Solana is one of the most exciting new cryptocurrencies. The Solana network specializes in speed and has caught the attention of institutional investors, but as it is a new project there are still a number of problems that investors should be aware of.
In todays Solana review our team provides you with essential information to help you decide if you should buy Solana. Let’s see why everyone is so excited about Solana trading!
What is Solana?
Solana is a smart contract platform which uses a proof-of-stake consensus mechanism. Bitcoin introduced the idea of a blockchain in 2008 which enabled borderless, permissionless, trustless, money which has its entire history recorded on an immutable, decentralized ledger which resulted in the mass adoption of crypto. In 2014 Ethereum added programmability to the equation so that contracts could be embedded into the blockchain allowing for much more use cases such as decentralized finance (DeFi), NFTs, stablecoins, oracles and much more.
Solana’s native token is called ‘SOL’, you can think of SOL as the ticker symbol when you want to buy Solana on with a digital asset custody service. Solana was founded in 2017 and the project officially went live in 2020 although
How does Solana Work?
Bitcoin and Ethereum use proof-of-work consensus algorithms, which require massive amounts of energy and computing power to run and are also relatively slow and expensive to execute transactions. Solana is unique in that it runs on a proof-of-stake consensus mechanism but also uses proprietary proof-of-history architecture that reduces data usage in the blockchain which greatly increases speed and results in sub-second finality and negligible fees. You may already be jumping to start your Solana trading, but there is still much more to learn. Let’s look at what sets Solana apart from other cryptocurrencies.
What sets Solana apart?
King of Speed
Out of all the smart contract platforms Solana gained traction for having the fastest transactions per second, which makes it a particularly favored chain for metaverse and crypto gaming development. Solana boasts an impressive theoretical limit of 65,000 transactions per second which is significantly faster than Bitcoin at just 7 transactions per second or Ethereum at 15 transactions per second.
For a long while Ripple wore the crown as the fastest distributed ledger technology (DLT) with over 1,000 transactions per second but Solana’s unique approach enabled it reach speeds few imagined possible with blockchain technology. No wonder people are so eager to buy Solana! Even Visa reports generally do not exceed 1,700 transactions per second (although it has a theoretical capacity of 57,000 transactions per second.
This begs the question, if the top payment processing company globally only executes approximately 1,700 transactions per second on average, is Solana’s speed just a gimmick to get people to start Solana trading? It is true that such high throughput is not necessary solely for the processing of payments, but Solana is slated to do much, much more! As a smart contract platform it is expected to do all the things Ethereum has become well known for, such as decentralized finance, metaverse, crypto gaming and NFTs.
Ethereum is notoriously congested as the demand for its services paired with its slow throughput clogs the network. Consequently, people pay exorbitant fees to have their transactions processed first. Solana’s speed and low cost solves these issues and with the addition of biometric security, it’s entirely safe to use. Before you go ahead and buy Solana be sure to read our whole review to get the full picture of Solana. We have some facts that may surprise you!
If you want to invest in Solana you should consider what they are doing to generate interest in their project, such as seed phrase security. For a cryptocurrency to be successful you need people to build interesting things on top of it. That means we need great developers. So before you ask yourself ‘Should I buy Solana?’, first pose this question: ‘Is Solana attracting developers?’. Here’s why that question is so important.
Developers are the lifeblood of any smart contract blockchain. No matter how fast, secure or decentralized your blockchain, if there is nothing of use built on it then the network and its native token are useless. Developers create applications, NFTs, Defi solutions, metaverses and games that enable people to actually use a blockchain and incentivizes people to buy Solana. Developers bring utility which brings users and if tokenomics are well designed the native token will accrue in value as more people use it. So now the question is how does Solana attract developers.
Unlike Ethereum which is based on the Solidity programming language, Solana uses Rust, which has been heralded as a superior language for development. The superior programming environment and better tooling paired with enormous investments has seen developers flock to Solana making it one of the most active chains for development. The love for Solana and its Dapps are reflected in the total value locked (TVL) metric which exceeds $7 billion and shows how much value people have locked up in projects that are built on Solana. Remember the value of SOL is its utility in the network, people buy Solana to participate in the network and that is reflected in the TVL.
Currently, Solana is in fifth place with over $7 billion TVL. Which is mightily impressive for a relatively new cryptocurrency project, however it is still a long way from matching the incumbent smart contract king, Ethereum, which has over $100 billion in TVL. As Solana’s development environment matures and more people recognize the advantages of Rust and high throughput this gap is likely to systematically close.
Solana is one of the best funded projects which means high value investors believe in the project and are betting on its success. Notable Venture capital funds and even Sam Bankman Fried from FTX have made major bets on this blockchain. Some perceive the venture capital funding as a vote of confidence in the blockchain and are reassured by the vested interests of deep pockets who they believe will see to it that the blockchain, its developers and foundation are well resourced to achieve their stated goals. Others are more cynical about this involvement.
Solana is often derogatorily referred to as the VC-coin. This is a criticism of Solana’s initial token distribution which saw approximately 48% of SOL allocated to insiders. The proportion of tokens allocated to insiders far exceeds that of other cryptocurrencies that aim to uphold the principle of decentralization such as Ethereum and Cardano which each has initial token distributions to insiders closer to 18%.
It is understandable that some level of token allocation must be reserved for the founders and initial funders but many find Solana’s 48% disproportionate and threatening to the price stability of the SOL token. A small number of whales could coordinate a dump of the tokens and sell off at a high price, causing the price to collapse and repurchase at these lower prices, this often hurts retail investors who fall for price manipulation. Solana is not unique in this regard however, many other tokens such as Binance Coin (BNB) and Ripple (XRP) share a similar initial token distribution.
Should I invest in Solana despite bad initial token allocation? It depends on how much you value decentralization, for some this might be a deal breaker, however it does not mean the token cannot still perform extremely well or that this metric may shift over time. If you want to buy Solana because you believe it will appreciate in value despite its lack of decentralization in this regard, there is still much to discuss.
Will the hype last?
Solana was one of the best performing cryptocurrencies during the 2021 year, it appreciated $2 in November of 2020 to over $250 one year later. Following the capitulation of the Bitcoin price Solana’s price also fell back to under $80 in the first quarter of 2022. One of the primary drivers of price appreciation is hype and momentum. Many are left wondering if the venture capitalists took their profits and ran or whether they will return with extra vigor for the next bull cycle.
Interestingly, the market sentiment towards Solana has not soured substantially despite numerous outages of the network, which we discuss in greater detail in the next section. Traders and investors understand that price dips are ideal opportunities to accumulate when the fundamentals of a project is strong. So should I buy Solana now that the price has dipped? It seems as though Solana has enough momentum to keep investors flocking to buy Solana and the addition of a crypto smart-card will make the service even more attractive. The recent price dip was a necessary correction following an exceptional parabolic run. With a new support level established above $70, Solana may be primed for a move above prior all-time highs if Bitcoin can show steady, sustained price increases.
We believe Solana’s lightning fast throughput, high profile investors and strong developer community are strong enough fundamentals to maintain the hype on Solana for the foreseeable future, but with so many unknowns at play it is impossible to predict price action in the near future.
Network interruptions stoke uncertainty
Solana has been criticized heavily for the series of network interruptions that it has experienced. In order to deal with DDoS attacks on the Solana network, the node operators have had to essentially pause the blockchain to prevent exploitation. The worst instance of such an outage lasted for a period of over 17 hours. This has called into question the level of security and decentralization of the network. It appears that serious trade-offs were made in order to reach the level of throughput and finality that Solana has.
Cryptocurrencies are often heralded as the panacea of legacy financial systems, however the world would descend into chaos if a major bank simply went offline for an entire day. We believe investors are forgiving at this stage seeing as Solana is still relatively new on the scene. Were this to happen to an established project such as Ethereum, we expect investor sentiment would be far more bearish than Solana experienced.
Despite the criticisms, avid supporters of Solana maintain that the mainnet is technically still in beta and that these concerns will be alleviated once Solana upgrades to its primary state. Solana’s price did not take an immediate hit after any of the outages, which indicates a sense of indifference on the part of investors about this seemingly serious issue, Solana trading was unaffected until Bitcoin showed signs of weakness.
Are investors blinded by the allure of one of the fastest appreciating assets of the year? Are these merely the growing pains of a fairly new and ambitious crypto project or is it the first evidence of a rushed development and cracks in the foundations of the code base. These are aspects investors should consider before they buy Solana.
What does Solana add to the space?
Perhaps people continued to buy Solana despite its network interruptions because Solana adds something unique and valuable to the space that no other project currently has. Solana may not be the most decentralized or the most secure, but it certainly is the fastest and has a lot of active development and a strong community and that counts for a lot in the crypto space. Especially with the metaverse and crypto gaming becoming an increasingly noteworthy narrative, a chain is needed that has near instant finality. There are chains like Cardano, Elrond, Polkadot and Algorand which claim that they will in time come close to matching or even surpass the speeds of Solana, at this point it remains nothing but talk. Solana appears, at least for now, to be the only one walking the walk -when their system is not paused that is.
Facebook changing the name of its umbrella company to Meta is an indication that one of the largest and most influential tech firms in the world believes that the Metaverse will be very important in the coming years. As our world becomes increasingly digital, people are betting that much of our business and social interactions will migrate to the metaverse. It is not hard to envision that assuming this kind of future that people will be willing to spend a lot of money on virtual assets in this digital world where much of their interactions take place. Solana is currently the crypto chain best positioned to take advantage of this trend with its lightning fast transactions and finality.
In-game purchases of items have also fundamentally changed the financial model of online games. Gamers are willing to pay top dollar to don rare items in games to distinguish them from other players. It becomes sort of a status symbol. Solana has recently partnered with the enormously popular PUBG game and it appears there is no stopping their ambitions to cement themselves as the premier chain for all things crypto gaming and metaverse related. The gaming community is enormous and bringing that demographic over to the crypto world can be a great asset not only to Solana but to the entire crypto space. There was initially some hesitation on the part of gamers to accept the introduction of crypto assets into the gaming world, but this is a combination that just works and that we will likely see and hear much more of in the near future.
In this review of Solana we gave you the most important facts, both positive and negative, to help you decide if you should buy Solana. Solana may be fast but it does not appear to be as reliable or as decentralized, these are important features to consider before you go Solana trading. Always keep the Vaultavo platform in mind when you are considering a digital asset custody service.
If you enjoyed this review we have more pages of discussion on all the top cryptocurrencies at Vaultavo. You’ll also need a hot wallet to get involved with crypto trading. Please remember this is not financial advice and to do your own research before making any investment decisions.
Solana Trading FAQs
How can I buy Solana?
Solana is a very popular cryptocurrency and most major centralized exchanges should enable Solana trading, remember to look for the SOL ticker. You can always go to Coinmarketcap, search for SOL and go the ‘Markets’ section to identify centralized exchanges where you can buy Solana.faq-item]
Is Solana Safe to trade?
Solana is a legit project with numerous high profile investors and an army of developers. That being said, in order to trade SOL, you will have to use the services of a centralized exchange. Be sure to research any exchange before entrusting your money or private information to an unknown entity. Solana trading is as safe as the exchange you entrust your money to, so be careful out there. faq-item]
How does Solana speed help?
Solana’s fast transaction speed and instant finality enables faster Solana trading on native decentralized finance applications and there is less latency or waiting time when aspects of crypto are incorporated in a metaverse or gaming situation Being the fastest blockchain is a strong motivator for many to buy Solana.