Known for speed and low costs, Solana (SOL 2.17%) is a promising young cryptocurrency with major potential when it comes to solving some of Ethereum's most pressing problems. Powered by the SOL token, it's a programmable blockchain that can theoretically process 50,000 transactions per second at an average cost of fractions of a penny.
Recently, Solana Labs, a company working to advance the Solana ecosystem, introduced Solana Pay, a payments platform that could revolutionize how merchants and customers interact with each other. If the execution and ultimate user adoption is there, this project will prove that cryptocurrencies do possess real-world utility.
Can Solana -- known as an "Ethereum killer," with a value that soared almost 12,000% since its launch in March 2020 -- become the next PayPal (PYPL 0.48%)? It's an interesting thought experiment that warrants some discussion.
Introducing Solana Pay
At a high level, Solana Pay is a peer-to-peer payment protocol that directly connects merchants and consumers. Sheraz Shere, who's working on the project, describes a situation where a shopper walks into a shoe store to buy their favorite sneakers. To check out, they scan a QR code that instantly sends crypto to the merchant's account. The system allows for the transfer of USD Coin, a stablecoin that is generally backed by and redeemable for one U.S. dollar, between the two parties at the speed of sending an email, with no intermediaries and almost zero costs.
The objective is for the merchant to truly own the customer relationship, and controlling the payments process is crucial to this. After the shopper gets their new pair of sneakers, the scenario describes them also receiving two non-fungible tokens (NFTs). One is a digital version of their shoes that can be used in video games or in the metaverse. The other NFT is an electronic receipt that places them in a community of sneaker lovers.
It's not difficult to see the unlimited possibilities that merchants and consumers can have to connect in the digital world by utilizing Solana Pay. Driving loyalty and repeat business by introducing exclusive offers and rewards can be amplified in this new system.
But PayPal, with a mission to democratize financial services, has been a pioneer of electronic payments for over two decades. The business, which connects merchants and consumers, integrates technology with financial services to make commerce more convenient and safer for its users.
Even though PayPal is a $140 billion company today that generated $25.4 billion in 2021 sales, it's still a fee-extracting and slow intermediary that stands in the way of merchants and shoppers. Cryptocurrencies are bringing forward a decentralized world, and Solana Pay is a perfect example of what the possibilities are.
This is no doubt an exciting development that can truly disrupt the traditional, fragmented payments system by allowing merchants and shoppers to develop valuable direct relationships that can spawn new opportunities. However, it's still nothing more than a vision at this point.
Blockchain technology is still early
While it's no doubt a fun exercise to try and predict what specific cryptocurrency projects will gain mainstream adoption and blossom into a major disruptor to dominant incumbent corporations, we're still a long way off from this actually happening.
Despite PayPal's recent struggles, it still has 426 million active accounts on its platform today, a figure that continues rising with each passing quarter. What's more, the company is expected to process an incredible $1.5 trillion in total payment volume in 2022. The business has built up a reputation for safety and security, something that isn't going away anytime soon.
Solana certainly shows promise, but because the world of blockchain and cryptocurrencies is so nascent, gaining user trust will be an uphill battle. Just recently, it was reported that Solana, as well as other tokens, were affected by a hack resulting in $326 million of stolen funds. This happened on something called Wormhole, a popular bridge that connects Solana's and Ethereum's blockchains. This was the second biggest crypto hack in history.
Even if Solana has the potential for lower costs and faster processing times, it won't make any progress unless the threat of hacks or other malicious activity is diminished. Until then, PayPal will continue to dominate the digital-payments space. Nonetheless, it'll be exciting to watch the development of Solana Pay going forward.