Should I invest in Solana in 2022?

Some Interesting Solana Facts

Should I invest in Solana in 2022? Before we “go down the rabbit hole”, let’s have a quick snapshot of some interesting and related facts:

• Name: Solana (SOL)
• Value (14 Feb 2022): $92.78USD
• All Time High: $259.96USD (6 Nov 2021)
• Market Capitalisation: $29,586,997,686USD
• Market Position#: 8
• Website: https://solana.com/
• Founder: Anatoly Yakovenko. 

What is Solana?

Solana is a brilliantly designed web-scale Layer 1 blockchain platform whose key objective is to host decentralized and scalable applications. It was launched in 2017 by the former Qualcomm software engineer Anatoly Yakovenko, and it features a consensus mechanism that blends Proof of Stake (PoS) with Proof of History (PoH). POS means that the mining rate depends on the number of staked coins a node holds. The staking process requires that some of your coins be locked for a certain period of time. The network uses these locked coins to improve itself. After the staking period is over, you receive additional coins as interest, depending on the original number of coins you staked.

According to the Blockchain Consensus Encyclopedia, Proof of History is a sequence of computation that can provide a way to cryptographically verify passage of time between two events. It uses a cryptographically secure function written so that output cannot be predicted from the input, and must be completely executed to generate the output

Specifically, Solana timestamps incoming transactions, creating a verifiable order of events, which accelerates network throughput.

Solana’s technical advantages can be best summarized by the clever adoption and utilization of eight technical innovations. The innovations outlined in Anatoly’s discussion paper, 8 Innovations that Make Solana the First Web-Scale Blockchain, include the following:

• Proof of History (POH) — a globally-available, permissionless source of time in the network that works before consensus;
• Tower BFT — is like the Byzantine fault tolerance (pBFT), however, it obviates the need for nodes to cast their votes for every single transaction allowing overall quicker processing
• Turbine — a block propagation protocol which breaks down transactions into smaller parts. This helps nodes to receive information more quickly while at the same time using less bandwidth
• Gulf Stream — Mempool-less transaction forwarding protocol where leaderless nodes can start verifying some of the transactions in the mempool so that it doesn’t become overcrowded
• Sealevel — Parallel smart contracts run-time that allows smart contracts to run side by side without causing any disruptions and providing additional performance gains
• Pipelining — a Transaction Processing Unit for validation optimization which helps to streamlines the block validation process
• Cloudbreak — Horizontally-Scaled Accounts Database which allows for access and interpretation of data simultaneously; and
• Archivers — Distributed ledger storage Archivers working together with Pipelining, helping leader nodes access network-based information at a much quicker rate.

Some key statistics as of 16 Feb 2022 include the following:

• Theoretical max 50,000 Transactions Per Second (TPS’s)
• Current average TPS 2,713
• Total number of transactions to date – 57 billion
• Average cost per transaction is as low as $0.00025
• Total number of validator nodes = 1,506
• Average number of developers over the last seven days: 125 active developers (poll taken 14 Jan 2022).

According to the Motley Fool (11 Feb 2022), the Solana platform now boasts over 1,300 blockchain projects, including dApps like Magic Eden and Solanart, the fifth- and sixth-most-popular non-fungible token (NFT) marketplaces in terms of total traders. Further, they suggest that Solana also ranks as the sixth largest DeFi ecosystem, with $8.7 billion invested in the blockchain.

So, based on all of the above, Solana is a crypto powerhouse and indeed, a real competitor to other Layer 1 blockchains and including, Ethereum. The SOL price soared an amazing 11,000% in 2021.

Is it the ultimate Ethereum “killer”? I’m not sure to be honest however, it does have the potential to be in the longer term. As of February 2022, Solana’s market cap is only about 9% that of Ethereum’s. So, it has a long way to go before it dethrones the ‘blue chip’ giant.

What are some of the issues facing Solana in 2022?

Reliability

As outlined by CryptoVantage, in Jan 2022, Solana has been troubled by a series of technical issues which commenced in September 2021.

In September 2021, users waited for 17 hours after the network suffered an outage due to ‘resource exhaustion’. Solana attributed the downtime to an overflow of transactions by bots after the launch of an initial decentralized exchange offering on Raydium, a DeFi platform on Solana.

The network went down again on 9 December 2021, with technicians stating that they had been hit by a distributed denial of service attack (DDoS).

The most recent downtime happened in early January 2022 when Solana faltered due to another DDoS attack. Users were not privy to what caused the incident, but Wu Blockchain reported the network had gone down due to a suspected spam attack. However, Solana developers quickly sought to correct the record, stating “there was some congestion due to mis metered transactions”, which caused congestion. The issue was resolved about 6 hours later.

Solana is a relatively young blockchain with incredible potential. However, it will need to demonstrate that it is getting on top of these technical issues as it moves forward to cement itself amongst the competing Layer 1’s. Being a very fast blockchain with incredibly low transaction fees is a huge bonus, but security and reliability of the blockchain will become paramount as Solana matures.

Competition

According to securities.io, there six top Cryptocurrency alternatives to Solana. These alternatives include:

• Ethereum
• Binance Smart Chain
• Polkadot
• Cardano
• Algorand.

I will not dig deep into all these competitors aside from mentioning that Ethereum, which is the oldest blockchain-based development platform in the world, is the parent figure to all others, and also the most diverse. As of 17 Feb 2022, it has $81.64 billion of value locked in defi. It is and will remain probably Solana’s main competitor for a long time to come.

Not Adequately Decentralised

Many argue that Solana is a lot more centralized than other platforms, especially when compared to Ethereum. The issue is that it is very expensive to run a node on Solana’s network as compared to other similar smart contract crypto ecosystems, which means there are less nodes, and the system is not as decentralized as the purists would like. However, Solana is working on solutions and as of mid-February 2022, it has established 1516 validator nodes.

Should you invest in Solana?

Currently both the US stock market and Crypto continue to see-saw as the US navigates a raft of challenges including: continued uncertainty over the Omicron COVID-19 variant, concerns by Federal Reserve Chairman Jerome Powell about the health of the economy and record high inflation levels, the potential invasion of the Ukraine by Russia and ongoing comments by US policymakers like SEC Chairman Gary Gensler about cryptocurrency regulation.

As I am not a licensed financial planner/adviser, I cannot offer any financial advice. However, my own investing experience and learnings along the way (some of these have been painful and do include cryptocurrency) have tended to guide me well over the course of time.

My personal view is that Crypto is indeed a risky investment but with potential high reward and as such, should form a small percentage (~5%) of your overall investment portfolio. Any crypto portfolio should include both Bitcoin and Ethereum (the crypto blue-chips’. I do own both and I also own some Solana. I do think Solana has great potential, but it also has some strong competition. It will be critical for Solana to resolve its technical reliability issues. If these issues continue ongoing at a relatively high frequency, then investors will leave and funding by major backers will start to diminish.

The crypto market will continue to be volatile, and it is still very early days in this investment space, so, if possible, look to holding for the longer term and use ‘Dollar-Cost-Averaging’ as a means of entering this market. One other bonus in holding some altcoins such as Solana is that you are able to stake them for a reward. So not only do you benefit on any price increases in the coin itself, but you can also gain a yield on top. These yields are currently much higher than you would obtain say from a usual bank term deposit.

Your PROFITABLE ACTION STEPs this time around:

1. Do your ‘100’ hours of study into cryptocurrencies if you have not done so.
2. Keep reading and learning. Find great investment books and knowledgeable YouTube channels/podcasts. This will broaden your knowledge and help you decide on suitable investment objectives and strategies, aligned to your personal risk profile.
3. Bitcoin, Ethereum, Solana or any other cryptocurrency should only comprise a small percentage of your overall investment portfolio. As crypto is highly volatile, don’t invest anything in this space that you cannot afford to lose. As always, do your research first and consult your own financial planner/adviser.
4. If you haven’t read this article on where to invest in 2022, you will find it an interesting and informative read.

Stay safe, healthy and wise and most importantly of all, take ACTION.