One of the hottest debates in cryptocurrencies right now is Ethereum (Crypto: ETH) versus Solana (Code: SOL). While the former is still the king of blockchain development, Solana is gaining considerable momentum to dethrone Ethereum.
Does Solana have what it takes? Or will Ethereum solidify its position as the home of decentralized development?
The answer is not easy, and there are some gray areas to consider. Let's take a closer look at the situation between Solana and Ethereum to determine which cryptocurrency is a better investment.
First a little background
The launch of Ethereum in 2015 changed cryptocurrencies forever. Its new smart contracts mean developers can build blockchain-based applications, essentially making Ethereum the first programmable cryptocurrency. This new feature makes it possible to build non-fungible tokens (NFTs), stablecoins, yield farming, and many other aspects of today's decentralized finance (DeFi) economy all in one place.
As with any technology, subsequent iterations were eventually made. Enter Solana. Solana, given the title “Ethereum Killer,” arrived in 2019 and offered developers similar smart contract features, but with the added benefit of blazing speeds and low fees. had. As one of Ethereum's major pinch points, Solana has become one of Ethereum's most formidable challengers.
Solana begins expansion as Ethereum delays
Over the past year, Solana has experienced significant growth. Solana lost more than 95% of its value, dropping to just $9 at the height of “crypto winter,” but has since rebounded to more than $100 today. This resurgence is likely fueled by the growing momentum of the broader cryptocurrency market and its thriving ecosystem. A quick look at key metrics such as active addresses, total transactions, and total volume on the blockchain show that they are all near record levels, suggesting a bright future for Solana, especially in this new bull market. You can see that there are.
Next is Ethereum. While Solana has taken center stage, the original smart contract blockchain has been more or less watching from the sidelines. While Solana soared over 900% in her 2023, Ethereum registered a gain of just 90%. Moreover, although its blockchain remains one of the busiest of all cryptocurrencies, it has not seen as impressive an increase as Solana. By most views, Solana appears to be narrowing the lead that Ethereum has enjoyed over the past few years.
Ethereum is not standing still
Solana's performance over the past year has been nothing short of amazing. But here's the harsh reality. There is still quite a bit of room between it and Ethereum.
Currently, Ethereum has a market capitalization of over $340 billion. Solana's is just $45 billion. Next is DeFi. Currently, almost 60% of the total value within the DeFi economy is home to Ethereum. Solana only accounts for 2.7%.
Is it true that Solana is faster and cheaper? Absolutely. However, this throughput increase is not without trade-offs. To provide these features, Solana's design sacrifices decentralization and security. These are two important factors to consider when investing in cryptocurrencies.
As of the latest count, Ethereum has approximately 900,000 validators worldwide. Solana comes in about 2,000 people. Additionally, Solana has become notorious for network failures. In the past three years, Solana's blockchain has taken him offline six times, with the most recent one occurring in early February 2024. The Ethereum blockchain has never been offline this much.
The shiny features that Solana touts will likely fade over time. Although often ignored, Ethereum is not a finished product. With the most developers of any blockchain (Solana's five times his), Ethereum is constantly improving and making blockchains more capable, faster, and cheaper to use. It boasts an impressive roadmap outlining future upgrades.
Take the Dencun upgrade as an example. Scheduled to be implemented next month, Dencun will introduce a new mechanism that will allow Ethereum to process transactions across its vast Layer 2 ecosystem at much cheaper fees. Some estimates suggest that Denkun can reduce pesky gas bills by up to 10 times.
Building a strategic portfolio
No blockchain is perfect, but some are closer than others. What makes Solana a good investment is that the company is still in its early stages and still has room to grow. But with Ethereum, the investment thesis becomes clearer. Control over DeFi remains. It has the most developers. It has a proven track record of functionality and is one of the most secure and decentralized blockchains in the world.
I own both Solana and Ethereum. There are many reasons to believe that Solana's network can continue to grow, but it carries significantly more risk, making it a smaller part of my portfolio. On the contrary, I have much more confidence in Ethereum in the long run, so I will receive more allocations. For investors, the choice comes down to whether they prefer a newcomer or a veteran with a season or two under their belt.
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RJ Fulton has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.
Rising over 900%, can Solana really steal Ethereum's crown?Originally published by The Motley Fool
