Should You Invest In Solana In 2022?

Solana has been dubbed “The Ethereum Killer” by some, but is it living up to the hype? When looking at altcoins, there are many factors to consider before investing.

Scott explores the positive signs, the controversies/criticisms of Solana, and his own SOL investment thesis in this episode.

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Episode Highlights

Solana’s Funding Feud Raises Familiar Complaints about Role of VC Investment: “Solana was 48% insider investors and 13% the Solana Foundation, with most of the rest allocated to funding the ecosystem or attracting users…“Token distribution is critical in determining the distribution of power in blockchains,” Watkins wrote. “Concentrated insider ownership may permanently impair projects’ ability to become credibly neutral public infrastructure. Oligarchy is the system we’re supposed to be disrupting.” (PYMNTS)

What is Solana (SOL) Pay, and how does it work?: “Solana (SOL) Pay is considered by many to be the next innovation in the payments processing arena, facilitating payments while taking nonfungible tokens (NFTs) and Web3 into account. Some are going so far as to call Solana’s new payment protocol the Visa or PayPal of Web3.” (Cointelegraph)

Today’s Cryptocurrency: Solana (SOL)

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Cryptogic is the show for crypto investors who are focused on long term results. Follow host Scott as he explores the investable world of blockchain technologies, Bitcoin, Ethereum, and other cryptocurrencies.

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Scott: Hi, I’m Scott. And welcome to “Cryptogic.” Today, we are going to be talking about Solana. And this is the first in a number of videos that we’re going to be doing all about altcoins, that’s coins that aren’t Bitcoin or Ethereum, and why folks are interested in them, and why they might be worth considering investing in. And we’re going to start with Solana.

And full disclosure, Solana is part of my crypto portfolio. I believe really strongly in it, but I want to cover why that is, why I’m bullish on Solana, as well as some of the criticisms. So first, I’m going to be talking about why anybody would like Solana, why it gets so much hype at all. And then second, I’m going to be talking about those criticisms, about some of the controversy that Solana may have, certainly in the media.

And then third, I’m going to be talking about why I’m bullish, why I still think it is worth considering as part of a crypto portfolio. So first, let’s talk about, well, what is Solana? So, Solana is a Layer-1 blockchain protocol, and it was co-founded by Anatoly Yakovenko, who is a software engineer with a background at Dropbox and other big tech companies.

And really his whole approach was, in their white paper, we need more speed, we need more scalability when we’re talking about a blockchain network and in crypto itself. And so his whole approach was, rather than doing proof of work, which is what Ethereum is based on in terms of their consensus mechanism, Solana works on a proof of stake, and it’s actually a modified form of that called proof of history.

And this allows them to have an accelerated network throughput, and that allows them to, according to them, 65,000 transactions per second with minimal fees can be processed there. And that is incredible when you’re talking about speed and scalability, and especially when you’re talking about it with regards to Ethereum.

Because Ethereum, a lot of the criticisms there is how slow it can be and how expensive it can be in terms of energy and those gas fees. It is a very, very different way of achieving consensus and many believe that Solana is a better way. And so it’s really been called the Ethereum killer by many.

Now, is it living up to that? Well, we’ll see. But that’s one thing that folks are very, very excited about. So when you’re looking at Solana, you also have to consider that there is a tremendous amount of VC investment in Solana. And we’ll talk about some of the controversies around that in a bit here. Recently, in June, Solana Labs announced a $314-million fundraising round.

Then they had another smaller round at the end of December. And so clearly, there was a lot of traditional financial interest in Solana, a lot of whales that were interested in investing in their underlying technologies and helping them realize their potential. And when we’re talking about speed and scalability, that also ties into payments, which again we’ll talk about in a bit.

But when we’re talking about the ability to have transactions, borderless payments, all of these exciting elements of the crypto promise, having the technological backing is something that folks are really excited about when they consider Solana. And, of course, their network allows for DeFi apps, allows for NFTs.

There’s many NFTs that are being minted on Solana’s network. And it’s a little more environmentally friendly, when we’re talking about not having proof of work, but proof of stake, which again, addresses a lot of criticisms that there are out there about crypto in general. And so ultimately, it really does provide a lot of excitement there. And then lastly, let’s talk about the financial aspect.

When we’re looking here at CoinMarketCap, currently, at the time of this recording, Solana is eighth overall in terms of market cap. So that is a top 10 coin in terms of overall market cap, which is really significant when you’re considering an altcoin. That shows you just how much impact Solana has and how many folks are really interested in owning Solana’s tokens.

Again, eighth overall, that is not insignificant. And when you look at, of course, you’re number one and number two, you’ve got Bitcoin and Ethereum. Well, that Ethereum killer is just a few spots down there and it’s below just a few stablecoins. That’s pretty significant there. So if I were summing it up, that is why Solana is a big deal. The next question becomes, okay, well, what’s some of the controversy around it, some of the things that folks don’t like about Solana?

And the first thing is, again, that VC backing. So, Solana, back in June, they announced a $314-million fundraising round andt hey had another smaller round at the end of December 2021. And so there’s a tremendous amount of money that has flowed into Solana to help them scale their ecosystem and scale their offerings, particularly in things like payments, which I’ll get to in a second.

But that’s a controversy, because a lot of folks don’t like that VCs have so much control over Solana. There was a study that came out and I believe it was, at the time, 48% of all Solana’s tokens were in control or issued to investors. And that kind of…some folks don’t like that it goes against the decentralized nature of cryptocurrencies, the decentralized ethos, really.

And so that’s one of the big controversies there. You can see here, there’s an article that came out here in March, “Solana’s Funding Feud Raises Familiar Complaints about the Role of VC Investment.” And that’s just this constant push and pull that we’ve seen with crypto in terms of the traditional financial systems that we have in place and VC investment, and this idea of, no, it’s for everybody, it should be controlled by the people, not individuals.

The second controversy with Solana is just in regards to outages. So I want to take you to this article about an event that happened just a few days ago, “Solana suffered 7 hour outage as bots invaded their network.” And this was NFT mining bots, going and minting NFTs.

And there was a whole run of bots minting NFTs at this point and Solana went down for, again, roughly seven hours. Now, it’s pretty significant when you have a seven-hour outage where the network is failing to reach consensus. And again, this is one of the powers purportedly of Solana’s ecosystem, of their blockchain, in how they reach consensus.

And when you’re not even able to reach consensus because your network’s down, well, that’s a lot of concern about validity, about the future, about how secure it is, how stable it is. And we’re talking about the seventh outage, just in 2022 alone. So, Solana really is getting criticism based on that because that’s what folks want. If you want to believe in a cryptocurrency, in a DeFi ecosystem, and the power of an Ethereum alternative, well, you need to actually be online in order to do that.

So a lot of criticism about that and, of course, the VC investment. Well, then the last question becomes, and people always ask, okay, well, Scott, if you like Solana so much, why, in spite of these criticisms? And here’s why I’m personally bullish on Solana.

And again, full disclosure, I do have some Solana in my portfolio. I’m excited about it for a number of reasons. First, the VC investment actually isn’t a problem in my view. I actually think it is a bullish signal for the future of Solana and the future of their token. Because if you have investors interested in the company, interested in developing the technologies, if you have traditional financial market interest in it, to me, that is an incredible thing.

And when you’re trying to, I guess, really upend the market, when you’re really trying to present this alternative to Ethereum, be this Ethereum killer, having financial muscle behind that is significant and that will enable the development and the continual improvement of it.

And that leads into my second reason I’m still bullish on Solana, and that is how they are trying to solve the payments challenges. And they have Solana Pay, which was announced just a few months ago. And when we’re talking about crypto, currency is in the name. And to me, I think crypto still has a long way to go in terms of meeting its promise as a payment system, as something that is borderless, and anyone can have the network.

And we’re talking about faster transactions, we’re talking about lower transaction fees. I worked in payments for a number of years and the fees are incredible for merchants and they either have to pay them themselves or they have to pass them on to their customers. And that creates a tremendous amount of bloat, there’s inefficiencies, and Solana is working to address this with their technology.

Again, I mentioned earlier, 65,000 transactions per second. That is light-years ahead of where Ethereum is and what their capabilities are. And the load, the energy load and the time to consensus and all of that is significantly greater for Ethereum. And so when we’re talking about payments and how you can actually have practical application, practical adoption, go and buy that Starbucks cup of coffee that I’m always talking about, that’s where Solana is clearly focusing on really reaching a wide audience and developing their system.

So when you look at Solana Pay, that’s another thing that I’m really bullish about. And then lastly, I am bullish on hedges. We have this whole series where we’re talking about altcoins. And believe me, I have Bitcoin and I have Ethereum, and I believe in those cryptocurrencies, but if you are looking at ways to diversify your portfolio, if you’re looking at ways to gain exposure to not just the blue chips, but other potential technologies, that’s where you do look at these altcoins.

And Solana, once again, we’re talking about eighth overall currently in market cap as of this recording. That’s significant. And I think it’s a fantastic hedge to also not be completely tied to Ethereum’s network. So when I sum it all up, if I were to put a bow on all of this, that is why I like Solana.

That is why there are folks that are so interested in the potential of Solana, powerful for developers, fast for everyone. We’re talking about speed. We’re talking about scalability. We’re talking about really revolutionizing the payments world, DeFi, and so much more, and that’s Solana.


Scott is a writer Cryptogic as well as host of the several popular podcasts.