Bitcoin (BTC -0.24%) has been the talk of the cryptocurrency market for the past 18 months, and it's by far the most valuable cryptocurrency today. But there are surprisingly few uses for such a richly priced asset.
There are few places you can easily spend Bitcoin for goods or services, transaction costs are very high and it doesn't have smart contracts -- agreements that self-execute when certain terms are met. If you missed out on Bitcoin's rise, Solana (SOL 0.09%) provides a great alternative, and it has a thriving developer ecosystem that will only get better in 2022.
Solana's biggest advantages over Bitcoin
Large and established cryptocurrencies Bitcoin and Ethereum (ETH -0.21%) are known for having high transaction costs that make them uneconomical to use for small-value purchases. You can see below that the average Bitcoin transaction cost is about $1.84, according to Blockchain.com. Ethereum transactions can exceed $100 apiece.
On Solana, transactions cost a fraction of a penny. Whether you're moving Solana between wallets or minting non-fungible tokens (digital certificates of ownership), the cost is so low that it's not a meaningful factor to consider when making a transaction.
Solana also has the ability to include smart contracts, just like Ethereum. This is a key advantage over Bitcoin, which because of its supply ceiling is seen more like digital gold than a virtual currency.
Lower costs lead to innovation
Developers are attracted to lower costs because it makes transactions much more efficient. On Solana, it's financially viable to send free NFTs (airdrops) or spend a few dollars worth of cryptocurrency on games or other apps. This has led to a flourishing ecosystem that's grown in just the past few months.
For example, in November Solana's venture capital firm Solana Ventures, joined with FTX and Lightspeed to form a $100 million fund to invest in start-ups focused on blockchain-based gaming. Then this month, Solana Ventures added a $150 million gaming fund with Griffin Gaming Partners and Forte.
This is in addition to a booming number of NFT marketplaces, crypto wallets, decentralized exchanges, and other decentralized apps (dApps). While Bitcoin doesn't have any of these dApps and Ethereum is forced to focus on high-value NFTs due to its high-cost structure, Solana is letting 1,000 flowers bloom.
Where Bitcoin has Solana beat
The challenge for Solana is translating its technical advantages into more user activity. Bitcoin has 114 million holders according to the Wall Street Journal, and Ethereum has 51.5 million addresses holding the cryptocurrency, but Solana has only about 1.25 million users.
There's a lot of potential for Solana to grow, but for now, Bitcoin has Solana beat when it comes to market share and public awareness.
Why Solana will outperform Bitcoin
I think the future of cryptocurrency is more than just trading digital assets each day. There are both digital and real-world use cases that are just beginning to be defined, and they could range from short-term lending to video games to art trading. A cryptocurrency that has extremely low transaction costs has more use cases.
In many ways, Bitcoin is being left behind. As most of the hottest cryptocurrencies like Ethereum and Solana are investing in becoming places where innovators and artists can build, Bitcoin is simply digital gold -- at best. That may prove to be something investors value long-term, but I would much rather own an asset that has real-world utility and the potential for growth, and I think that's what Solana provides. That's why it's my pick to beat Bitcoin long-term.