Many crypto analysts have spurned Solana (SOL +0.45%) as an Ethereum knockoff, but it may finally be coming into its own. If crypto intrigues you, but the high prices and environmental impact of Bitcoin and Ethereum are turn-offs, maybe you've heard of Solana as an alternative. Is "Solana Summer" an investment opportunity? Solana differs from Bitcoin and Ethereum in some fundamental ways, and its current price is an attractive entry point. While other cryptos have plummeted, Solana is enjoying a comparatively stable price and increasing adoption, along with a growing non-fungible token (NFT) market. Yet not everything is sunny for Solana: Would-be investors should consider its drawbacks. Either way, you're likely to hear more about Solana in the coming months.
What is Solana?
Solana is an open-source blockchain platform that launched in March 2020. Its lightning-fast processing speed and low transaction fees quickly propelled it into the top 10 cryptocurrencies by market cap, but Solana also boasts technical innovations that differentiate it from competitors. The Solana Foundation designed it as an infrastructure inviting adoption through dApps (Decentralized applications, or software that can run entirely on the blockchain), rather than acting as a store of value like Bitcoin. Solana's proof-of-history (PoH) consensus method differs from rivals by validating transactions through nodes that can identify precisely when a transaction posts instead of having miners solve cryptographic challenges, like Ethereum and Bitcoin. Far more energy efficient than Bitcoin or Ethereum, the Solana protocol doesn't gobble electricity with mining. The PoH protocol permits simultaneous transaction processing, which also improves its energy efficiency. Last year, the successful releases of several NFT collections on Solana increased its visibility – particularly among those unable to stomach Ethereum's astronomical transaction fees.
Even in the depths of crypto winter, Solana shows signs of summer.
Although Solana's price is down dramatically compared to last fall's all-time high of $259.03, the context of today's crypto market makes this decline seem moderate. SOL is currently trading at $35.43 USD. This time last year, it traded for $35.60. Compare that to the recent declines in Ethereum's or Bitcoin's prices, and Solana seems comparatively low-drama.
CRYPTO: SOL
Key Data Points
Solana's NFT scene is also beginning to rival Ethereum's. The Solana NFT market is growing, with Solana NFT daily volume occasionally outpacing Ethereum's daily NFT volume. Solana NFT's, like their ETH-based counterparts, slumped in June, but there are also signs of growth: The number of daily active Solana accounts has more than doubled since early March, and the number of daily Solana transactions increased by more than a third over the past 90 days. These metrics suggest that Solana is gaining new users even in a bear market – and that these users aren't just speculating: They're actually using the platform.
What is "Solana summer," and is it happening now?
During 2021's bull run, Solana maximalists deployed the hashtag #SolanaSummer as a rallying cry to increase awareness of the platform. Nevertheless, Solana remained in the shadows of Bitcoin's and Ethereum's astounding gains. But this summer, Solana's price has remained relatively steady while other cryptocurrencies have plummeted. Recent hits like Step'n, a Solana-based "move to earn" app that paid users for walking, provide mainstream use cases for Solana's infrastructure -- something that other cryptos still struggle with.
With Solana's star rising and the rest of the crypto market in shambles, could this summer finally be Solana's moment to shine instead of languishing on the sidelines? Between the relative price stability and Solana's apparent growth, perhaps we can forecast a relatively rosy summer for Solana.
But not everything is sunny for Solana.
Solana does have drawbacks, and these drawbacks are significant in the crypto world. Consider the "blockchain trilemma," or the thesis that when it comes to security, scalability, and decentralization (i.e., the degree of control and power that any individual actor or institution has over the platform), blockchains can choose only two out of three. Solana chose to emphasize scalability and security by sacrificing some decentralization. Many crypto purists consider Solana's relative centralization unacceptable, preferring Bitcoin's and Ethereum's more decentralized and secure, but less scalable, solutions. Relatedly, Solana is prone to serious outages because of this relative centralization. It experienced multiple large-scale outages this year, most of which brought the entire ecosystem to a standstill for hours.
The same features that helped Solana gain traction also make it vulnerable to spammers. Solana's low transaction costs are low because unlike Ethereum, users cannot pay miners to ensure that their transactions process faster. This made it cost-effective for spammers and bad actors to cause network congestion and other chaos. Critics claim Solana's attempts to dissuade spammers are only Band-Aids, and argue that despite the emphasis on scalability, these problems will worsen as Solana grows.
Solana maximalists view these drawbacks as growing pains, and argue that the current price is a great opportunity to be early. But others consider the outages and centralization to be deal breakers.
Exploring Solana's platform is a great way to make Solana Summer happen.
If you're considering an investment in Solana, check out some of its apps to get a better feel for the ecosystem and decide whether it fits with your investment strategy. If you're technically inclined, try building an app yourself! There's still plenty of summer left, and this might just be the summer of Solana after all.
