By dint of its speed and cheapness, Solana (CRYPTO: SOL) is forcing the crypto sector to grapple with a chain that’s capable of making brand-new market segments viable.
That means it’s a coin that investors absolutely need to know about. So let’s dive in and get up to speed with its place in the crypto ecosystem.
For capturing value from everyday users and creating useful automated systems with smart contracts, even small values of time and money matter. When faced with choosing between two decentralized finance (DeFi) applications that do the same thing, people are going to go with the cheaper and faster version almost every time, especially when there’s a big gap between the alternatives, like there is between decentralized applications (dApps) on Solana versus its biggest competitor, Ethereum.
This technology platform, which enables Solana to perform extremely quickly and extremely inexpensively relative to the competition, is thus the core element of why this company is worth investors knowing about. With its superior technology, its odds of outperforming those competitors are fairly high, as resources tend to flow toward where friction is the lowest.
In terms of the performance metrics, Solana routinely processes orders of magnitude more transactions per second than Ethereum’s base layer. Solana routinely posts thousands of transactions per second (TPS) versus Ethereum in the tens. That means your token swaps or transfers take a moment or two on Solana, instead of between 10 and 30 seconds on Ethereum.
Under the hood, Solana executes its transactions in parallel, rather than queuing them serially. For users, the effect shows up as negligible fees and snappy confirmation. The chain’s fee model starts with a tiny base fee, with optional priority fees for extra speed. In practice, transfers usually cost a fraction of a cent even without paying the priority fee. In contrast, Ethereum’s gas fees are rarely beneath $1 per transaction, and they can balloon much higher during busy periods.
Solana is thus the better chain to make applications that are intended for rapid throughput and global scale. Over time, that advantage is likely to pay off significantly for investors who buy the coin.
If a blockchain is fast and cheap, what becomes newly possible?
There are three segments in particular that benefit the most: AI agents, streaming payments, and decentralized physical infrastructure networks (DePIN).
AI agents and other automated systems need to pay other services per request, per file, or per millisecond of compute that they rent. That only works economically if fees are near zero and transaction confirmation times are near instant. Furthermore, such agents can transact with each other and with other platforms on blockchains, at a dramatically faster rate than what human operators could do. If the agents live on a blockchain like Solana, they aren’t rate-limited by the capabilities of the chain, but rather by their own processing speed and their need to interact with services at any given moment.
In other words, Solana’s speed and fee profile are a natural fit for that style of machine-to-machine commerce that’s going to become a significantly larger proportion of transaction activity over time. The same economics also make it a lot easier to process human-initiated streaming payments for content, bandwidth, and access to microservices or APIs.
Separately, DePIN use cases are already on Solana. One project called Helium moved its wireless network protocol to Solana to tap cheaper, faster settlement times and a broader developer ecosystem. Another project called Hivemapper pays drivers to map the world with dashcams, and it chose Solana to keep tiny, frequent rewards economical. In each case, the unit economics would strain on a slower, costlier base layer.
The investment thesis for buying this coin is thus that a base layer that makes high-frequency, low-value payments trivial is a base layer that’s going to be in demand as more and more diverse applications demand those characteristics.
Solana already does that at scale today, and it’s preparing for larger waves of traffic. Therefore, for long-term investors, knowing Solana and appreciating its powerful underlying technology is knowing where real-time crypto applications are most likely to live, and it’s also knowing about the landscape that’s currently taking shape.
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Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.
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