This year has been brutal for Solana (SOL -8.45%)down 78% year to date, and the cryptocurrency industry as a whole. But despite the carnage, crypto projects continue to build and improve their ecosystems, setting them up for a possible rebound when market conditions improve.
Let's explore the pros and cons of Solana to see whether it deserves a closer look.
What is Solana?
Solana is a blockchain platform designed to host decentralized applications (dApps) -- autonomous programs that use smart contracts to offer services on the network. It is among several blockchains known as potential "Ethereum killers" because of their superior speeds and scalability compared to Ethereum, the current market leader in these offerings.
Image source: Getty Images.
With an estimated transaction capacity of 50,000 per second, Solana's speed leaves Ethereum (which can only handle 15 per second) in the dust. It also boasts a proof-of-stake (PoS) consensus mechanism, where miners use existing coins to validate transactions and mint new ones. This system is more efficient than Ethereum's energy-intensive proof-of-work mechanism, where miners must solve computational puzzles to keep the blockchain running.
But with Ethereum planning to transition to PoS this year (an update called "The Merge"), Solana can't rest on its laurels.
The platform's developers are working on new growth drivers such as fintech. In February, they launched Solana Pay, a blockchain-based payments solution designed to enable users to buy goods and services using Solana's native token and -- perhaps more importantly -- stablecoins pegged to real-world currencies like the U.S. dollar. While crypto payments are nothing new, Solana's industry-leading speed will help make its product stand out from the competition.
Network reliability has been a big challenge
Despite its many tailwinds, Solana is not without its flaws. The platform has long suffered from reliability issues, which may be beginning to tarnish its reputation. Online crypto newspaper Cointelegraph.com reports that Solana has already suffered five major outages in 2022, which can help explain its significant decline in valuation this year.
The most recent crash occurred earlier this month and involved the network becoming unable to reach a consensus to confirm new transactions for several hours. But Solana's developer, Solana Labs, is working hard to fix these challenges. Solana reports that developers have identified and fixed the problem by disabling the feature that caused the network to halt. While it is impossible to know whether the problem is solved for good, investors can rest easier knowing Solana has an active development team working to solve issues that may arise on the network.
I still believe in Solana
With cryptocurrency in a bear market, it is understandable that many investors might want to wait a few months for the dust to settle before buying anything. That said, Solana looks like a great way to bet on a crypto rebound because of its industry-leading technical capabilities. And while network reliability is a big concern, the platform's active development team could help it move past these growing pains over the long term.
