October was a big month for cryptocurrency as the market's total value soared almost 30% to $2.7 trillion. Hype-driven meme coins like Shiba Inu led the expansion. But over the long term, assets that introduce technical innovations are likely to outperform because they have more potential uses. Let's explore why Solana (SOL -0.87%) fits the bill and why it's my top cryptocurrency to buy in November.
What is Solana?
Launched in 2019, Solana now has a market cap of $75 billion. It is a public blockchain designed to facilitate development of decentralized applications (dApps). These complex programs use smart contracts to function without a centralized intermediary. And they support an array of use cases ranging from decentralized cryptocurrency exchanges to markets for non-fungible tokens.
According to its official website, Solana's blockchain hosts 400 different dApp projects, with the number growing steadily. And the total value of Solana and its dApp ecosystem now stands at $105 billion (this figure includes Solana's native token and independent tokens programmed on its network), according to crypto-data aggregation website CoinGecko.
DApps are important for Solana's value because they use the blockchain's native token, SOL, to transact on the network.
What is Solana's competitive advantage?
Solana is not the only blockchain network optimized for dApp development, and it competes with Ethereum to attract projects to its ecosystem. As the first blockchain to facilitate complex dApps, Ethereum enjoys a first-mover advantage, which has helped it to attract the lion's share of projects to its network -- over 3,000, according to data from CoinDesk. But Solana has some competitive advantages that will help it gain ground.
Unlike Ethereum, which uses a proof-of-work (PoW) consensus mechanism where miners solve puzzles to validate transactions and mint new coins, Solana uses a proof-of-stake (PoS) protocol. Its miners validate transactions using coins they own (a process called staking) in return for new coins.
PoS is cheaper and more environmentally friendly than PoW because it doesn't require massive energy consumption. Solana further bolsters its network through a feature called proof-of-history, designed to speed up the blockchain by recording time.
According to its website, Solana is the fastest blockchain on earth -- capable of handling 50,000 transactions per second compared to Ethereum's 13. And while Ethereum plans to transition to PoS through an update called Ethereum 2.0, it is unclear when the transition will go live -- making Solana a top choice for developers who prioritize scalability, and investors who want to bet on technology instead of hype.
Investing for the long haul
It is tempting to bet on meme coins because hype has made them soar. But these tokens lack fundamental advantages and could crash when the excitement fades. While cryptocurrencies are inherently difficult to value (they don't generate profits or cash flow), Solana could prove to be a better long-term investment because its advantages in transaction speed and scalability will attract dApp development.