Should You Buy Solana (SOL)? 4 Pros, 4 Cons

Last Updated March 24th 2022
12 Min Read

Solana (SOL) ranks as the #9 listed cryptocurrency by market cap. With 15,000 listed cryptocurrencies, Solana (SOL) impacted the market with innovative technology and lightning-fast transaction speeds.

Solana (SOL) was one of the top crypto performers for 2021.

Solana investors are excited about the potential of Solana (SOL), comparing the technology to Ethereum (ETH) and Bitcoin (BTC). But in many ways, Solana (SOL) surpasses the market-leading cryptos.

The crypto market is volatile and unpredictable, and investors still consider crypto investing as speculative. There's not enough historical data for technical analysis because the crypto market hasn't been around long enough for long-term data gathering, such as support and resistance levels, chart patterns etc.

The Solana network promises never to surprise customers with higher taxes and fees. The protocol ensures low transaction fees and fast processing without losing scalability.

Solana (SOL) had a significant bull run this year, gaining momentum after releasing the Degenerate Ape NFT collection. Because of the massive appeal this year for NFTs for investment, prices of SOL shot up to $60, an all-time high. But that was just the beginning, as SOL continued to climb, reaching a high of $260, and today's Solana (SOL) price is $100.

Solana has several unique properties that differentiate it from other cryptos. In this post, we take an unbiased view of the 4 pros and 4 cons of buying Solana (SOL). In conclusion, you will know if you should buy Solana (SOL) and what you might expect from this exceptional crypto in the future.

What Is Solana (SOL)?

The Solana Foundation in Geneva, Switzerland, launched Solana in March 2020. The project is open-source and highly functional, providing DeFi (decentralised finance) solutions and facilitating DApp creation.

One of the unique properties of Solana is a hybrid model of consensus. Combining proof of history (PoH) consensus with proof of stake (PoS) consensus improves scalability. The Solana Foundation wants to make decentralised finance (DeFi) widely available to everyone.

Because of the hybrid model, Solana's processing and validating times are exceptionally short for executing smart contracts and transactions.

The Solana protocol appeals to institutional investors, traders and small investors.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Should You Invest In Solana (SOL)? 4 Pros,  4 Cons

Pro #1: Fast Transactions And Low Fees

Crypto enthusiasts believe Solana (SOL) is Ethereum's biggest rival. Ethereum currently supports 14 transactions per second (TPS), but Solana can support 50,000 TPS.

Ethereum is transitioning from proof of work (PoW) consensus to proof of stake (PoS) consensus, and gas fees are expensive. When the ETH2 upgrade completes, Ethereum says 100,000 TPS is possible. But, for now, Solana (SOL) has the edge on transaction speed and costs.

Because Solana is proof of stake (PoS), users verify and secure the Solana network by coin (SOL) ownership. It's less costly than proof of work (PoW) consensus, and Solana (SOL) transaction fees are typically less than 1 cent.

Check Out: What Might Happen If You Invest $100 In Solana (SOL) Today?

Con #1: Network Stability

Solana hasn't been around for as long as Ethereum has, and the community of SOL users is not as big as Ethereum, so the track record is shorter. Ethereum investors have come to trust the Ethereum network for increased stability compared to other cryptocurrencies.

Any instability in a blockchain causes concern for investors.

In September 2021, the Solana network experienced some instability, which the Solana Foundation tweeted. Anatoly Yakovenko, CEO of Solana Labs, said similar network stability issues had occurred the week previously.

The explanation for the network problems was vague. The Solana Lab said their engineers were working to resolve the instability caused by "resource exhaustion", whatever that means. Many Solana investors were not happy with the vague explanations.

Of course, Solana (SOL) is still relatively new to the crypto market, and perhaps it might be unrealistic to expect no teething problems as Solana (SOL) gains traction in the crypto market. Undoubtedly, if we go back to the early days of Ethereum and Bitcoin, it wasn't all plain sailing for either of these blockchains.

Pro #2: NFTs And Smart Contracts

The NFT industry has gone crazy over the last year. Non-fungible tokens (NFTs) became a high-growth industry following the epic sale of the NFT 'Everyday' by digital artist Michael Winkelmann (known as Beeple) at Christie's for $69 million. The NFT market exploded with NFT platforms opening online to sell a wide range of NFTs.

Capitalising on this expanding industry is a savvy move, and Solana jumped into the market to share the NFT action.

Solana is gaining market share with Solanart, the NFT marketplace running on the Solana network. The biggest bonus for NFT buyers on the Solanart marketplace is faster transactions and lower fees.

Most NFT marketplaces require Ethereum (ETH) as payment. The problem with that is Ethereum fees are high. You could buy an NFT for $100 and pay $70 in ETH fees, for instance. Solanart has a massive appeal for investors wanting to buy an NFT but not wanting to get stung by high transaction fees.

Smart contracts are code allowing blockchains to run DApps (decentralised applications). The Ethereum network was the first to introduce smart contracts but has experienced problems with network congestion. Solana is a faster alternative for smart contracts.

Con #2: Solana Has Fewer Projects

Ethereum is an established crypto network with many active projects (2,916 according to the State of the DApps website). The Solana website says it has over 350 projects, including DeFi, NFTs, games, Metaplex, DEX and exchange. This total represents just over 10% of Ethereum projects, but it's early days for Solana, and progress has been steep in a short time.

Solana will likely gain more projects as the word spreads of the fast speeds and low transaction fees. For Solana to challenge Ethereum, an increase in project numbers could make a difference.

Pro #3: Solana Has A Low Environmental Impact

One of the most significant issues with Bitcoin is the negative impact on the environment.

In the beginning, a Bitcoin miner could work on a PC at home without issue. But as the hash problem became more complex, more computing power became necessary with high-level ASICs. Today, the Bitcoin hash solving difficulty is just under 23 trillion. When Bitcoin began, the difficulty was 1. The tougher the hash problem is to solve, the more computing power is required.

Bitcoin proof of work (PoW) consensus requires miners to validate blocks. Each transaction requires 707 kWh of electricity, emitting half a ton of carbon. Bitcoin transactions produce over sixty million tons of carbon dioxide annually, the equivalent of a similar carbon footprint for the whole country of Greece.

This environmental issue is fast becoming one of concern for everyone. Elon Musk, CEO of Tesla, banned Bitcoin payments earlier in 2021 for environmental reasons, though he reversed the decision a month or so later.

Anyone concerned about climate change looks for an alternative to Bitcoin. Solana leads the way as a greener alternative to proof of work consensus associated with Bitcoin and other cryptos. Solana uses less energy. It's faster and, because of the consensus mechanisms, the network does not require miners and, as a result, no requirement for excessive computing power.

Proof of stake (PoS) means SOL users secure and verify the Solana network just from staking their SOL tokens.

Don't Miss: Will Solana Make Me Rich In 10 Years

Con #3: Inflation

Cryptocurrencies became more popular in 2020 for many reasons, one of which was for investors to escape inflation. Most cryptocurrencies have a hard cap on how many coins will ever exist in total. For instance, Bitcoin has a limited supply of 21 million coins. Experts suggest that the Bitcoin supply will be exhausted by February 2140 (Investopedia).

Solana has no fixed supply of coins. Solana began increasing the yearly supply of SOL tokens by 8%. That means that the inflation rate decreases at 15% a year until it is at 1.5%, and it will decline no further from that point.

Very few cryptos use this inflationary model, but investing in Solana isn't the route to avoid inflation.

Pro #4: Stake Solana (SOL) For Rewards

It's easy to earn rewards by staking Solana (SOL).

  1. Open a secure crypto wallet that permits staking options
  2. Buy SOL and send it to your wallet
  3. From within the wallet, find a "delegate" option
  4. Choose a validator
  5. Select the amount of SOL you wish to stake and submit

The Solana inflation rate of 8% is distributed proportionally to Solana network validators, together with transaction fees. Your chosen validator will then share the SOL rewards with you after deducting their fees.

You can check how much you can earn from staking Solana (SOL) by entering your stake amount on the Staking Rewards website.

Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

Con #4: Solana Is Not Decentralised Enough

There are not a lot of disadvantages to buying Solana (SOL), but this particular con for Solana is the general opinion of crypto experts and enthusiasts.

The Ethereum network has over 200,000 validators, but the Solana network only has 1,000 validators to date. The more validators there are, the more secure the network. Although the Solano network is less than two years old, investors would be more confident when the number of validators increases significantly. As the #7 listed cryptocurrency, the low number of validators is surprising.

The Solana Validator page on the website says, "There is no strict minimum amount of SOL required to run a validator on Solana." But if Solana validators wish to take part in consensus, they need a voting account. The rent-exempt reserve for that is 0.02685864 SOL, and, for each block, the validator has to send a vote transaction. This transaction can be costly, up to 1.1 SOL a day.

Recap Of Should You Buy Solana (SOL)? 4 Pros, 4 Cons

Solana (SOL) has a lot of positives in its favour. It's the #7 ranked coin on CoinMarketCap. You can buy and stake Solana (SOL) and earn rewards.

For Solana (SOL) to grow, the Solana network must address current and potential future issues. The pros of buying Solana (SOL) are exceptional, but the cons of buying Solana (SOL) are a concern for investors.

The pros of buying Solana (SOL)

✅ Pro #1 – Fast transactions and low fees

Pro #2 – NFTs and smart contracts

Pro #3 – Solana has a low environmental impact

✅ Pro #4 – Stake Solana (SOL) for rewards

The cons of buying Solana (SOL)

 Con #1 – Network stability

 Con #2 – Solana has fewer projects

 Con #3 – Inflation

 Con #4 – Solana is not decentralised enough

Network instability is a significant worry for crypto investors. With no real reason given for the Solana network instability this year, it instils doubt in the minds of potential Solana (SOL) investors. Institutional investors are more likely to put their money in crypto with proven network stability, such as the Ethereum network.

Although Solana (SOL) has had a lot of institutional interest, the inflation protocol of 8% a year is a little odd for a decentralised platform. Crypto investors may look to other cryptocurrencies as an alternative to Solana (SOL) when they want to avoid inflation.

The Solana network only has 1,000 validators. Potential voting fees for Solana network validators can be costly at 1.1 SOL per day, which may contribute to the low numbers of validators on the network.

If the Solana network wants to be a genuine rival for Ethereum, they need more validators and more active projects.

It will be interesting to watch how the Solana network develops into its second full year in 2022 and how the Ethereum 2.0 upgrade completion affects the growth of Solana (SOL).

Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.

Trading, staking, or investing in financial instruments such as cryptos may not be suitable for all investors. It does involve risk and the possibility of a loss of capital. There are no guarantees for profiting from staking cryptocurrencies, and it's advisable only to risk what you can comfortably afford to lose.

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Crypto asset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

FAQs

Who Are the Founders of Solana?

Anatoly Yakovenko is the person behind Solana. He teamed up with Greg Fitzgerald, a colleague and, together, they founded the Solana Labs. Anatoly developed the proof of history (PoH) protocol to enhance usability and increase scalability.

How high can Solana (SOL) go?

Nobody can accurately predict how high Solana can go. But Solana (SOL) has a lot of investment potential. Crypto experts predict that the price of Solana (SOL) could double over the next year. WalletInvestor even suggests the price of Solana (SOL) could treble before the end of 2022.

Where can I buy Solana (SOL)?

You can buy Solana (SOL) from eToro, the world's leading social trading platform, and many other crypto exchanges list Solana (SOL) such as Binance and Coinbase.

Does Solana have a community?

Solana has a broad community. The Twitter channel is the most popular, with over 330k followers, and the Telegram channel has 85k followers. You can find the complete list of Solana community channels on the Solana Community Page (https://solana.com/community).

Should I invest in Solana (SOL)?

Solana (SOL) could be the next big thing in cryptos. Could Solana (SOL) be the next Bitcoin? Solana followers believe it is a rival for Ethereum, but once completed, the ETH2 upgrade puts the Ethereum network ahead of Solana with faster transaction speeds, and fees will be lower. Crypto experts predict that Solana (SOL) could double or treble over the next year, but there's no guarantee. At over $100 per SOL token, investing in SOL could be expensive for the small investor. If your budget allows and you want to add Solana (SOL) to your crypto portfolio, then it has the potential to grow over the next one to two years.

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