Solana could take market share away from ethereum thanks to its differentiated design, Bank of America analyst Alkesh Shah said in a note this week.
Solana is the fifth largest cryptocurrency, sporting a market capitalization of $47 billion. But solana’s size pales in comparison to ethereum, which was worth $400 billion at time of publication.
That valuation gap is an opportunity for solana, as its differentiation is “proving successful,” the note said. The note highlighted that solana offers low transaction fees, ease of use, and scalability relative to other cryptocurrencies.
Solana’s ability to offer such innovations is driven by its proof of history blockchain, which helped improve the performance of its proof of stake consensus mechanism, according to the note.
“These innovations allow for the processing of an industry-leading ~65,000 transactions per second with average transaction fees of $0.00025, while remaining decentralized and relatively secure,” Shah explained.
Since solana launched in March 2020, it has seen “significant adoption” with more than 50 billion settled transactions and more than 5.7 million NFTs minted, according to the note. There are current over 400 projects that have joined solana’s network.
All of this growth has helped drive the price of sol up more than 4,000% over the past year.
“Solana could become the Visa of the digital asset ecosystem,” Shah said, explaining that its ease of use and low cost means it is optimized for micro payments, gaming, and NFTs.
While solana prioritizes scalability at the expense of being a less decentralized and secure blockchain, ethereum prioritizes decentralization and security at the expense of scalability. Ethereum’s lack of scalability has led to periods of network congestion and transaction fees that are sometimes higher than the value of the underlying transaction.
Ethereum’s prioritization could optimize it for high-value transactions and identity, storage and supply chain use
cases,” Shah explained. But that ultimately leaves room for solana and other scalable block chains to chip away at ethereum’s market share.