The U.S. Federal Reserve about to start raising the interest rates, taking the bullish momentum away from the market as traders reassess the valuations of some risky assets like stocks. Cryptos have been hit pretty hard too — a reminder that while a blockchain-based tech is exciting and has a lot of potential in the coming years, this is still a very new and extremely volatile sector to invest in. The two leading cryptos by market cap, Bitcoin (BTC) and Ethereum (ETH), have each decreased over 40% in value from their all-time highs.
But given blockchain’s potential, I am still dabbling. This month, I am adding to a very small existing position in Solana. Here is why.
An “Ethereum killer” that has actual merit?
Like ETH, Solana’s blockchain network was created to support decentralized apps (or dApps, which means peer-to-peer interactions with no centralized controls). ETH has thousands of dApps that are based on its network, while Solana has only around two hundred, although there are many more in development.
Created two years after ETH and released in 2020, Solana is grabbing a lot of attention. Its network is one of the fastest out there, boasting its current ability to process an astounding 65,000 transactions each second. That compares to ETH’s current limit of around 15 to 30 transactions a second.
Solana utilizes a concept that is known as proof-of-stake (PoS) to verify its transactions on the network. PoS lets owners of a cryptocurrency participate in the actual validation processes. Along with PoS, Solana also created a concept that’s called Proof of History, which embeds a time stamp into the transactions so the network does not need to know which ones it should validate first. As a result, gas fees for using Solana could be as low as just a fraction of a penny, which compares to as high as a couple hundred dollars on ETH.
There are several exciting projects being created on Solana, like the recently announced Solana Pay that will directly connect shoppers and merchants which is a first-of-its-kind blockchain payments solution. What that dApp will mean for merchants is almost-instantaneous settlement of the funds into their merchant accounts with almost no fees, and the ability to reward its customers directly using other digital assets that are built on Solana.
A promising but also highly speculative bet
As exciting as apps like Solana Pay can sound, buying Solana coins is not a direct investment into it or any other companies. It is a speculative bet. For a lower-risk, potentially higher-reward play on blockchain tech, I prefer keeping the bulk of my investment assets in companies like Shopify, Alphabet’s Google Cloud and even Coinbase Global– businesses that are using cryptocurrency and blockchain to produce profitability and revenue.
That is why I am keeping Solana and other cryptocurrencies as a fraction of a percent of my total investment value. Solana is still tiny and its value might continue deteriorating. But if developers and other speculative investors keep flocking to it, this new blockchain network might soar one day.