Ethereum (ETH -3.16%) and Solana (SOL -7.25%) are among the world's most popular cryptocurrencies. Ethereum is the market heavyweight. And Solana is a newer but very exciting player. Both progressed quite a bit over the past year in terms of gaining users and developers. And both have fallen in value along with the general cryptocurrency market this year.
Considering future potential, which of these two crypto players makes the better buy after this year's losses? Motley Fool contributors Adria Cimino and Keith Noonan present the case for each one.
A market leader that's getting even better
Adria Cimino (Ethereum): Ethereum has dropped 64% so far this year -- even after a much-anticipated upgrade. But I view that as a buying opportunity. Ethereum has slipped along with the general cryptocurrency market. That's as investors turn to the safest investments amid today's economic worries.
So the good news is Ethereum's declines aren't due to a problem with Ethereum itself. In fact, there is a lot to like about this blockchain. It's the world's second-biggest cryptocurrency and has taken top positions in the world of decentralized applications and non-fungible tokens. It's also a platform that attracts developers.
About 25% of developers who flock to blockchains choose to work on Ethereum, according to an Electric Capital report. This is important because it means people see Ethereum as useful today -- and they believe in the platform's future.
Now here's a very positive point. Ethereum is on the way to getting even better. It completed "The Merge," one part of a general update last month. The Merge represented Ethereum's switch to the proof-of-stake method of validating transactions from proof of work. Proof of stake cut Ethereum's energy use by more than 99%.
Next up is a phase of the upgrade called "sharding." This splits the Ethereum database horizontally to relieve congestion on the network. As a result, it should eliminate two of Ethereum's biggest problems today: slow transaction speed and high fees. Ethereum expects to launch sharding next year.
Considering all of this potential, now looks like a good time to get in on this leading player. Of course, gains probably won't come overnight. And once the economic situation improves, it still may take time for Ethereum to recover. Investors could initially flock to some of the smaller, riskier players.
But over time, Ethereum is set to prove that it can continue to win in the crypto world. And investors who get in on the story today could win too.
Solana's advantages could make it more explosive
Keith Noonan (Solana): Both Solana and Ethereum are Layer 1 blockchains, which means their respective networks are ground-level foundations and don't require support from other networks for executing transactions and running applications. While Ethereum is currently the far-and-away market leader when it comes to Layer 1 solutions, Solana is capable of handling far more transactions per second and also has lower transaction costs.
Solana has sometimes been referred to as an ""Ethereum killer"" because of its speed and transaction-cost advantages, but it won't necessarily need to displace the leading blockchain application network in order to deliver superior returns. With a market cap of roughly $11 billion, Solana stands as the ninth-largest overall cryptocurrency in terms of valuation, but it's valued at just a fraction of Ethereum's market cap $163 billion market capitalization. Solana's smaller market cap suggests that its cryptocurrency could have an easier path to explosive growth, with improvements and adoption gains for its blockchain network potentially moving the valuation needle in a bigger way compared to what similar catalysts would mean for Ethereum.
While Ethereum still looks superior in terms of features and stability, Solana offers advantages when it comes to scalability. The network's speed and cost advantages could help it continue to gain favor as a network for transactions, digital wallets, and applications, and that could help drive the value of its token higher. And it bears repeating that the Solana network doesn't need to unseat Ethereum in order for its token to be a bigger winner for investors. If both networks are still leading Layer 1 solutions five years from now, I expect that Solana's cryptocurrency will have delivered superior returns.
Ethereum or Solana?
Ethereum and Solana both may succeed over the long term when it comes to winning over more and more users, developers, and investors. And this could result in these crypto players gaining value over the long term too.
Which to invest in right now? It depends on your investment style. Investors looking for less risk may feel more comfortable choosing market leader Ethereum. But for those willing to take on a bit more risk, Solana might be the best bet right now. It's earlier in its development story -- and catalysts ahead could result in big returns.
