Solana (SOL +0.50%) is one of the fastest cryptocurrencies on the market. It's also one of the most volatile names in crypto at the moment. Solana's price soared to $260 per token in November 2021 before falling as far at $8.14 in the aftermath of the FTX meltdown.
Token prices are going up again, just above $23 per token on the evening of Monday, Feb. 6. Will this elusive cryptocurrency make it back to $100 any time soon?
Solana's blazing speed
Solana's greatest strength is its blazing transaction speed. Designed by a team of former mobile network engineers, the blockchain network is optimized for massive scalability and ultra-efficient use of resources. So Solana runs on a custom proof of stake network with a unique secondary system called proof of history.
Together, these blockchain tools routinely validate roughly 5,000 transactions per second (TPS), and that capacity should rise to 700,000 over the next few years. Solana processes a new block of data every 400 milliseconds, or more than twice per second.
By contrast, Bitcoin (BTC +0.37%) can only handle 7 transactions per second and it can take up to an hour before a new data block is finalized in this system.
So Solana looks like a perfect fit for blockchain-based applications where quick transactions are a must. Originally created with decentralized finance (DeFi) apps in mind, Solana's system of instant transactions and advanced smart contracts could also be perfect for real-time games or metaverse exploration.
This sounds like a slam-dunk winner, right? App developers must be trampling one another in a rush to sign up for Solana-based projects in the realms of DeFi and blockchain games. Then, the token price should increase dramatically since more real-world usage drives higher demand and rising prices. Off to the moon we go, and $100 per token should only be an early milepost along the way.
Right?
CRYPTO: SOL
Key Data Points
Potential security issues and technical errors
Well, not so fast.
Solana has its flaws, too. The extreme focus on speed and efficiency may make this blockchain network more vulnerable to security issues and technical errors than the slower and steadier Ethereum (ETH +0.36%) or Bitcoin systems. In fact, Solana has suffered several lengthy outages over the last year. Ethereum hasn't seen an outage since November 2020. Bitcoin has reported 100% uptime since 2013. Solana has been flaky, frankly speaking.
The hyper-speed transactions come with other costs, too. New developers may find it difficult to work with Solana's complex consensus mechanism. This crypto network is also much newer than arch-rival Ethereum, giving the older network a first-mover advantage that won't be easy to erase.
And then there was the FTX scandal. The bankrupt crypto-trading exchange was one the largest holders of Solana tokens, which is why Solana's price collapsed as the FTX crisis played out. Now, the lightning-fast smart contracts platform must overcome the stigma of playing a part in that disaster.
Owning Solana: risk vs. reward
Solana's developer community is running miles behind market leader Ethereum while facing the headwinds of FTX connections and too-common system outages.
I'm not saying Solana is doomed, but it could certainly take a while to climb past the $100 mark again. This project needs to stabilize its fast but unstable network and follow up with genius-level marketing moves. Solana has to overcome a crisis of confidence, among app developers and also the general public.
Time heals all wounds, of course, but simply waiting until the scars of this downturn have healed probably won't be good enough. While Solana licks its wounds, rival cryptocurrencies will move forward with their own marketing and system upgrade plans. In this case, time isn't Solana's friend. The longer it takes to overcome these challenges, the more project leaders will opt for Ethereum and other smart contract platforms instead.
So Solana needs to step up quickly, and that's a tall order. Never say die; the future is incredibly hard to predict in the fast-moving cryptocurrency market, but I don't recommend planning your financial future around $100 Solana tokens. That milestone looks distant today, and Solana might never get there at all. Keep your Solana investments on the smaller side, because the risks appear to outweigh the upside nowadays.
