Not too long ago, there was only one blockchain with smart-contract functionality -- Ethereum (ETH 0.20%). But as the cryptocurrency market has matured and evolved, new smart-contract-capable blockchains have come into existence that claim to build on some of Ethereum's shortcomings.
One of those new competitors is Solana (SOL 2.23%), and in the last few years, it has risen into a class of blockchains known as Ethereum killers due to its potential to upend Ethereum's dominance of the market.
However, this proclaimed title as an Ethereum killer is greatly misconstrued, as it portrays the current situation of smart-contract blockchains jockeying for the top spot as a close race. In reality, Ethereum is a clear-cut leader by a long shot.
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Just as fast with a little help
One of Solana's claims to fame is its blazing speeds. To measure a blockchain's speed, the default metric to evaluate is transactions per second (TPS). Solana boasts nearly 2,000 TPS, while Ethereum hovers around just 12 to 15 TPS.
The thinking goes that the more transactions a blockchain can process, the greater its potential to facilitate a broader range of use cases on a large scale. While this comparison of TPS clearly favors Solana, it fails to paint the full picture of Ethereum's potential.
In the last few years, considerable progress has been made to make Ethereum faster through the use of Layer 2 blockchains. Essentially, these blockchains increase Ethereum's scalability by processing transactions on their own blockchain, then settling them on Ethereum. They act as a second layer to Ethereum and give users the best of both worlds, namely Ethereum's high level of decentralization and security and also fast speeds. Some of the most popular Layer 2 blockchains are Polygon, Arbitrum, and Optimism. By using these additional blockchains, transactions increase to speeds as high as Solana.
At this point, you might be thinking: How is Ethereum a better investment if Solana can process more transactions on its own without any help? Well, there's more to a blockchain than just speed. Characteristics like a proven track record, network reliability, and long-term potential are all areas where Ethereum outdoes Solana and are features that investors should evaluate. This combination is part of the reason Ethereum has become the clear-cut leader of smart-contract blockchains.
The true DeFi leader
To help you fully grasp just how dominant Ethereum is, we can take a look at the value its blockchain supports. Referred to as Total Value Locked (TVL), this metric serves as an easy way to compare smart-contract blockchains in the world of decentralized finance, a multibillion-dollar industry, and the primary use of smart contracts.
It doesn't take much to see just how large of a lead Ethereum has on its competitors. Ethereum makes up nearly 60% of the entire market and boasts a TVL of almost $29 billion. Solana doesn't even rank in the top 10 and owns just 0.5% of the market with a measly $256 million in TVL.
Despite Solana finding itself up more than 100% from its lows of 2022, it is still down nearly 91% from its all-time high. Rather than viewing this as a bargain buy, it should be received as a reason to stay away. There is simply too much risk involved.
Instead, Ethereum looks like a much safer investment. It has a proven track record, long-term potential, and a stranglehold on the DeFi market. This combination is exactly what investors should look for when valuing a cryptocurrency and is part of the reason Ethereum looks like a great buy today, as it is still down more than 60% from its all-time high.
