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5 Things to Know Before You Buy Solana (SOL) – Motley Fool

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by Emma Newbery | Published on Nov. 1, 2021
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
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Smart contract crypto Solana has produced eye-watering returns this year.
Check out The Ascent's cryptocurrency apps for 2021
When the price of Solana (SOL) started to rise in July, people dubbed it the Solana summer. As we head into November and the price continues to climb, perhaps we should instead simply call 2021 Solana's year.
Why is everybody talking about Solana? Is it a good investment? Here are five things you should know.
At the start of this year, 1 SOL cost $1.51 and Solana's market cap was around $86 million. It has gained over 13,300% since then — 1 SOL is now worth $202.42 according to CoinMarketCap. With a market cap of almost $62 billion, Solana has become the sixth biggest cryptocurrency by market capitalization.
It is available from most top cryptocurrency apps and exchanges. And many investors have staked their SOL — tied it up for a fixed period of time to contribute to network security — to earn interest.
One of the big drivers behind Solana's growth is that people are looking for alternatives to Ethereum. Ethereum is the second largest cryptocurrency in the world, and was the first to introduce smart contracts. Smart contracts are tiny pieces of code that allow blockchain platforms to run decentralized applications (dApps) and other programs.
The trouble is that Ethereum's network is heavily congested and transactions have become expensive. As a result, the spotlight is on newer platforms that are both faster and less costly. There are several so-called "Ethereum killers" jostling for position, each trying to attract developers and claim a share of the market.
Like many of the newer smart contract cryptocurrencies, Solana is not as battle tested as Ethereum. If you're considering buying Solana, take a good look at the competitive environment as each smart contract cryptocurrency has its own pros and cons. Bear in mind that it's probably not going to be a winner-takes-all scenario. We'll likely see four or five smart contract cryptos coming out on top.
One of the big attractions of Solana is that it can process around 50,000 transactions per second (TPS). To put that in perspective, Ethereum processes between 15 and 45 TPS, though it is in the process of an upgrade to Eth2 that will make it somewhat faster.
Speed isn't everything, but few cryptocurrencies come close to Solana in this race. What's also noteworthy is that Visa says it processes about 24,000 TPS, meaning Solana could give existing payment networks a run for their money.
The magic of blockchain technology is that it takes the middleman out of all kinds of transactions. For example, Bitcoin (BTC) is a form of digital currency that does not require the backing of a bank or government.
But with no intermediaries, blockchain networks need other methods to keep themselves secure and avoid fraud. Bitcoin uses a proof-of-work validation model to do this. Without getting too technical, it has a series of network validators that have to contribute huge amounts of computing power. The idea is, it would take so much processing power to create false records, that it would be almost impossible. This keeps the network secure, but is not energy efficient.
Other systems use a proof-of-stake validation model, which restricts the number of validators to those who own enough of the token, making it quicker and more sustainable. Solana takes this a step further. It integrates timestamps into its proof-of-history validation model, which is how it is able to process transactions so quickly.
As competition heats up between Ethereum alternatives, one key battleground is the number of projects running on each network. Ethereum may be slow, but it has first-mover advantage and developers are used to using its platform and programming language. As a result, Ethereum still hosts the lion's share of dApps.
Solana has over 350 projects in its ecosystem. These include decentralized finance (DeFi) applications that offer intermediary free banking services, non-fungible token (NFT) projects, gaming apps, and various others. NFTs are a type of unique digital collectible that embeds the authorship and ownership information inside the item. DeFi and NFTs are booming right now, which is another factor in Solana's growth.
Cryptocurrency investments can be risky and extremely volatile, so if you're considering buying Solana, be prepared for the price to go down as well as up. It's advisable to ensure cryptocurrency investments only account for 5% to 10% of your overall portfolio, and to only invest money you can afford to lose.
As you evaluate the pros and cons of investing in Solana, try to keep a long-term perspective. Solana's price may have just hit a series of all-time highs, but where do you think it will be in five or 10 years time?
There are hundreds of platforms around the world that are waiting to give you access to thousands of cryptocurrencies. And to find the one that's right for you, you'll need to decide what features that matter most to you.

To help you get started, our independent experts have sifted through the options to bring you some of our best cryptocurrency exchanges for 2021. Check out the list here and get started on your crypto journey, today.
Emma owns the English-language newspaper The Bogota Post. She began her editorial career at a financial website in the U.K. over 20 years ago and has been contributing to The Ascent since 2019.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns Bitcoin, Ethereum, and Solana.
Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
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