Solana phenomenon: a closer look at the project
The price of Solana’s sol token has skyrocketed more than 13,000% this year, leaving many other cryptocurrencies behind. This is not a very typical situation for quite an innovative blockchain project which has just started to generate visibility. Let’s take a closer look at the world of Solana.
Solana, a cryptocurrency that launched with almost no fanfare in April 2020, has recently been the talk of the place. So what is Solana? And has its outstanding rise in price anything behind it?
When Austin Federa of the Solana Labs team was asked about his dream outcome from the deep dive they were making, his answer was: “We want people to have an accurate understanding of where Solana excels and where it isn’t quite as strong.” No pumping, no shilling, just an explicit and honest assessment of Solana.
The project claims that it has created the world’s fastest blockchain, and this innovative technology has clearly generated significant visibility. According to the Solana white paper, the network could theoretically process 710,000 transactions per second using a 1 gigabit per second network connection.
Anatoly Yakovenko, founder and CEO of Solana, stated in his blog post that “on current iterations of the Solana Testnet, a network of 200 physically distinct nodes supports a sustained throughput of more than 50,000 transactions per second when running with GPUs,” by this providing a more specific example on the blockchain’s bandwidth.
Some argue that Bitcoin’s Proof of Work algorithm’s most essential feature is functioning as a decentralized clock for the system. At Solana, they believe that Proof of History provides this solution and they have built a blockchain based on it. So, it uses a Proof of Stake consensus mechanism plus Proof of History. The latter is a decentralized source of time that, according to Solana Labs CEO and founder Anatoly Yakovenko, is “the implementation of the arrow of time in math.” It means is that transactions on the blockchain are verifiably ordered without all nodes needing to agree simultaneously. That’s what makes it so fast.
In addition to having promising technology that could provide very high transaction capacity, Solana has other things to offer users. One of the most important metrics for a user is the transaction fee. The average fee on Solana blockchain is $0.00025 which is much lower than the cost of the average Ethereum transaction. In light of Solana’s recent visibility, and the substantial gains got by sol, several analysts have shared their view of the network perspective. Some went this far as to call Solana a legitimate competitor to Ethereum. Together with all other factors, it has helped drive its tokens higher.
When the price of a cryptocurrency rises so quickly, we often subconsciously expect to see an equally dramatic fall. One way to determine the sustainability of that growth is understanding why the price has jumped. Here are some reasons for Solana’s growth.
1. The launch of the NFT collection which were 10,000 Degenerate Apes sold out in less than 10 minutes. Every trade made needed SOL, which became a big factor in the price increase.
2. Attracting over 400 projects built on Solana’s network, including various decentralized finance (DeFi) applications. Some of them are doing really well.
3. Offering an alternative to Ethereum people were looking for. That network is still struggling with congestion and high fees.
4. Solana launched a wormhole project, and it became a success. The solution offers a way to easily bridge between different networks, for example, projects can now use the wormhole to move assets between Ethereum and Solana quickly and cheaply.
5. Solana is one of the fastest cryptos on the block right now. Yet today it is competitive with Visa’s payment processing capabilities, and Solana says it will be able to get faster as hardware improves, potentially reaching 700,000 TPS. To put that into some context, Ethereum processes 15 to 45 TPS (although it will get faster after the upgrade to ETH2 is completed).
Solana’s sol token experienced some sharp price fluctuations lately, dropping more than 15% after the Solana blockchain network went down and then restoring much of those losses. What concerns potential threats to Solana’s price, it’s worth mentioning that the U.S. financial authorities have been discussing stricter DeFi regulation, which could have an impact on a number of projects on Solana’s platform.
