In our Discord community for members, we received several requests for analysis of Solana in the last few days. So we thought it would be a good idea to put this project in the spotlight and dedicate a series of premium articles to it. In this series, we dive into the fundamentals behind a cryptocurrency and will return periodically to monitor developments. As you are used to with us, we analyze various statistics to paint a clear and realistic picture. We also take a brief look at recent developments and assess what impact they have had. If you still have questions after reading this article, you can easily ask them in our Discord community, here our analyzes are usually shared 48 hours in advance and you can easily get in touch with experienced analysts and traders.
In just 2 years, Solana has established itself as a regular in the top 10 tokens. Solana’s goal is to become a smart contract platform that is accessible to mainstream applications. It is important that it is scalable (a known issue with blockchain). Where Ethereum (ETH) struggles to scale, Solana promises to be a smart contract platform with low transaction costs and fast processing.
|Price||market cap||24h volume|
|Solarium||€47||16 billion||1.1 million|
|Ethereal||€1,860||225 billion||11.9 million|
|Bitcoin||€27,770||529 billion||19.54 million|
Table 1: Solana vs. Market Leaders Bitcoin and Ethereum, Source; coinmarketcap.com
In this section, we look at the key fundamental metrics. The fundamentals focus on the underlying technology, development, and users of a blockchain network to give an idea of the long-term potential of a project. This forms the basis for estimating risk and making investment decisions.
Now that we know what problem Solana wants to solve and how this project wants to differentiate itself from its competitors, it’s good to take a look at some statistics.
Those promises about scalability? Solana knows how to rise to the occasion. Solana currently processes 50,000 transactions per second with extremely low transaction costs (0.00025 per transaction). In this area, Solana outperforms Ethereum (see Figure 1). Currently, Ethereum can only handle around 30 transactions per second and suffers from high transaction costs (gas fees) of 20 sometimes yes 100. Founder Vitalik Buterin promises improvements on all fronts with Ethereum 2.0. The maximum volume of transactions would be around 100,000 transactions per second. However, where Ethereum 2.0 has often been delayed and is not yet fully operational (expectation is 2023), Solana already makes the claims come true.
|Number of transactions||50,000 – 65,000rpm||15 – 30rps|
|transaction costs||0.00025||€4 – €21|
|consensus mechanism||proof of stake||work test|
Table 2: Comparison Solana and Ethereum Font; solar wealth
Be careful not to mistake Ethereum’s high gas fees for criticism. The high gas rates are the result of the very high demand from the network. With a large developer base and strong funding, Ethereum is a market leader.
Developers on the web
An important indicator of a healthy growing network is the number of developers on the network. Developers create on-chain tools such as NFT trading markets, Yield/DeFi farms, Blockchain games, and innovative future applications that we don’t even know exist yet. A wide range of tools in a network attracts users who can use the cryptocurrency for their desired purposes. Furthermore, having many developers also means that the network is being actively improved; developers are deeply intertwined with the network and are therefore encouraged to innovate in the network and thus make it faster and cheaper. The more developers, the more decentralized (and fairer) votes are cast for network growth. This is often critical to a healthy network.
The figure below clearly shows how Solana is growing along with the impressive growth of Ethereum. Ethereum is still way ahead with almost 3,000 developers, where Solana currently has (around) 1,000 developers. However, these numbers show impressive growth, especially considering that Solana has only been active since April 2020.
Recently Solana has it Solana Payment announced project. The objective; a global means of payment (of cryptocurrencies and stablecoins such as USDC) with low fees for direct transactions (peer-to-peer) between the client and the merchant.
Its strength lies in eliminating an intermediary in transactions (such as banks, governments, etc.). In this way, the merchant can set up personal offers and (on-chain) loyalty programs cheaply and quickly. With this, Solana Pay can disrupt the current global market of centralized transactions. Its value has been estimated at around $2 trillion (McKinsey, 2020), see image below. For comparison; Solana currently has a total market value of $30 billion.
Figure 2: Source; McKinsey 2020
Of course, Bitcoin, Ethereum and many other crypto currencies also take a piece of the “pie” of the transaction market in their hands. It’s hard to say what that distro will look like in the future, but Solana’s ambition and strong support base (many developers and user growth) drive Solana’s sails.
Where XRP (Ripple) focuses more on institutional transactions, Solana focuses on the general consumer and merchants. While accepting cryptocurrency transactions for consumers, stores, and merchants has been possible for years, Solana has an ambition to put the power of on-chain decentralized payments in the hands of consumers and merchants; think about integrated DeFi yield generation, fraud protection, and on-chain ownership of the customer-seller relationship.
Of course, it’s not all roses and moonshine. There are a number of things to keep in mind if you want to invest in Solana.
Solana Foundation Central Nodes
Solana currently has a relatively central setup due to its reliance on the Solana Foundation. Currently, the Solana Foundation is the only entity that develops central nodes in the blockchain. This is an estimated 1500 nodes. This is nothing compared to Ethereum, which has about 300,000 nodes. That centralization makes Solana more susceptible to attack. Trusting the Solana Foundation, the crypto community often prefers decentralized networks.
Solana is revealed to be prone to seizures. As a result, the Solana blockchain has gone partially or completely offline several times. For example, there have been DDOS attacks. In September 2021, the blockchain was completely offline for 17 hours due to an attack in which bots forced 400,000 transactions per second. Ethereum is much more decentralized compared to Solana and cannot be taken offline in practice.
Many tokens owned by insiders
Much of the Solana tokens are held (and staked) by insiders. This is because Solana has issued an initial 50% token allocation for insiders. This is much more than Ethereum (15%) and Bitcoin (0%).
Buy or sell Solana?
Solana shows strong growth and ambition. This gives us confidence for the future. Although Solana is still (relatively) young and there is a lot of competition in the smart contract space, Solana delivers on her promises so far.
For an answer to your buy or sell question, we’d like to refer you to our Discord community. There, our experienced analysts and traders analyze their own entry and exit points on a daily basis. We also regularly share additional price analysis and project updates that we have discussed earlier in this section. Through Discord we are able to share knowledge with each other 24/7 and we try to stay ahead of the market together with our members.
Disclaimer: Investing involves risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and advice provided on this website is based on the knowledge and experience of our own analysts and is for educational purposes only.