With the proliferation of decentralized applications, particularly on Ethereum's network, cryptocurrencies are making the transition from the investment phase to the utility phase. And this is a development crypto enthusiasts have long been waiting for.
But right now, blockchain technology is still struggling to solve for speed and scalability, two factors that are essential for cryptocurrencies to thrive. Solana (SOL -3.89%), a newer project that shows immense promise, is trying to fix this. And it's targeting a lucrative industry.
Let's take a look at how Solana is attempting to disrupt electronic payments.
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Instant settlement and virtually no costs
Last month, Solana Labs, a company working to advance the Solana ecosystem, announced Solana Pay. The entire premise of Solana Pay is to allow customers to use crypto, including the SOL token and USD Coin (known as USDC, a stablecoin pegged to the U.S. dollar) at checkout with merchants, using a QR code on their smartphones. Settlement times are instant and transaction costs are fractions of a penny.
The opportunity to drive a deeper connection between the consumer and the merchant is what's really exciting. Solana Pay describes a hypothetical example of a customer who goes to a store to buy a new pair of sneakers. After the transaction is complete, the customer receives an email receipt that is a non-fungible token, which also grants them access to an exclusive online community of other sneakerheads. And any time there are upcoming releases, updates are sent directly to their digital wallet.
While we might think payments are seamless now, it's easy to forget that there are numerous fee-extracting intermediaries involved in even the most basic transaction. Huge banks like JPMorgan Chase and Bank of America and dominant card networks like Visa and Mastercard all take a cut from the merchant. Solana Pay wants to create a direct link between the customer and the merchant that hasn't been done before.
This situation can be a game changer. Let's say your local coffee shop carries a net profit margin of 3%. With the current system that's in place, the shop owner pays 2% to 3% in payment fees to those previously mentioned intermediaries. If Solana Pay were used instead, these fees would all flow through to the bottom line, effectively doubling the profit for this coffee shop. Additionally, the ability to creatively incorporate a rewards program and drive loyalty, while at the same time encouraging repeat purchase behavior, is an attractive future for retailers.
This innovation is fitting for Solana because its blockchain can process 50,000 transactions per second, much more than the other major cryptocurrencies out there. Capacity like this is absolutely necessary for Solana to become a major player in digital payments.
It's still early
Seeing the introduction of real use cases like Solana Pay should get crypto bulls excited about the future of blockchain technology. But we are still in the very early innings of cryptocurrency adoption. Nonetheless, it'll be interesting to keep tabs on Solana Pay's progress going forward.
There's still a lot of regulatory uncertainty, and the proper user safeguards still need to be developed and implemented. Consequently, both merchants and consumers might still be skeptical about conducting business in digital currencies, simply because it's just too unfamiliar to them. And although accepting debit and credit cards is expensive, the fraud protections and service support merchants receive are extremely helpful.
However, if Solana Pay does gain traction, the opportunity is truly massive. The combined market cap of Visa, Mastercard, Block, and PayPal Holdings is more than $900 billion. And trillions of dollars flow through these companies' respective payments networks every year.
Solana is worth $27.4 billion (as of March 9). Meaning even a tiny dent in the electronic payments market would definitely help propel the network's value to new heights. What's more, it would prove that cryptocurrencies and blockchain technology have legitimate utility and aren't just a playground for speculation.
Solana is one of the few cryptocurrency projects that investors should seriously consider adding to their portfolios.
