Solana vs. Ethereum: Which one is the Better Investment?
Dec 14, 2022Understanding the difference between Solana and Ethereum can give you an insight into how to invest in both. When debating Solana vs. Ethereum, you should understand that there are many similarities. Still, at the same time, some differences can lead to a difference in the pricing of both assets. Comparing Solana with Ethereum is relatively straightforward for the most part, as they serve many of the same basic needs.
1. Solana
What is Solana, and how does it work?
Solana is a blockchain platform designed to host scalable and decentralized applications. It can process more transactions than most of its rivals, like Ethereum. Solana is a proof-of-stake blockchain that uses a new technology called Proof of History.
Advantages of Solana
Solana can process more transactions per second with much lower transaction fees than most rival blockchains, such as Ethereum. It has blazing fast speed as well as low fees. It can post smart contracts and has a low environmental impact. Users can also stake Solana (SOL) for rewards.
Disadvantages of Solana
Many of the implementations still have yet to be launched on the Mainnet. The hardware setup for Solana is relatively more expensive than many other rivals, and it has also been criticized for not being decentralized enough.
2. Ethereum
What is Ethereum, and how does it work?
Ethereum is a decentralized blockchain platform that establishes a peer-to-peer network. It securely executes and verifies application code called “smart contracts.” They allow participants to interact with each other without a centralized authority. It is considered a “trustless platform.”
Advantages of Ethereum
One of the most significant advantages of Ethereum is that it has a large and global community, with the largest ecosystem in cryptocurrency. It has many functions beyond being used as a digital currency. It can process financial transactions, execute smart contracts and store data for third-party applications.
Disadvantages of Ethereum
One of the biggest concerns with any cryptocurrency is that they tend to be extraordinarily volatile. This can not only lead to significant gains and large losses, but it also makes the transactional costs somewhat risky at times. Furthermore, clogging the network can also negatively affect transactions, slowing the blockchain down and causing expenses to rise. However, with the recent upgrades, Ethereum is looking to rectify this.
3. Critical differences between Solana and Ethereum
Value
Both blockchains have seen the value of their respective tokens increase over time but drop drastically during 2022. This has been a crypto-wide problem, so it’s not necessarily the fault of these specific networks. Both have seen massive adoption over the last several years and will likely continue to provide value. Solana and Ethereum do many of the same things, but there are some key differences.
Solana can best be thought of as being more about speed, while Ethereum is much more secure. Because of this, the choice will likely come down to the individual application or business that is being conducted.
Evolution
Solana has evolved as an alternative to Ethereum. Solana suddenly burst onto the scene in 2018, as the developers wanted to correct some of the inherent issues in the Ethereum market. Solana uses a Tower Byzantine fault-tolerant method that removes the need for nodes to communicate with each other in real-time, unlike Ethereum. The result has been increased efficiency and speed.
Ethereum initially started as a proof-of-work blockchain but has recently switched over to proof-of-stake. It has gotten quicker and cheaper but is still slower than Solana. Both of these networks attempt to have an automated verification process of transactions. Ethereum has been a mainstay for quite some time, so it does have the upper hand on adoption, and it is worth noting that Ethereum is considered more secure.
Coin Limits
There is a significant difference between the two coins and supply limits. Solana’s limited supply of coins will never expand beyond 489 million. On the other hand, Ethereum has no maximum amount of coins minted. (However, it should be noted that the growth is controlled.)
4. What Makes Ethereum and Solana Similar?
It should be noted that there are some similarities between the two markets, and therefore there are some overlapping qualities that you should be aware of. After all, you are trying to compare a couple of assets, but you also understand that the networks are trying to solve similar problems.
Mining Process
Ethereum used to be mined. It used a proof-of-work mechanism where miners would solve complex mathematical algorithms and spend a lot of energy and time creating a block of transactions. Once a block of transactions is made, a mining node would receive ETH, or Ether – the coin from the Ethereum network.
However, Ethereum has since changed to a proof-of-stake network, which means that you will be earning rewards for staking or validating transactions on the network, eliminating the mining process.
Less Energy
Ethereum’s energy usage used to be a significant issue when it was proof-of-work, but it has recently switched over to proof-of-stake. This makes the energy usage of Ethereum much lower than it used to be, but on the whole, it still uses more energy than Solana, as Ethereum is a much more extensive network. Solana has been efficient from the time of its inception.
Staking
Both networks do staking, so you must understand that you cannot mine either coin these days. This means those who are used to dealing with Ethereum mining pools will feel at home with Solana and vice versa.
5. Ethereum vs. Solana: Comparison
| Feature | Solana | Ethereum |
|---|---|---|
| Date Founded | 2018 | 2013 |
| Ticker | SOL | ETH |
| Market Cap (Q3 2022) | $12 billion | $164 billion |
| General Purpose | Decentralized verifications | Same |
| Transaction Function | Proof-of-Stake using Proof-of-History | POS |
| Mining Standard | Proof-of-Stake | Proof-of-Stake |
| Maximum Available Supply | 489 million | None |
| How Is the Currency Used? | Transactions, verifying | Same |
| What Influences the Value? | Network growth, demand for transactions | Same |
| Invented by | Anatoly Yakovenko | Vitalik Buterin |