After reaching a peak valuation of nearly $3 trillion in November last year, the entire cryptocurrency market collapsed. With a market capitalization of around $870 billion at the time of this writing, digital assets have completely fallen out of favor with investors. This troubling situation has led to industry layoffs and the insolvency of some crypto companies.
Amid the recent turmoil, there are still some promising blockchain projects, and Solana (FLOOR 0.29%) is one of them. Although the price of its native SOL token has dropped by around 80% in 2022, I think the network has a bright future. In fact, reaching $500 per token is not out of the realm of possibility.
Solana’s focus on speed and scalability
Founded by formerQualcomm engineers, Solana went public in April 2020. And over the next 19 months, the price of a SOL skyrocketed 33,000% to an all-time high of $260 in November 2021. As of June 30, Solana was the ninth most valuable cryptocurrency, with a market valuation of $11 billion.
What makes Solana really special is its innovative consensus mechanism. The network operates a proof of stake system, which forces token holders to validate new transactions and earn new SOL. In addition to this, Solana also runs what is called a proof-of-history algorithm. This cool feature places a timestamp on different blocks of the blockchain to speed up transaction processing.
According Coinbase, Solana can process an incredible 50,000 transactions per second (TPS), making it possibly the fastest blockchain project in the world. To compare, Visalargest payment network, can theoretically handle 65,000 TPS. Bitcoin and Ethereum (ETH -0.90%)the two most valuable and well-known cryptocurrencies, can only handle three TPS and 13 TPS, respectively, at the moment.
However, a key risk to be aware of is the Upcoming merger on the Ethereum blockchain, which will take it from a slow and power-intensive proof-of-work system to a scalable proof-of-stake system. Nonetheless, Solana’s focus on speed and scalability from the start — two areas that Bitcoin and Ethereum have historically lacked — has made it an attractive blockchain for developers to build decentralized applications (dApps).
Currently, Solana remains one of the fastest and cheapest networks on the market. With over 20,000 different cryptocurrencies on the market, having a competitive edge is essential to survival.
Building Crypto’s Most Promising Use Case
For Solana to reach $500 per token, which equates to a 15x return, from the price of $33.45 on June 30, it needs to create real-world use cases. Fortunately, the network’s speed and low costs have made it an attractive blockchain for crypto’s most promising use case, a type of dApp known as decentralized finance, or DeFi.
In particular, Solana enters the payment sector with the launch of Pay Solana. While today’s payments industry is a complex web of banks, processors and card networks, all of which charge a small portion of the transaction amount, Solana Pay enables consumers and merchants to connect directly to checkout, resulting in instant settlement and almost no fees.
The added bonus is that because everything happens on the blockchain, new features can be implemented. For example, the merchant’s digital relationship with the customer not only makes it possible to deploy loyalty programs, but non-fungible tokens (NFT) may also be involved. The customer can receive the actual physical product, say, plus an NFT version of the goods, which could have a range of benefits. It’s not hard to see how Solana Pay could unlock incredible value in the world of commerce.
While it’s impossible to predict what will happen to crypto prices next year, I believe that in the long run, digital assets will become more prominent in consumers’ daily lives. And as has always been the case, I believe cryptocurrencies will overcome this current crisis and soar to even greater heights in the future.
That being said, the most likely time frame for SOL to reach $500 is probably 10 years, at the earliest. At that price, the value of the entire network would total approximately $164 billion. If Solana Pay takes off and achieves significant adoption, this figure is not exaggerated. visa and MasterCard have a combined market capitalization of nearly $700 billion.
It’s also important to keep in mind that Solana’s projected return would easily crush regardless of the S&P500 can produce over the next decade.