As cryptocurrency prices continue to sink, many investors are concerned about the future of the sector. While it's normal to feel worried when the market is in a slump, downturns are also one of the best opportunities to invest at a discount.
All cryptocurrencies have taken a beating in recent months, but Solana (SOL 2.49%) has been hit especially hard. Its price has fallen by more than 85% since its peak in November. While that may seem discouraging on the surface, some experts believe it could soar in the future. Does that mean it's time to invest? It depends.
Why Solana could have a bright future
Solana was one of the fastest-growing cryptocurrencies of 2021, as well as a breakout star in the crypto sector. Its biggest competitor is Ethereum (ETH 4.51%), with some enthusiasts believing it could eventually overtake the larger cryptocurrency.
Like Ethereum, Solana is a smart contract platform that can host decentralized applications (dApps), including non-fungible token (NFT) marketplaces and decentralized finance (DeFi) projects. Its key strength, though, is its speed. While Ethereum can currently only handle around 13 transactions per second, Solana can reportedly process up to 65,000 transactions per second. This speed is one of the biggest reasons developers and users have flocked to Solana, and it gives the network a serious advantage over Ethereum.
In addition, developers recently announced the release of Solana Pay, a decentralized system that allows merchants to accept cryptocurrency as a form of payment. Transactions happen instantly, they are incredibly energy-efficient, and fees are just a fraction of a penny.
With Solana Pay, the network is competing not only in the dApp space, but also in the payments sector. This could help Solana compete with other payment coins like Bitcoin. In fact, because Solana Pay is faster, cheaper, and more efficient than Bitcoin, it could have a significant advantage over the crypto giant.
Where Solana falls short
Solana's biggest hurdle right now lies in its network security and stability. The blockchain has experienced multiple major outages in 2022 alone, with attacks and bugs knocking the network offline -- sometimes for hours at a time.
Also, some experts have questioned the security of Solana's unique consensus mechanism. The network uses a proof-of-stake protocol, along with a proof-of-history algorithm, which is different from most other cryptocurrencies. While this type of protocol has helped Solana achieve its tremendous speed, it could potentially contribute to more instability in the future.
In a 2021 report from Grayscale, for example, researchers noted that Solana's consensus mechanism could be flawed, potentially making the network insecure and more vulnerable to attack. The good news is that Solana developers have been working toward a solution, fixing the bugs behind the most recent outages. It's unclear, however, what the future holds for the network and whether it will continue struggling with its security.
Is Solana a good investment?
Nobody can say for certain where Solana will be in the next few years. It has plenty of advantages, from its lightning-fast speed to its payment platform. But to thrive, it will need to sort out its issues with the network's stability.
For that reason, Solana is a risky investment. If it can work through its challenges, it could potentially be lucrative. Whether that will actually happen, though, is uncertain.
If you're willing to take on higher levels of risk, it's possible to see substantial earnings. Just be sure you're only investing money you can comfortably afford to lose, because there's always a chance that Solana may not succeed over the long term.
Plagued by outages and instability, Solana was once one of the brightest stars in the crypto universe. There's still a chance it could rebound and see incredible growth, but it's still speculative at this point. If you're willing to take the risk, it could potentially be a strong addition to your portfolio.
