Last year was disastrous for many cryptocurrencies, including Solana (SOL -1.43%). As inflation raged higher and the economy weakened, many investors preferred assets known for a certain level of safety. And that means they turned their backs on the newish industry of cryptocurrency.
There are two pieces of good news here, though. First, this movement isn't a reflection of a problem with any particular cryptocurrency. And second, these moves, based on what's going on in the economy, are temporary.
Investors already are feeling more confident about cryptocurrency. Market value has climbed to more than $1 trillion from $800 billion at the start of the year. And Solana has soared more than 100%. Is now the time to buy this once shining star of the crypto market?
A blockchain that has momentum
It's easy to feel confident about getting on a train that's already running smoothly. That's why buying Solana may look tempting right now. It already has momentum. The blockchain is also a promising player when it comes to the idea of revolutionizing the worlds of business and entertainment.
Developers can build applications on Solana for decentralized finance, gaming, and more. They like this player because it tackles the two challenges facing blockchains: transactions speed and cost.
Right now, Solana is processing about 4,000 transactions per second, though it potentially could scale to 50,000. And the average cost per transaction is only a fraction of a cent. The world's second-largest cryptocurrency, Ethereum, currently processes about 30 transactions per second. Ethereum is working on an upgrade to increase speed and decrease costs, but for the moment, Solana wins in these areas.
Why is Solana so fast? The blockchain uses a method of validating transactions called proof of history. This involves time-stamping blocks of data so they can be assembled more quickly.
Solana also uses the popular proof-of-stake validation method, which is great because it supports the ideas of decentralization and energy efficiency. Thousands of nodes working independently are involved in the validation process. And their efforts use about as much information as you do when you search for a website or a piece of information on the Internet. Another advantage of proof of stake is it allows you to stake your holdings in Solana -- and earn passive income.
Solana offers plenty of use cases. As mentioned, you can build and use decentralized applications on Solana and stake your holdings. And businesses can use Solana Pay for payments. Transactions take place instantaneously -- and for a fraction of a cent.
A big NFT business
But we still haven't talked about Solana's big business: non-fungible tokens (NFTs). Solana is a major player in this marketplace, taking the No. 3 spot. But in recent times, NFT sales have been on the decline. Over the past 30 days, NFT sales and the number of NFT buyers on Solana have slipped, according to CryptoSlam.
It's important to note that other top NFT sellers -- such as No. 1 seller Ethereum -- are generally facing the same trend. Still, this is an area of strength for Solana, so persistent declines could be worrisome.
Now, let's get back to our question: Is now the time to buy Solana? The blockchain remains a promising player in the world of cryptocurrency. And last year's 94% decline seems excessive to me.
But this year's rebound also might be a little too much, too soon, especially considering the trend in NFT sales, which is a key market for Solana. So right now, I would wait for either a dip in the price and/or a lasting turnaround in NFT trends before stocking up on this crypto player.
