Should You (Or Anyone) Buy Solana?

Last Updated April 25th 2022

7 Min Read

Read on to learn more about Solana and its potential as an investment.

Over the last few years, there have been concerns about Ethereum's scaling capabilities. This has triggered a rise in Ethereum competitors, key among them being Solana. Solana is currently trading at $100.59 with a market capitalization of $33.65 billion.

Solana is the blockchain of choice for Dapps developers who need high throughput and low fees. Uptake has been pretty strong, especially on the NFTs front, as is evident in the number of NFT transactions in the Solana NFT marketplace called Magic Eden. In March 2022 alone, there were more than 4.6 million NFT deals on Eden Marketplace running into hundreds of millions of dollars.

Institutional money is also increasingly flowing into the Solana marketplace, an indicator that they expect Solana NFTs to keep growing in acceptance going into the future.

Despite the growing adoption, Solana, like other cryptocurrencies, remains volatile. This leads to the question, is Solana a good cryptocurrency to buy now? To answer this, let's take an in-depth look at Solana to determine whether it is a high potential cryptocurrency investment for 2022.

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

So, What Exactly Is Solana?

The Solana blockchain was built to host highly scalable Dapps. While San Francisco-based Solana Labs built Solana, it is now run by Solana Foundation, which is based in Geneva, Switzerland. Solana's scaling capabilities make it perfect for building Dapps that cut across different industries, from financial services to healthcare.

Solana's success has a lot to do with its Proof-of-History Consensus mechanism. Proof of History is an innovative way to add proof and date into the blockchain. The system uses a verifiable delay function, or VDF for short, which requires every block producer to crunch through it before they can produce blocks. Unlike conventional proof-of-stake, where every node has to verify a transaction, Proof-of-History cuts the time to verify transactions, hence Solana's high throughput, up to 50k transactions per second.

This high throughput makes Solana a top choice for Dapps developers and a cryptocurrency for investors to watch in 2022.

How Solana Can Help Create And Store Value In The Digital Age

Non-fungible tokens (NFTs) have become one of the best ways to create and manage value digitally. For instance, it is now possible for artists to turn their works into NFTs and earn a passive income, which was hard to accomplish a few years ago.

While there are many blockchains where one can mint an NFT, Solana happens to be one of the most popular, and for a good reason. Unlike in Ethereum, where you have to part with a sizeable amount of fees to mint an NFT, Solana's process is almost free.

Thanks to Solana's ultra-low transaction costs, it now has one of the fastest-growing ecosystems of NFTs. This is likely to play well into SOL’s value growth long term. It's a solid reason to believe in Solana as a cryptocurrency to buy and hold long-term.

Solana Is Leading The Way In Disrupting The Finance Industry

DeFi is one of the fastest-growing aspects of the cryptocurrency market and is quickly changing the finance world as we know it. Today, it is possible to borrow and lend without involving a bank as an intermediary.

While most DeFi projects are Ethereum-based, Solana is emerging as one of the top Ethereum competitors in DeFi. This has a lot to do with Solana's core metrics, such as scalability and costs.

Solana's growing importance in the DeFi market is evident in the amounts Solana DeFi projects have raised in March 2022 alone. For instance, Hedge, a Solana DeFi project, recently raised $3.7 million to provide interest-free loans. Similarly, Delta, a Solana-based yield farming cryptocurrency, raised $9.1 million.

However, the importance of Solana in the fast-expanding DeFi space is most evident in its Total Value Locked. While Solana's TVL has dropped almost 50% since its peak in November 2021, there is still around $6.69 billion locked in the Solana DeFi ecosystem. As more DeFi projects launch on Solana, this figure will likely rise. This makes Solana a high potential DeFi cryptocurrency to buy in 2022.

Read Also: Solana (SOL) Price Prediction

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

The Pros And Risks Of Buying Solana

Pros	Cons
Scalability – up to 50k TPS	Questions about Solana decentralization
Solana has a strong team behind it	Solana has an inflationary supply
High levels of institutional adoption	Network outages a risk to reputation
Fast growing NFT & DeFi ecosystem

Solana's biggest advantage in the platform blockchain space is its scalability. It can handle up to 50k transactions per second, something that is unmatched by most of its peers.

On the flipside side, Solana's biggest weaknesses, are centralization and network outage but these can be resolve with time.

On the issue of centralization, all blockchains start out centralized but become decentralized over time. Since Solana is one of the most popular chains in the market today, it is likely to keep drawing in more investors to take part in running the network and lead to higher levels of decentralization.

On network outages, Solana's Proof-of-History is a relatively new protocol, and most of its weaknesses are not yet fully understood. Solana will likely become one of the most reliable consensus mechanisms in the crypto market as it gets time-tested and deficiencies better highlighted.

Inflation is another issue that could be a cause of concern short term but is a minor issue long term. As more people use the Solana blockchain, the new tokens entering the market are quickly absorbed, and demand starts to outpace supply. These dynamics played out in the last bull run, where SOL demand was so high that the price increased by over 12,000% in just one year.

The Solana network outages may have put a dent in its reputation. Whether it can recover from this and outpace Ethereum is a matter of speculation.

Is Solana A Good Buy?

Solana is a cryptocurrency, and all cryptocurrencies are known to be highly volatile. That said, Solana adoption is on the rise, and many investors are betting on SOL. The fast-growing ecosystem of Solana DeFi and NFT projects is a good indicator of Solana's growing adoption.

Despite all Solana's promises, buying it or not is a personal choice. Solana is a relatively new cryptocurrency, and this presents a lot of upside potential and a significant risk of higher volatility compared to, say, Bitcoin.

The key to successful investing in Solana is only to put in what you can afford to lose. You also need to make sure that you buy Solana from a reputable source. Solana is listed on all top cryptocurrency exchanges, so this shouldn't be a problem.

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

Buying From A Questionable Exchange Can Lead To A Loss Of Capital

While many cryptocurrencies can make you rich quickly, the safest route to wealth is stocks. They tend to have lower volatility and go up in value as the economy expands. However, even when investing in stocks, only do so via reputable online stock brokers. Click here to learn more about buying stocks and cryptos using our top broker of choice.