Solana, a blockchain network that launched in 2020, has seen tremendous interest from both cryptocurrency enthusiasts and developers who are using it to build decentralized applications for industries like finance, computing, and even the arts.
Proponents describe Solana as a faster and more efficient competitor to the crypto powerhouse Ethereum. The price of Solana’s native cryptocurrency, known as SOL, is now in the top 10 most valuable cryptocurrencies by market capitalization, according to market research site CoinMarketCap.
But what is Solana and how did it quickly become a major player in the crypto space? Here are some things you should know about Solana and some ideas to consider before making a potentially risky cryptocurrency investment.
What is Solana?
Solana belongs to a group of networks vying to be one of the leading platforms for usage Blockchain Technology. Developers can build on Solana products that enable users to conduct secure transactions and execute digital contracts.
Essentially, Solana wants to be a home for decentralized applications that allow users to do business without the need (and associated cost) of a trusted intermediary such as a bank or broker. This is how Solana competes in a crowded space that has blockchains such as ether and Cardano, along with traditional financial players.
What gives the SOL cryptocurrency its value?
As the native cryptocurrency of the Solana network, SOL is to be used as a means of payment for services provided via Solana or as a fee for the computing power required to operate the network. Users can buy SOL on a cryptocurrency exchange and earn more by helping to verify activity on the system through a process known as staking.
One of the most popular Solana uses is selling non-fungible tokens, or NFTs, which allow a buyer to own a unique digital version of a work of art. For example, an online collection of NFTs known as the Degenerate Ape Academy sold a piece on the Solana network for 5,980 SOL. At the time, that amount was worth about $ 1.1 million.
Other uses of Solana are in the financial arena, where developers are trying to shake up the traditional structure of the industry. And some projects in the network are trying to create Internet technologies that are less dependent on centralized authorities than those that exist today.
When you invest in Solana, you are essentially betting that some of these efforts will succeed and that the demand for SOL will increase along with its value.
Should I buy SOL?
Buy any cryptocurrency can be a risky move. Solana is a new, relatively untested participant in a new, relatively untested field.
Blockchain may never develop into the disruptive economic force many of its followers expect – or it may take many years longer than expected to reach its potential. And even if they did, Solana may not be a big winner in this hotly contested area.
“Like everything else, it will be a top-winning market,” said Bill Birmingham, director of research at Osprey Funds, a Tarrytown, New York company preparing to launch a Solana mutual fund.
Birmingham says he is confident that Solana will realize what he sees as significant potential.
He also suggests that people who are considering buying a cryptocurrency look at how quickly they are being adopted. Some metrics to examine include the number of active wallets, which are accounts in which users can hold a cryptocurrency, and the number of transactions over time. You can also look at how tokens are distributed to get a feel for the risk of inflation. Birmingham says useful data for these purposes is available online through Solana Researcher Function and the page Solana Beach.
What are some red flags?
Solana’s rapid growth has created some problems of its own. On September 14, 2021, Solana was offline for about 17 hours after a crash caused by a flood of bot-generated transactions. Solana’s senior organization found that no funds were lost and that the network was able to fully recover in a day, arguing that the situation was evidence of Solana’s resilience.
After the failure, Solana lost some of its value before recovering somewhat in the weeks that followed.
On the whole, it is important to note that many people who trade cryptocurrency speculate and often take leaflets with them in search of explosive growth rather than investing based on solid theories. But whatever your approach, a rule of thumb is to make crypto holdings a small part of your overall portfolio – say around 5 to 10% – similar to other concentrated investments like individual stocks.
What are some of Solana’s strengths?
Once you’ve made a decision to invest in cryptocurrency and are considering whether Solana is a promising asset, understanding how it differs from other technologies in the field can be helpful.
Proof of history: One major innovation touted by Solana’s supporters is a feature known as the Proof of History. The network takes a different approach than other blockchain projects to help users agree on when a transaction took place.
The correct order of transactions is critical to network security and functionality, and some previous methods required a time-consuming verification process.
Solana developers say they found a way to reliably record the timing of every message so that everyone else on the network can check regardless of when it receives it.
Fast and cheap: One of Solana’s main selling points is its relatively high speeds and low transaction costs. The network’s developers say it is designed to ensure that the cost per transaction does not exceed 1 cent.
Meanwhile, the average transaction price for Ethereum on October 15, 2021 was around $ 16.
Birmingham says you don’t have to be a computer science expert to make a good decision whether to buy Solana. However, it does help to understand at a high level what the network is, how it works, and what might lead someone to use it.
He says, “Are you looking at this from a network perspective and are you wondering if people are embracing that network? Does it solve a problem in the market that is either not solved by a traditional financial market, or does it do something in a traditional financial market that is better? “