In recent years, there have been concerns about Ethereum’s scaling capabilities. This has led to a surge in Ethereum’s competitors, key among them is Solana. Solana is currently trading at $100.59 with a market cap of $33.65 billion.
Solana is the blockchain of choice for Dapps developers who need high performance and low fees. Acceptance has been quite strong, especially on the NFT front, as is evident in the number of NFT transactions on the Solana NFT marketplace called Magic Eden.
In March 2022 alone, there were more than 4.6 million NFT deals on Eden Marketplace reaching hundreds of millions of dollars.
Institutional money is also increasingly flowing into the Solana marketplace, an indicator that they expect Solana NFTs to continue to grow in acceptance in the future.
Despite growing adoption, Solana, like other cryptocurrencies, remains volatile. This begs the question, is Solana a good cryptocurrency to buy now? To answer this, let’s take an in-depth look at Solana to determine if it is a high potential cryptocurrency investment for 2022.
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SO WHAT EXACTLY IS SOLANA?
The Solana blockchain was built to host highly scalable Dapps. While San Francisco-based Solana Labs built Solana, it is now run by the Solana Foundation, which is based in Geneva, Switzerland.
Solana’s scaling capabilities make it perfect for creating Dapps that span different industries, from financial services to healthcare.
Solana’s success has a lot to do with its Proof of History Consensus mechanism. Proof of History is an innovative way to aggregate proofs and dates on the blockchain.
The system uses a verifiable delay function, or VDF for short, which requires each block producer to process it before they can produce blocks. Unlike conventional proof-of-stake, where each node has to verify a transaction, Proof-of-History reduces the time to verify transactions, hence Solana’s high throughput of up to 50k transactions per second.
This high performance makes Solana one of the best options for Dapps developers and a cryptocurrency for investors to look at in 2022.
How Solana can help create and store value in the digital age
Non-fungible tokens (NFTs) have become one of the best ways to create and manage value digitally. For example, it is now possible for artists to convert their works into NFT and earn a passive income, which was difficult to achieve a few years ago.
While there are many blockchains where an NFT can be minted, Solana happens to be one of the most popular, and for good reason. Unlike Ethereum, where you have to fork out a considerable amount of fees to mint an NFT, Solana’s process is almost free.
Thanks to Solana’s ultra-low transaction costs, it now has one of the fastest growing NFT ecosystems. This is likely to play well into SOL’s long-term value growth. It’s a solid reason to believe in Solana as a cryptocurrency to buy and hold for the long term.
Solana is leading the way in disrupting the financial industry.
DeFi is one of the fastest growing aspects of the cryptocurrency market and is rapidly changing the world of finance as we know it. Today, it is possible to borrow and lend without involving a bank as an intermediary.
While most DeFi projects are based on Ethereum, Solana is emerging as one of the main competitors to Ethereum in DeFi. This has a lot to do with Solana’s core metrics, such as scalability and cost.
Solana’s growing importance in the DeFi market is evident in the amounts that Solana DeFi projects have raised in March 2022 alone. For example, Hedge, a Solana DeFi project, recently raised $3.7 million to provide interest-free loans. Similarly, Delta, a Solana-based performance farming cryptocurrency, raised $9.1 million.
However, Solana’s importance in the rapidly expanding DeFi space is most evident in its Total Locked-in Value. While Solana’s LTV has fallen by almost 50% since its peak in November 2021, there is still around $6.69 billion locked up in the Solana DeFi ecosystem. As more DeFi projects are launched in Solana, this figure is likely to increase. This makes Solana a high potential DeFi cryptocurrency to buy in 2022.
THE PROS AND RISKS OF BUYING SOLANA
PROS CONS
Scalability – up to 50k TPS Questions about Solana’s decentralisation.
Solana has a strong team behind it Solana has an inflationary offering
High levels of institutional adoption Network outages are reputational risk
Fast-growing NFT and DeFi ecosystem
Solana’s biggest advantage in the blockchain platform space is its scalability. It can handle up to 50k transactions per second, which is unmatched by most of its peers.
On the other hand, Solana’s biggest weaknesses are centralisation and network disruption, but these can be resolved over time.
On the centralisation issue, all blockchains start out centralised, but decentralise over time. Given that Solana is one of the most popular blockchains on the market today, it is likely to continue to attract more investors to participate in network management and lead to higher levels of decentralisation.
In network disruptions, the Solana Story Test is a relatively new protocol, and most of its weaknesses are not yet fully understood. Solana will likely become one of the most trusted consensus mechanisms in the crypto market as it undergoes time testing and weaknesses are better highlighted.
Inflation is another issue that could be of concern in the short term, but is less of a problem in the long term. As more people use the Solana blockchain, new tokens entering the market are quickly absorbed and demand begins to outstrip supply. This dynamic played out in the last bull run, where demand for SOL was so high that the price increased by more than 12,000% in just one year.
The disruptions to the SOL network may have dented its reputation. Whether it can recover from this and outperform Ethereum is a matter of speculation.
IS SOLANA A GOOD BUY?
Solana is a cryptocurrency, and all cryptocurrencies are known to be highly volatile. That said, Solana’s adoption is on the rise, and many investors are betting on SOL. The fast-growing ecosystem of Solana DeFi and NFT projects is a good indicator of Solana’s growing adoption.
Despite all the promises of Solana, buying it or not is a personal choice. Solana is a relatively new cryptocurrency, and this presents great upside potential and significant risk of higher volatility compared to, for example, Bitcoin.
The key to successfully investing in Solana is to only put in what you can afford to lose. You should also make sure you buy Solana from a reputable source. Solana is listed on all major cryptocurrency exchanges, so this should not be a problem.
BUYING FROM A QUESTIONABLE EXCHANGE CAN LEAD TO A LOSS OF CAPITAL.
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