November was a mixed bag for cryptocurrency as the industry soared in the first half of the month before giving back most of its gains for a total market cap of around $2.5 trillion. Meme coins like Shiba Inu (down 40% in November) are fading in relevance. And investors should look to assets with technical advantages to sustain long-term growth. Let's explore the reasons Solana (SOL -0.20%) fits the bill and can generate massive returns in December and beyond.
Why Solana?
Founded early 2020, Solana has soared roughly 25,000% since its inception to a market cap of $59 billion, making it the fifth-largest cryptocurrency on earth. Unlike meme coins, which have also posted rapid gains in this time frame, Solana isn't capitalizing off dog memes or high-profile tweets.
Instead, its brand is built on utility.
Image source: Getty Images.
As a programmable blockchain, Solana is designed to host decentralized applications (dApps). These peer-to-peer programs use self-executing smart contracts to function on the blockchain without an intermediary, enabling everything from on-chain cryptocurrency exchanges to digital art markets. Solana's dApps use its native token, Sol, to pay fees and transact on the network, potentially boosting its demand and valuation.
So far, Solana is home to 500 dApps, which is significantly below the current market leader Ethereum, which hosts 3,000. But Solana is poised to catch up to Ethereum because of its technical advantages.
What are Solana's innovations?
Ethereum uses a cumbersome proof-of-work (PoW) consensus mechanism where miners solve computational problems to verify transactions and update the blockchain. PoW is undesirable because it is slow and consumes real-world energy. Solana solves this problem with a proof-of-stake (PoS) system where miners validate transactions using their existing coins. It also uses a complementary proof-of-history algorithm that speeds up the process by recording time.
According to coinbase.com, Solana's consensus mechanism allows it to process a jaw-dropping 50,000 transactions per second compared to Ethereum's 15 or less. And this means Solana can handle more dApps running concurrently without suffering congestion and soaring transaction fees.
To be fair, Ethereum isn't resting on its laurels either. The industry leader plans to upgrade its scalability through an update called Ethereum 2.0, which will transition Ethereum from its current PoW consensus mechanism to a faster PoS system (although it is unclear when these changes will go live). But blockchain isn't a zero-sum game, and the success of one network doesn't necessarily 'kill' all the other ones. Solana and Ethereum can co-exist -- benefiting from the growth in the overall cryptocurrency opportunity.
Investing for the long haul
Cryptocurrency investing is not for the faint of heart. The burgeoning market is known for extreme volatility, which can make millionaires just as fast as it takes them away. But Solana can establish a lasting edge because of game-changing innovations in transaction speed and scalability. Investors who want a top digital asset to buy in December should look no further.
