On Aug. 2, certain holders of cryptocurrency Solana (SOL 3.89%) noticed something very troubling: Their cryptocurrency wallets were being drained of their assets. At around 1 a.m. ET on Aug. 3, the team behind Solana shared on social media that it believed 7,767 wallets were affected, with the bad actors potentially making off with millions of dollars worth of cryptocurrency.
For its part, the price of Solana is shockingly resilient to this news. It's down less than 1% over the previous 24 hours, according to CoinMarketCap. However, this attack on Solana is just the latest in a long list of setbacks that have critics questioning its long-term viability.
Is Solana safe to use?
As of this writing, it's unclear exactly how the bandits made off with funds in Solana wallets. Popular third-party wallets including Slope and Phantom were exposed to the attack. But what remains unclear is the extent of the damage and whether it's completely over.
Some theorize that the attackers gained access to funds because of certain user permissions inside the wallets. This would point to a problem with centralized crypto-wallet solutions rather than with the blockchain itself. This explanation is further supported by independent crypto auditing group OtterSec, which claims Ethereum (CRYPTO: ETH) is also being stolen.
However, the news casts a large shadow over Solana due to its past problems. For example, in May the Solana blockchain went down for seven hours because of a surge in bot traffic. This was a far better outcome than when it went down for 17 hours in September. However, any outage is suboptimal and can cause investors to lose money, depending on what they're doing with their Solana tokens.
In February, bad actors stole $320 million from Wormhole -- an application used to bridge the Solana and Ethereum blockchains. And in March, hackers stole $28 million by exploiting a glitch in Solana app cashio. These two examples again suggest problems with things built on top of Solana and not with Solana's blockchain. That said, the proximity of problems to Solana continues to cast it in a negative light.
Critics believe that Solana doesn't prioritize security. And in June, Solana co-founder Anatoly Yakovenko stirred this controversy by saying on a video on Twitter: "As an engineer that has to ship code, and get paid for it, it's just that stuff doesn't work. You gotta like, swallow, you know, kiss a couple of frogs in your design and ship stuff and just get it done."
Some would say the "kissing frogs" strategy is bad for security. In fact, in June, independent decentralized-finance group DeFi Safety ranked Solana as the second-worst cryptocurrency when it comes to safety.
Why investors still love Solana anyway
Solana is advertised as an "Ethereum-killer", as is rival Layer 1 blockchain Cardano (CRYPTO: ADA). Interestingly enough, Yakovenko's kissing-frog comments were in the context of talking about why Cardano doesn't ship new products as fast as Solana. According to Yakovenko, the Cardano team is too concerned with making sure everything is perfect before launch.
This attitude from Solana's team seems careless. And yet, users and developers continue to flock to the Solana ecosystem. According to data from Hello Moon, there were over 25 million active Solana users in July, up from less than 10 million in July 2021. And according to Solscan, there are over 1,100 daily active programs right now on Solana, up from only around 100 this time last year. These statistics clearly signal support from users and developers despite Solana's aforementioned problems to this point.
From a user perspective, fast speeds, cheap transaction costs, and slick user interfaces are the primary drivers of Solana's adoption. Ethereum can process approximately 15 transactions per second (TPS) compared to roughly 2,600 for Solana, as of noon ET on Aug. 3. Moreover, transactions cost less than one-tenth of a penny on Solana compared to Ethereum transactions that are averaging about $0.50 as of this writing, according to Etherscan.
The Solana team also seems to prioritize user interfaces, which could be helping gain users. For example, Solana Pay is an easy-to-use mobile app that works very similarly to popular fintech apps. And in 2023, Solana Labs plans to release a smartphone with software that runs on Solana. It will feel like a normal phone but it will be optimized for Web3.
Cardano is also faster and cheaper than Ethereum and hasn't been in the news as much as Solana regarding security issues. But developers may be choosing Solana over Cardano because of its superior user adoption. It's a flywheel effect. The more users Solana has, the more incentivized developers are to build on that blockchain, which in turn attracts more users still.
It remains to be seen whether the latest attack on Solana will be the one that finally starts to erode user confidence and pushes people to Cardano or back to Ethereum. However, if it's like previous mishaps, Solana's adoption will keep growing despite the setback.