Having soared by almost 15,000% since its 2017 launch, Solana (SOL -1.68%) is the sixth-largest cryptocurrency with a market cap of $37 billion. But the fast-growing asset may still be in the beginning stages of reaching its long-term potential. Let's explore why Solana is my top cryptocurrency to buy and hold forever.
Solana is one of several next-generation cryptocurrencies called "Ethereum killers" because of their ability to disrupt blockchain technology. Ethereum revolutionized the industry by introducing support for decentralized applications (dApps), which are programs that use self-executing smart contracts to offer services on the blockchain. Solana takes things a step forward with its industry-leading scalability.
While Ethereum can only handle a measly 15 transactions per second, Solana can manage 50,000 -- and it is much cheaper to use, with an average transaction fee of just $0.00025 compared to Ethereum's $2.40. Solana achieves this through its innovative design.
Unlike Ethereum, which uses a cumbersome proof-of-work (PoW) system where miners solve computational puzzles to update the blockchain, Solana uses proof-of-stake (PoS). In a PoS system, miners verify transactions by locking up tokens they own (staking) in return for newly minted coins. Solana supplements this system with an important innovation called proof-of-history (PoH), which records timestamps on the blockchain to speed up the verification process.
Solana is taking decentralized finance by storm
Much of the platform's growth is driven by its popularity with dApp developers -- in particular decentralized finance (DiFi) dApps, which are financial services operating on the blockchain without a centralized intermediary, such as a bank or broker.
Solana is ideal for DeFi because of its speed. The platform has attracted projects ranging from decentralized exchanges like Serum (which allow users to buy and sell cryptocurrencies on the blockchain) to decentralized banks like Oxygen, designed to let users store value and earn interest on their deposits. Solana is the fifth-largest DeFi ecosystem with $7.4 billion in total value locked (TVL), a term that represents the sum of all assets deposited in its DeFi-related applications.
But Solana's developers, Solana Labs, aren't limiting their efforts to on-chain finance. The organization is also targeting real-world fintech through a project called Solana Pay, designed to make it easier for customers to use Solana's native token, Sol, and other cryptocurrencies for online shopping through a convenient user interface. This project could be a first step in taking advantage of Solana's technical abilities to power real-world utility.
Betting on a crypto rebound
Cryptocurrency has been off to a weak start in 2022, with its total market cap declining 9% to $2 trillion at the time of writing. But the industry has a track record of bouncing back from its declines. Assets like Solana could help power the rebound with their spectacular technical capacities and forward-looking development strategy.