Solana (SOL-USD) is a fourth-generation blockchain and currently the sixth largest digital asset with a market cap of $60 billion.
DeFi and NFT users increasingly need a blockchain that is fast and cheap, two features that Ethereum is struggling with right now.
By the time Ethereum 2.0 gets released in May-June 2022, Solana has perfect window of opportunity to eat ETH’s market shares.
Based on our valuation model, Solana’s token price could reach $500 by the end of 2022, if market conditions remain favorable.
DKosig/iStock via Getty Images Introduction
Solana ( SOL-USD ) is a fourth-generation blockchain and cryptocurrency with a market cap of $60 billion. The network offers smart contracts with unmatched scalability and composability at blazing fast processing speed. It provides a platform for developers to create a great variety of decentralized apps in Rust, C and C++ programming languages. Solana uses an innovative mechanism called Proof-of-History (PoH) executing thousands of transactions within seconds without compromising decentralization or security. Disruption
Blockchains with smart contract capabilities are on the rise this year leading to new booming businesses in the decentralized finance (DeFi) apps and non-fungible tokens (NFTs). Ethereum, the leading layer-1 blockchain, is plagued with sky high transaction fees which are expected to be reduced with the upgrade of its mechanism to Proof-of-Stake (PoS) with Ethereum 2.0. However, rumors are circulating that the upgrade due in December 2021 will be delayed to May-June 2022 as the team is behind schedule.
Meanwhile, Solana has become the most serious challenger to Ethereum’s dominance in the blockchain market. Solana is already expanding its market share by offering an app ecosystem with high performance by cutting out any intermediary and speeding up the processing of transactions. In addition, Solana’s unique protocol, which employs PoH, is well-suited to meet corporate and financial institution needs in terms of speed and cost. Solving the blockchain Trilemma
The blockchain trilemma states that an ideal blockchain network should have the following three main features: scalability, decentralization and security. Scalability: Ability for the blockchain to accommodate an increasing number of users and transactions;
Decentralization: Creating a network with many unrelated computers globally verifying and processing transactions;
Security: Ability for the blockchain to defend itself from attacks, bugs and other issues with its consensus mechanism and encryption.
It is rare to find a single layer 1 blockchain satisfying more than two of those three features. Solana may arguably be the first blockchain coming close enough to solve this trilemma. This creates a distinct advantage over its competitors as we will explain in the next section. Competition
There is an ever-growing list of layer-1 blockchains competing with Solana. As stated earlier, its closest and most serious competitor is Ethereum. Both blockchains host DApps and have their unique benefits, but Solana’s blockchain is shining due to the efficiency of its features. Consensus Mechanism, TPS and Fees
A consensus mechanism’s objective is to verify that the information added to the ledger is correct. Proof-of-Work (PoW) was once the most popular consensus protocol, which appeared with the introduction of Bitcoin. Proof-of-Stake (PoS), was developed as an alternative to PoW to reduce electricity consumption and improve the speed of block creation.
Solana combines Proof-of-History (PoH) with the eco-friendly PoS and allows its transactions to be very fast, reaching up to 65,000 transactions per second with a meager transaction fee of only $0.00025. The advantages of PoS has compelled Ethereum to upgrade to a newer version in 2022, Ethereum 2.0, which will also be based on that consensus mechanism. Source: Solwealth
Moreover, we can better understand Solana’s potential by putting it into perspective. For example, Visa credit card’s platform can process as much as 24,000 transactions per second. Despite the huge number of transactions performed, the final settlement comes after a few days, implying a delay in the process. On the other hand, Solana’s network is able to process up to 65,000 transactions per second with no delays. Validators and Finality
Transaction finality refers to the time end-users have to wait in order to guarantee that the crypto transaction is completed and cannot be reversed or altered. Solana has a relatively low finality time compared to other large market players like Ethereum and Cardano.
A lack of prioritization and a low number of validators can cause network outages due to resource exhaustion. Last September, Solana went down for more than 18 hours after many bots spammed the network to buy tokens of the Grape Protocol IDO (Initial DEX Offering). Source: Solwealth Team […]