Solana (SOL) is on a tear at the moment, hitting all-time high after all-time high. The price increased over 200% in August and is up over 7,000% since the start of the year, according to data from CoinGecko.
This pushed Solana into the top 10 cryptocurrencies by market cap. At the time of writing, Solana, which is available at most top cryptocurrency exchanges, sits in eighth place.
When the price of a cryptocurrency rises so quickly, it’s always difficult to know whether we’re about to see an equally dramatic fall. Understanding why the price has jumped is one way to gauge how sustainable that growth is. Here are some reasons for Solana’s growth.
1. Solana’s move into NFTs with Degenerate Apes
You’ve probably heard of non-fungible tokens (NFTs) — digital collectibles that continue to take the crypto world by storm. By coding ownership and copyright information into these tokens, key data is essentially baked into each piece of digital art.
Degenerate Apes was Solana’s first big foray into NFTs. This collection of costumed apes features various traits — from glasses to sandwiches — with various degrees of rarity. The launch had some technical issues (the team tweeted that they’d been “overwhelmed” by the demand), but that didn’t matter. The collection of 10,000 apes sold out in less than 10 minutes. At the time of writing, the trading volume had reached over 600,000 SOL (over $66 million). Those sales all needed SOL, which is a big factor in the price increase.
2. It’s attracting a wide range of projects — and some of them are doing well
There are over 400 projects built on Solana’s network, including various decentralized finance (DeFi) applications. Decentralized finance is an umbrella term for a host of projects that take the middleman (often banks) out of financial transactions.
FTX and Alameda Research built their decentralized cryptocurrency exchange called Serum on the network, which also hosts the increasingly popular USDC stablecoin. (USDC is also available on Ethereum.) Another of this month’s crypto stars, Audius (AUDIO), uses the platform too, which may also be a factor behind Solana’s price rise. Plus, TikTok chose Audius as its streaming partner earlier this month.
3. People are looking for alternatives to Ethereum (ETH)
Ethereum was the first programmable blockchain — a blockchain that can host other applications and cryptocurrencies — and many cryptos have since followed in its footsteps. The majority of applications are still built on Ethereum, but the network is struggling with congestion and high fees. As a result, both developers and investors are looking for alternatives.
Solana is one of a number of programmable blockchains that are jostling for pole position. People talk about potential Ethereum killers, but it’s more likely Ethereum will be one of five or six leaders that emerge in the coming years. If Solana continues to perform well, there’s a good chance it could win a spot in that top tier.
4. It successfully launched a wormhole project
Wormholes may sound like something out of Star Trek, but for Solana, this wormhole offers a way to easily bridge between different networks. Right now, blockchains are not very good at working with one another, and that’s been another stumbling block in terms of growth. It would be like having two wireless providers that couldn’t communicate with one another.
According to Coindesk, projects can now use the wormhole to move assets between Ethereum and Solana quickly and cheaply. Solana says the next step will be to connect Terra (LUNA) and the Binance Smart Chain.
5. It’s fast
Solana is one of the fastest cryptos on the block right now. It claims it can process at least 50,000 transactions per second (TPS) at a cost of less than $0.01 per transaction. Not only is this competitive with Visa’s payment processing capabilities, but Solana says it will be able to get faster as hardware improves — potentially reaching 700,000 TPS. To give you some context, Ethereum processes 15 to 45 TPS, though it will get faster as it completes an upgrade to Eth2.
Speed is not everything, but it has been an obstacle for many evolving cryptocurrencies. Time will tell whether Solana’s correct in saying it hasn’t compromised on security or other factors to reach that speed. Assuming it is, Solana may be able to keep its position in the top 10 cryptos for some time to come.
Potential threats to Solana’s price
It’s worth noting that there are some clouds on the horizon. U.S. authorities are talking about stricter DeFi regulation, which could have an impact on a number of projects on Solana’s platform. In addition, cryptocurrencies are extremely volatile investments that could see heavy losses as well as dramatic gains.
As previously mentioned, the programmable blockchain space is extremely competitive, and several strong Ethereum alternatives are in the running. Nonetheless, it’s fair to say that there are some solid reasons for Solana’s extraordinary month.
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Emma Newbery owns Ethereum and Solana. The Motley Fool owns shares of and recommends Bitcoin.
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