Solana (SOL -7.56%) was one of last year's cryptocurrency stars. It soared more than 11,000% as investors bet on its ability to transform the worlds of business and entertainment. But two elements have weighed on the crypto player this year: the general market environment and outages on the Solana network. As a result, Solana has dropped 81%.
Still, Solana continues to be popular with users and continues to innovate. So you may be asking yourself: After big losses, is now the time to buy this beaten-down player? Let's find out.
Known for its speed
First, here's some background on Solana. It's a blockchain with a native cryptocurrency called "SOL." Solana is particularly known for its speed. It can process as many as 65,000 transactions per second at a cost close to zero.
That's thanks to Solana's use of two methods of validating transactions on the network: proof of stake and proof of history. Proof of stake gives validation power to those with the most stake. And proof of history creates a timestamp of sorts for the blocks of data.
Developers have flocked to Solana to create decentralized applications. These developers on the platform increased from less than 200 in 2020 to nearly 1,000 by the end of 2021, an Electric Capital report shows. And Solana has become a leader in the world of non-fungible tokens (NFT). It's the third-biggest blockchain by NFT sales volume over time, according to CryptoSlam.
Solana's latest move is a big step into the world of payments. It's called Solana Pay. The platform allows businesses to bypass intermediaries and collect payment directly from customers. Transactions happen instantly and fees are a fraction of a cent. The system launched earlier this year.
All of this sounds great. But there has been one big thing that's weighed on Solana beyond just the general market environment. And that's outages on the network, as I mentioned briefly above. Solana has experienced several over the past year. The blockchain's co-founders said in a Real Vision interview that outages have been Solana's biggest challenge, but they've happened because Solana has many users.
Possible price volatility
It's great that Solana is popular. Still, Solana probably will continue to see price volatility if outages continue. If the platform is able to address that problem, though, the price could take off. Solana's speed and low cost are features users appreciate.
Now, let's consider our original question: Is now the time to buy this crypto player? As I mentioned before, concern about the economy has weighed on Solana and cryptocurrencies in general. And those concerns may continue for a while. It also will take time for Solana to show progress on the stability of its system.
And some investors even might like to see whether Solana Pay takes off. That will take time too.
All of this means Solana may not rebound overnight. It's also important to remember that cryptocurrency does come with a good deal of risk. That's because the area is rather new, so we don't yet know for sure what the landscape will look like a few years down the road.
Considering all of this, if you're a cautious investor, it's probably best to watch Solana from the sidelines right now.
But if you're an aggressive investor, your decision might be different. It may be a good idea to focus on Solana's accomplishments and potential -- and get in on the story now. Solana still could become a cryptocurrency winner down the road. And if that happens, Solana's looking like a deal at today's price.
