A bright future ahead for Solana?
Updated: Nov 3, 2021
Recent weeks have seen the price of blockchain Solana’s native currency — SOL — skyrocket. From just over $67 on 25th August, SOL went up to over $200, marking more than a 200% increase in less than 2 weeks.
From April to August 2021, the price of SOL had hovered around the $30 level, so the current price represents a nearly five-fold increase in value. This has taken the market capitalization of Solana to over $40 billion, making it the world’s seventh-largest cryptocurrency by market cap.
So what’s behind this dramatic rise and what does it mean for the decentralized finance (DeFi) ecosystem?
Speed, price and NFTs
Interest in the Solana blockchain has been growing along with the adoption of DeFi and non-fungible tokens (NFTs), both of which have grown steadily in popularity over recent months. Solana has been dubbed an “Ethereum killer” by many in the market, along with some others including Cardano, and its recent success suggests it could be living up to this expectation.
One of the reasons Solana, which was set up in 2017 as a direct competitor to Ethereum, has been so popular is the speed of transactions on the blockchain. Solana claims to be able to process some 70,000 transactions per second compared to just 15 per seconds for Ethereum, on which the majority of the DeFi ecosystem is based (although Solana is reportedly processing just 6,000 transactions per second currently).
In addition, Solana doesn’t plan to stop at what it has already achieved, promising to double its processing speed every two years. To support this, Solana uses a network timestamp system called Proof-of-History. This generates a local timestamp to create a single, trusted source of time, thereby improving network efficiency. At the same time, it also offers lower transaction costs than many of its competitors, with the average cost per transaction sitting at $0.00025, according to Solana’s own website.
Ethereum’s gas fees have been going down this year, and currently stand at an average of 116.33 Gwei per transaction, which is 58% lower than a year ago. However, this is still double the price of Solana at $0.0005 per transaction. With gas fees being a significant cost factor in DeFi and users constantly looking for faster transaction times, it is no wonder then that Solana is emerging as the biggest potential threat to Ethereum’s dominance.
In addition to its benefits for users, there are perks for validators of the Solana blockchain. Incentives include an inflation-linked mechanism, with an initial inflation rate of 8% for stakers and validators, decreasing by 15% each year until it reaches a long-term rate of 1.5%. This creates some stability in the volatile world of digital assets, which is surely a plus for users as well.