Few cryptocurrencies have captured the imagination of growth investors more than Solana (SOL 1.31%). Its meteoric rise in 2021 has transformed it from a little-known altcoin to one of the five largest cryptos by market cap.
Yet there's a lot more than just the returns that make Solana special. Here are three charts that illustrate Solana's unique role in the crypto market that could help you determine if it is worth buying now.
Image source: Getty Images.
Giant gains
Aside from Shiba Inu, Solana could very well be the best performing asset of 2021. It's gained more than Dogecoin, GameStop, AMC Entertainment Holdings, or probably anything else you can think of.
Solana Price data by YCharts.
Solana's monster return is unique because it has been a high-profile crypto for about a year now, but its price didn't really take off till September. For a long time, it was difficult to buy Solana through a trustworthy exchange. It was only added to Coinbase Pro on May.24. And even then, its price was still below $60.
Speedier than a sleigh down a snowy slope
Solana's claim to fame is that it is inexpensive and fast, while being somewhat decentralized. The following table compares the transactions on Solana since inception to other well-known cryptos: Cardano (ADA 2.07%), Ethereum (ETH 1.47%), and Bitcoin (BTC +0.06%).
|
Metric |
Solana |
Cardano |
Ethereum |
Bitcoin |
|---|---|---|---|---|
|
Transactions per second |
2,948 |
1* | 14 |
2.3 |
|
Average fee per transaction |
$0.00025 |
$0.31 |
$2.06 |
$1.97 |
|
Number of validators/miners |
1,321 |
2,924 |
2,514 |
12,000 |
|
Total transactions |
46.11 billion |
24.04 million |
1.41 billion |
697.87 million |
Data sources: YCharts, Messari.io
*Cardano is capable of processing 250 transactions per second but its network is underutilized.
Despite being the newer kid on the block, Solana has already processed more than 46 billion transactions, which is more than Bitcoin or Ethereum. From the table, it's clear that Solana has by far the highest transactions per second and the lowest fees per transaction. You'll also notice it has the fewest number of validators.
When you hear that Bitcoin is slow and expensive but incredibly stable, what that really means is that there are a ton of miners supporting the network. And because the Bitcoin network is enormous, decentralized, and uses a proof-of-work protocol, it simply takes a long time and more money to do things. By comparison, Solana has many fewer validators, so it's relatively more centralized. It also uses a proof-of-stake protocol, which is faster but less secure than proof-of-work. This is a key reason it's faster than Bitcoin and Ethereum, but Ethereum is planning to transition to proof-of-stake next year in a way that keeps its network secure, allows it to process more transactions, and makes it cheaper to use. In short, developers looking to build an app that depends on speed and low cost would probably do it on Solana, whereas apps that rely more on security are likely going to use Ethereum.
A linchpin in the NFT market
As mentioned, Solana is great for faster, cheaper things. This has made it a go-to platform for non-fungible tokens (NFTs), which could be anything from a digital certificate of ownership of a work of art or a piece of intellectual property like a song or a poem.
The following table shows metrics on Solana and Ethereum NFT sales from August through November 2021.
|
Crypto |
Total Transactions |
Sales |
Average Sale Price |
Unique Buyers |
Unique Sellers |
|---|---|---|---|---|---|
|
Solana |
540,594 |
$760.9 million |
$1,408 |
143,066 |
150,358 |
|
Ethereum |
2.5 million |
$9.1 billion |
$3,702 |
504,083 |
368,494 |
Data source: Crpytoslam.io
Ethereum is undoubtedly king in this category, but it shouldn't go unnoticed that a staggering $760.9 million was traded in Solana for NFTs in just four months. By comparison, consider that Sotheby's, which is the best-known auction house in the world, has sold $7.3 billion in art so far this year, or about $635 million per month. This means that NFT sales on the Solana blockchain are averaging nearly 30% of Sotheby's sales even though the average sale for a Solana-denoted NFT is just $1,408.
What does it all mean?
Solana's valuation has gone up a hard-to-believe amount this year. It's lightning-fast and inexpensive to use. And it has a thriving NFT market. How does that affect your portfolio? It probably doesn't really matter to you unless you're a risk-tolerant investor looking for a hypergrowth crypto. In that case, Solana could be one of the best cryptos to buy now, if not the best. But even for folks interested in crypto, the risk-reward profiles of Ethereum and Bitcoin probably make more sense.
Regardless of your personal preference, there's an argument to be made that the recent crypto crash could be even more attractive than the stock market sell-off for certain investors, as long as they are OK with being patient through a potential crypto winter.
The biggest takeaway is that it's always important to understand what you're buying so that you have the confidence to hold that asset through thick and thin and let it appreciate over time.
