Tuesday Talk: Is Sky the Limit for Solana’s Potential?
Solana has long been touted as the Ethereum killer, promising much higher transaction throughput and scalability compared to Ethereum. In addition, the sheer volume of transactions on Ethereum has caused massive congestion issues on the blockchain network, resulting in higher transaction fees, which further pushes users out of the ecosystem to migrate to Solana. In this article, we will take a look at how Solana functions, why it crashed in prices recently, and what investors should expect from Solana for the rest of the year and beyond.
What Is Solana?
Solana is a blockchain network that supports smart contracts and has a decentralized applications (dApps) ecosystem, similar to Ethereum. The key difference between the two protocols is the underlying consensus mechanism, which is used to verify transactions on the network.
Solana uses a consensus mechanism known as Proof-of-History (PoH) and, essentially, it requires a sequence of computational steps that determine the time passage between two events cryptographically. This results in transactions on Solana being timestamped and placed in a timely order, unlike Ethereum or Bitcoin.
In addition, Solana’s network architecture is “stateless,” meaning that participants of the network do not need to update the entire state of the network every time a transaction occurs. This helps reduce the overall memory consumption of the network, and in turn makes Solana cheaper and more scalable than Ethereum.
What Caused Solana’s Price to Collapse?
Solana’s collapse in prices is largely a function of the macro market situation, as the entire crypto market underwent a massive crash over the past week. Solana as a blockchain is still very much growing in both functionality and user base, and thus the future is looking bright for Solana. Even though Solana is down more than 63% from its all-time high of $258.93, it is still up an absurd 2500% year-on-year as of January 26. Thus, despite a massive downturn lately, it is mostly accounted as short-term market-induced volatility; investors can still be confident in Solana’s development as a blockchain.
What to Expect From Solana
Recently, Bank of America analyst Alkesh Shah said that Solana could take away market share from Ethereum thanks to its differentiated design, highlighting the fact that Solana “allow for the processing of an industry-leading 65,000 transactions per second with average transaction fees of $0.00025, while remaining relatively decentralized and secure.” Shah went as far as saying that “Solana could become the Visa of the digital asset ecosystem, explaining that its ease of use and low cost means it is optimized for micro payments, gaming, and NFTs. Thus, we should expect Solana to continue to chip away at Ethereum’s market share in the NFT and DeFi space.
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