The price of the cryptocurrency Solana has skyrocketed an eye-popping 8,800% in 2021 as its network promises to deliver what Ethereum has failed to in the past – execute transactions faster and cheaper.
However, most of the rise in the cryptocurrency has taken place since August as the network started to support the minting of non-fungible tokens (NFT), a growing asset class that is considered the digital version of copyrighted art.
In the following article, we will explain in more detail what Solana is, why NFTs are a game-changer for the network, and what the future may hold for this interesting crypto project.
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What is Solana?
Launched in 2017 by a former Qualcomm employee, Solana is a blockchain powered by a proof-of-stake (POS) protocol that seeks to increase transaction speeds while keeping transaction fees low to compete with the widely adopted Ethereum (ETH) blockchain.
Same as Ethereum, Solana supports the deployment of smart contracts. These contracts are pieces of code programmed to execute certain actions once a set of conditions have been met.
Limited scalability and high costs have been the two Achilles heels of the more popular Ethereum network. Even though this blockchain remains the leader in terms of the number of decentralized applications (dApps)that have been built on top of its infrastructure, many believe that Solana will grow to overtake Ethereum at some point as it has proven its ability to solve these two issues.
How can NFTs impact the value of the SOL token?
One of the NFT collections that have pioneered the rise of the entire market has been the Bored Ape Yacth Club NFT collection created by Yuga Labs. Many of these pictures depicting apes dressed in different customs and with distinctive corporal features have been sold for hundreds of thousands of dollars while one was sold for more than a million dollars recently.
Initially, Bored Apes were minted on the Ethereum network. However, with gas fees rising at a fast pace amid the blockchain’s congestion, users who bought apes started to mint their artworks on the Solana network as transaction fees are dramatically lower.
Due to the popularity of Bored Apes, other artists have promoted Solana as well as the best blockchain to mint their artwork and users have followed their lead as they save a lot of money by using Solana instead of Ethereum.
It is important to note that Ethereum gas fees are currently set through an auctioning process. The highest bidder is prioritized by the network and, therefore, even though you may bid a lower gas fee for minting your NFT, it could take a long time for a node to incorporate your record as those who bid a higher price will be prioritized.
What does the future hold for Solana?
Even though the price of Solana has risen quite fast this year, its market capitalization still pales in comparison to that of Ethereum. At the moment, the market cap of the ETH token exceeds $300 billion while Solana is worth $40.5 billion based on the number of tokens that are currently in circulation.
If Solana proves to be cheaper, faster, and equally reliable as Ethereum for the development of decentralized apps (dApps), many developers may flock to its network to be able to scale up their projects at a lower cost.
Meanwhile, certain developers have been working on solutions to make the Solana network EVM compatible. This would facilitate the migration of Ethereum-based projects to the Solana blockchain and that could be another important milestone in the process of attracting developers to the network.
Moving forward, the achievement of these goals may push the price of the SOL token higher. That said, Ethereum has already deployed its London hard fork and, among the changes implemented, there was a modification in the way that gas fees are calculated that could lower transaction costs in the network. This would put the future of Solana in question as it would reduce the incentive for developers to migrate their projects to SOL.
Now that you know more about what Solana is and why it is rising, do you find the SOL token attractive as an investment opportunity? If you do, don’t forget to check out which are the best brokers available to invest in cryptocurrencies by visiting BrokerReviews.com.