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Solana (SOL) is on a tear at the moment, hitting all-time high after all-time high. The price increased over 200% in August and is up over 7,000% since the start of the year, according to data from CoinGecko.
This pushed Solana into the top 10 cryptocurrencies by market cap. At the time of writing, Solana, which is available at most top cryptocurrency exchanges, sits in eighth place.
When the price of a cryptocurrency rises so quickly, it’s always difficult to know whether we’re about to see an equally dramatic fall. Understanding why the price has jumped is one way to gauge how sustainable that growth is. Here are some reasons for Solana’s growth.
When it comes to cryptocurrency, most people have heard of Bitcoin and Ethereum, the two biggest cryptos with market caps of more than $896 billion and more than $414 billion, respectively, according to CoinMarketCap. In the world of altcoins, one name typically comes to mind: Dogecoin, popularized by billionaire Elon Musk.
However, another altcoin, Solana, recently moved into the spotlight to become the world’s eighth-largest cryptocurrency, Solana soared 10% on Monday and another 30% on Tuesday, lifting Solana to almost $130 per coin and raising its market cap close to $40 billion. By Tuesday evening, Solana had dropped back down to $111, which is still hovering near its all time high and a stark contrast to its mid-June price, when it hovered in the mid-$30s, according to CoinMarketcap charts.
The coin has jumped 275% since Aug. 1, and more than 2,348% since the beginning of the year, Fast Company reported. The crypto only launched 18 months ago.
What Is Solana?
Solana is a programmable blockchain, similar to Ethereum, that can run multiple decentralized finance operations. Unlike Bitcoin, which is a non-programmable blockchain, Solana and Ethereum offer the capabilities to store smart contracts, which can be programmed to fulfill transactions only when specific conditions are met. As a programmable system, the decentralized blockchain platform permits users not just to exchange SOL coin, but also non-fungible tokens and other digital assets.
Why Did Solana Skyrocket?ts
The growth of NFTs, including Visa’s investment in digital artwork last week and intense interest in NFTs from celebrity collectors, could have helped sparked the rapid growth of Solana.
Reports that Solana launched a “global Solana hackathon” yesterday, which will run through Oct. 8. The contest urges technology innovators to create and develop blockchain-based games, art and collectibles as well as decentralized lending platforms on the Solana blockchain.
Should You Invest in Solana, Ethereum, or Bitcoin?
Although Solana is viewed as a direct competitor to the Ethereum blockchain, Solana and other altcoins could also be taking market share and investment money away from Bitcoin. A CoinShares report on Monday showed that Bitcoin had lost $2.8 million in mid-August. Ethereum gained just $3.2 million, while Solana gained $7 million from crypto investors.
As a technology and an investment, Solana may show promise. The Motley Fool reported that Solana is faster than Ethereum, processing 50,000 transactions per second or more compared to Ethereum’s 15 to 45 TPS rate.
Bitcoin is on its way to gaining acceptance as a currency that can be used in place of fiat money in some places of business — most recently by enterprise-level customers of Peter Thiel’s Palantir, a big data analytics software developer. This gives the top crypto an edge for long-term investors.
But the growing prevalence of NFTs and smart contracts give programmable blockchain technologies like Ethereum and Solana a potentially bright future in the market. Ethereum has the advantage of being first, but Solana could prove to be faster and better.
As with any investments, a diversified portfolio that includes not just multiple reputable cryptocurrencies but stocks, funds and other assets will be a safer choice than putting all your money into one property.
As long as crypto continues to grow, there could be room for holders of Ethereum, Solana, Bitcoin, Doge and many others to prosper. However, cryptocurrencies are highly volatile, so consider these coins as long-term investments and know your own risk tolerance. Don’t invest more than you would be comfortable losing.
1. Solana’s move into NFTs with Degenerate Apes
You’ve probably heard of non-fungible tokens (NFTs) — digital collectibles that continue to take the crypto world by storm. By coding ownership and copyright information into these tokens, key data is essentially baked into each piece of digital art.
Degenerate Apes was Solana’s first big foray into NFTs. This collection of costumed apes features various traits — from glasses to sandwiches — with various degrees of rarity. The launch had some technical issues (the team tweeted that they’d been “overwhelmed” by the demand), but that didn’t matter. The collection of 10,000 apes sold out in less than 10 minutes. At the time of writing, the trading volume had reached over 600,000 SOL (over $66 million). Those sales all needed SOL, which is a big factor in the price increase.
2. It’s attracting a wide range of projects — and some of them are doing well
There are over 400 projects built on Solana’s network, including various decentralized finance (DeFi) applications. Decentralized finance is an umbrella term for a host of projects that take the middleman (often banks) out of financial transactions.
FTX and Alameda Research built their decentralized cryptocurrency exchange called Serum on the network, which also hosts the increasingly popular USDC stablecoin. (USDC is also available on Ethereum.) Another of this month’s crypto stars, Audius (AUDIO), uses the platform too, which may also be a factor behind Solana’s price rise. Plus, TikTok chose Audius as its streaming partner earlier this month.
3. People are looking for alternatives to Ethereum (ETH)
Ethereum was the first programmable blockchain — a blockchain that can host other applications and cryptocurrencies — and many cryptos have since followed in its footsteps. The majority of applications are still built on Ethereum, but the network is struggling with congestion and high fees. As a result, both developers and investors are looking for alternatives.
Solana is one of a number of programmable blockchains that are jostling for pole position. People talk about potential Ethereum killers, but it’s more likely Ethereum will be one of five or six leaders that emerge in the coming years. If Solana continues to perform well, there’s a good chance it could win a spot in that top tier.
4. It successfully launched a wormhole project
Wormholes may sound like something out of Star Trek, but for Solana, this wormhole offers a way to easily bridge between different networks. Right now, blockchains are not very good at working with one another, and that’s been another stumbling block in terms of growth. It would be like having two wireless providers that couldn’t communicate with one another.
According to Coindesk, projects can now use the wormhole to move assets between Ethereum and Solana quickly and cheaply. Solana says the next step will be to connect Terra (LUNA) and the Binance Smart Chain.
5. It’s fast
Solana is one of the fastest cryptos on the block right now. It claims it can process at least 50,000 transactions per second (TPS) at a cost of less than $0.01 per transaction. Not only is this competitive with Visa’s payment processing capabilities, but Solana says it will be able to get faster as hardware improves — potentially reaching 700,000 TPS. To give you some context, Ethereum processes 15 to 45 TPS, though it will get faster as it completes an upgrade to Eth2.
Speed is not everything, but it has been an obstacle for many evolving cryptocurrencies. Time will tell whether Solana’s correct in saying it hasn’t compromised on security or other factors to reach that speed. Assuming it is, Solana may be able to keep its position in the top 10 cryptos for some time to come.
KEY BACKGROUND OF SOLANA
Founded in 2017, Solana debuted its sol token on cryptocurrency exchanges in April 2020 but has only recently emerged as a leader among so-called altcoins, or crypto alternatives to bitcoin. Solana’s support for smart contracts enables it to be used for NFTs, decentralized finance and other blockchain-based applications—and has helped make it a popular competitor to Ethereum, even earning it the moniker “ETH killer,” alongside tokens like Polkadot and Cardano. The blockchain claims to offer faster transaction speeds than Ethereum, but currently only handles about 6,000 transactions per second—a fraction of the more than 50,000 it claims to support.
TANGENT
In June, Solana Labs, the company developing Solana’s software, completed one of the largest fundraising rounds in the cryptocurrency industry’s history, raising $314 million in a token sale led by Andreessen Horowitz and Polychain Capital.
WHAT TO WATCH FOR
Regulation. Though its price has soared nearly 300% over the past month, Solana plunged as much as 60% this summer while the broader cryptocurrency market crashed amid intensifying regulations in China, and regulators are increasingly homing in on one of Solana’s biggest growth drivers. Last month, Gary Gensler, chair of the Securities and Exchange Commission, identified decentralized finance, which offers cryptocurrency loans that bypass traditional financial intermediaries like banks, as one of the main areas in the industry that may warrant additional regulation. Over the weekend, the value of decentralized finance projects pinned to the Solana’s blockchain surpassed $3 billion for the first time ever, nearly tripling this month alone.
