Crypto

Should You Invest in Solana? The Advantages and Disadvantages

Solana SOL Crypto

Solana ($SOL), a cryptocurrency, is gaining a lot of traction.

In 2021, Solana (SOL) has been a standout performer, surging up the ranks of cryptocurrencies to become the world’s fourth most valuable cryptocurrency. Solana is currently worth $64.2 billion, and its increasing investor community is excited to see how its technology stacks up against market titans Bitcoin (BTC) and Ethereum (ETH). However, investors should keep in mind that Solana is still a relative newcomer, and the cryptocurrency’s severe volatility in 2021 implies that it is still a high-risk speculative investment at this time. Here are three benefits and three drawbacks to owning Solana for those prepared to take the chance.

Pro: Speed and Fees (Solana)

Solana has been a standout performer in 2021, surging up the cryptocurrency rankings to become the fourth most valuable cryptocurrency in the world. Solana has a market capitalization of $64.2 billion, and its growing investment community is eager to see how its technology compares to market leaders Bitcoin (BTC) and Ethereum (ETH). Investors should keep in mind, however, that Solana is still a newcomer, and the cryptocurrency’s extreme volatility in 2021 means it is still a high-risk speculative investment at this time. For those willing to take a chance, here are three advantages and three disadvantages of owning Solana.

Con: Stability (Solana)

Investors may not be able to rely on the network’s stability as much as they do with Ethereum because Solana has a smaller user base and a shorter track record. When the Solana Foundation tweeted in September that the Solana blockchain was experiencing “intermittent instability,” Solana’s reputation took a knock. According to Solana Labs CEO Anatoly Yakovenko, the network had faced similar stability concerns the week before. The problems were attributed to “resource exhaustion,” according to the business, which claimed its engineers were working to resolve the issues. For bitcoin investors, reliability is crucial, and many were dissatisfied with the explanation’s vagueness.

Pro: NFTs and Smart Contracts

Smart contracts, or code that allows blockchain systems to execute decentralized apps, or dApps, were initially introduced by Ethereum. However, the popularity of smart contracts and decentralized applications (dApps) has caused congestion on the Ethereum network, allowing speedier alternatives to emerge. Solana is also fast acquiring market share in the non-fungible token space, which is experiencing significant expansion. Solanart, an NFT marketplace, runs on the $SOL network, which allows NFT purchasers to benefit from faster transaction speeds and lower fees than those on the Ethereum network. Demand for smart contracts and NFTs are surging, which might help Ethereum and Solana prosper in the long run.

Con: Fewer Projects

Because of Ethereum’s first-mover advantage, it has many more projects than Solana. According to the website State of the dApps, there are currently 2,887 Ethereum dApps. Solana claims to have 350 projects in total on its network. Decentralized finance (DeFi) applications, NFT projects, and gaming apps are among these projects. More new projects may pick Solana over Ethereum as awareness of its speed and low-cost structure spreads. However, it has to be seen how valuable Ethereum’s first-mover advantage is, as well as whether Solana can build up a large enough network of programs to effectively compete with Ethereum.

Pro: Environmental Impact

The detrimental environmental impact of Bitcoin and Ethereum as next-generation technology is one of the most common criticisms. The computer power required to mine Bitcoin and verify transactions using its PoW methodology now emits about 60 million tons of CO2, giving Bitcoin nearly the same carbon footprint as Greece. Elon Musk reversed course on Tesla Inc. (ticker: TSLA) accepting Bitcoin as payment earlier this year due to Bitcoin’s carbon footprint. Solana’s PoS and PoH verification processes use considerably less energy than Bitcoin and Ethereum, potentially making the cryptocurrency a greener alternative.

Con: Inflation

Inflation was one of the primary reasons why investors went to cryptocurrencies in 2020. There are hard caps on the total amount of coins that will ever exist in many cryptocurrencies. Bitcoin, for example, has a 21-million-coin cap, with the final coin projected to be produced in 2140. In contrast, $SOL does not have a set number of coins. Solana began by increasing its supply by 8% every year. That rate of inflation falls by 15% per year until it reaches 1.5 percent, where it will remain permanently. Crypto investors seeking zero inflation should look elsewhere.

Pros and Cons of buying Solana:

  • Pro: Fees and speed.
  • Stability is a disadvantage.
  • NFTs and smart contracts are advantageous.
  • Cons: There are fewer projects.
  • Benefits to the environment.
  • Inflation is a disadvantage.

The Author

Samuel Adeshina

Samuel is a financial reporter whose interests include blockchain, market, business, insurance, and Crypto to provide relevant information to all interested.