SOL USD) did even better. Solana is up 387% so far in 2023, but the party might just be getting started.
I am bullish on Solana’s long-term potential based on its impressive performance metrics, the explosive growth in usage and activity on the Solana blockchain, and its relatively low market cap versus its peer, Ethereum.
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Star Metrics
Solana is a proof-of-stake layer-1 blockchain, like Ethereum. To be fully transparent, I own both Solana and Ethereum, and I’m bullish on both, so the following comparison between the two networks is simply meant to illustrate Solana’s potential value.
Ethereum is the second largest cryptocurrency by market cap, but Solana has several notable advantages from a user perspective. While Ethereum averages a throughput of less than 30 transactions per second (TPS), Solana presents an exponentially higher throughput of 65,000 transactions per second.
This high performance leads to faster transaction times. Transactions on Solana are often completed in a matter of seconds, while transactions on Ethereum can take five minutes or more to process at times (the average is between 15 seconds to five minutes).
Meanwhile, high transaction costs or “gas fees” have been one of the main problems Ethereum users have had with the network for a long time. As of writing, Ethereum’s gas fees have reached their highest levels in six months and average more than $30 per transaction, making it inconvenient and expensive to use the network for routine transactions.
In contrast, transactions on Solana cost less than a cent. This makes Solana an attractive option for users who want to make low-cost transactions. If you want to buy a non-fungible token (NFT) for $40 or send a friend $20, paying $30 in gas on Ethereum is not practical, while a transaction fee of less than a cent on Solana is barely noticeable. These low costs could help Solana attract more users as cryptocurrency reaches wider adoption.
This mass throughput, low cost and fast transaction time led Bank of America (NYSE:BAC) analysts to state that Solana could be “the Visa (NYSE:V) of the digital asset ecosystem” earlier this year.
While Solana’s blockchain performance is impressive, it could get even better. Solana users are awaiting the launch of Firedancer, a new validator in development that will reportedly increase Solana’s throughput to an astounding one million transactions per second.
Usage Explodes
This positive user experience led to an explosion in usage for Solana. Crypto publication The Defiant recently reported that “Solana is having its best month ever” in terms of business volume and total value locked.
Volume on decentralized exchanges (DEXs) on Solana hit an all-time high of $5.1 billion in November, shattering the previous record of $2.8 billion last November.
Solana’s total value locked (TVL) — essentially a measure of how much value users have committed to or locked into the network — jumped from $427 million in early November to $610 million currently, indicating growing confidence in the Solana network. of crypto users.
On November 11, the number of daily active users (DAU) on Solana even surpassed those of the much larger Ethereum, with 356,300 users for the day versus 330,000 for Ethereum.
Increasing Collaborations and Partnerships
Additionally, Solana has made significant progress in terms of corporate partnerships and connections with other crypto projects.
In August, Shopify (NYSE:SHOP) announced an integration with Solana Pay, which would make using Solana a new payment option on the platform. Then, as if that wasn’t enough, in September, Visa announced that it would use Solana to facilitate USDC (USDC USD) stable currency transactions.
In addition, some interesting crypto projects, such as Helium and Render (RNDR USD), migrates to Solana. Render, which seeks to provide decentralized GPU computing power for 3D content creation, migrated from Ethereum to Solana earlier in November. Render founder Jules Urbach said Render made the move because of Solana’s “incredible transaction speeds, low costs and commitment to web-scale architecture.”
Meanwhile, Helium, which is focused on providing decentralized WiFi, made the move from its own layer-1 blockchain to Solana to free its developers from having to focus on maintaining their own blockchain and take advantage of Solana’s fast transaction times.
Looking Ahead
Solana’s huge throughput, fast transaction times and minuscule transaction fees have attracted more users to the network. As a result, activity on the Solana blockchain is experiencing a Cambrian explosion, as seen in the significant increase in DEX volume, total value locked and daily active users.
None of this means that Solana will dislodge or disrupt Ethereum (and again, I’m optimistic about both). It should be noted that Ethereum is working on updates that could improve its throughput and reduce gas fees. However, these impressive statistics are even more remarkable when you consider that Solana has a market cap of only $23 billion versus Ethereum’s considerably higher market cap of $239 billion.
With performance metrics that are ahead of Ethereum’s numbers and users that are growing rapidly, Solana looks like it offers considerable value with a market cap that’s only a tenth of Ethereum’s size.
Cryptocurrencies are a high-risk investment and can be extremely volatile. But for risk-tolerant investors who are interested in cryptocurrency and invest in the likes of Bitcoin and Ethereum, it might make sense to add exposure to Solana while it has only one-tenth the market value of Ethereum.
Disclosure
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.