Crypto enthusiasts have been promising that Bitcoin and other cryptos would put traditional finance out of business for years.
And now, new generation, high-performance blockchains are ready to step up to the task — one of these blockchains is Solana.
The high-speed blockchain gained a whopping 14,000% in 2021, and it’s currently the 7th largest coin by market cap. However, it still has the potential for a major upside, as highlighted by the Bank of America.
The investment recently bank said that Solana could become the “Visa of the digital asset ecosystem” and become larger than Ethereum.
In fact, Solana is already ahead of the digital payments giant in terms of transaction speed. Both Visa and Solana foundation claim to be able to handle transaction speeds of about 25000 per second. However, the actual numbers are somewhat smaller.
Solana’s network currently handles some 2500 transactions per second, while Visa handles about 1700. Moreover, founder Anatoly Yakovenko claims that the network speed can scale with hardware improvements.
Crushing Other Blockchains
In terms of speed, Solana can go toe to toe with its fastest non-blockchain competitor. Moreover, it completely dwarfs other major blockchains. For example, Bitcoin can only handle 4.6 transactions per second, while Ethereum can handle 10.
This difference is noticeable to end-users. For example, payments on Ethereum can take up to 10 minutes to go through, while those on Solana complete instantly. The difference is comparable to that between the dial-up connection versus high-speed ethernet.
In terms of transaction costs, its advantage is even larger. Its fees are currently at $0.00025 per transaction, vs $1.8 for Bitcoin and $90 for Ethereum. High fees are the number one reason why new users stay clear of Etereum.
It does so by using the Proof of Stake (PoS) protocol, which is standard for most new blockchains. Rather than relying on costly mining for validations, validators instead stake coins for a chance to earn rewards.
If they don’t perform the validation right, the blockchain “slashes” their holdings. This is to make sure that validators are not abusing their position. Moreover, Solana also implements its own Proof of History model, to speed up transactions even further.
Due to its high speed and low fees, Solana has become a major player in NFTs. Non-fungible tokens have seen a huge rise in 2021, and Solana will likely benefit from their continued rise.
While Ethereum still dominates the NFT space, Solana’s NFT ecosystem has been growing much more rapidly. So much so that it could soon flip Ethereum in terms of NFT use. From there, Solana flipping Ethereum’s market cap looks much more likely.
Criticism – Too Centralized?
However, Solana still faces some risks that could threaten its long-term growth. The main issue for most critics is its perceived centralization.
There’s mixed evidence for that case. Firstly, ownership of Solana coins seems to be less concentrated than that of Bitcoin or Ethereum. That is, as measured by the Nakamoto coefficient, a crypto version of the Gini coefficient.
This means that fewer Solana coins are in the hands of a small number of “whales” as compared to BTC and ETH. This is important, as large and institutional owners can have a huge influence on both the price and where the network is going.
However, that’s not the only metric to gauge centralization. The bigger issue is that Solana is still technically in beta. That means that the final, stable version of the blockchain is still not out there.
For example, slashing, a key feature of the PoS blockchain, does not currently work on Solana. That means that there’s no mechanism to punish validators that don’t do their job right. To prevent abuses, the network still relies on the Solana Foundation stepping in and punishing bad actors.
Moreover, the network has suffered several full-scale outages in the past year. In its most recent outage, the entire network went offline for about 17 hours. That’s not something that our modern financial system can tolerate.
On the flip side, Solana is still under two years old, and it’s already ahead of any of its crypto competitors in terms of performance.