Solana vs Ethereum | A Complete Comparison
Solana and Ethereum are both highly prominent blockchain platforms that leverage smart contracts. These two platforms have their respective strengths and weaknesses, but either way, developers are building applications on them.
This piece will provide an overview of these two platforms, and help show why an investor would choose to put their money into one over the other.
Solana is a blockchain platform that leverages several innovations to achieve a very high throughput. Various figures have been thrown around for the number of transactions Solana can handle now, and the total it could potentially achieve.
More Transactions Per Second
One figure that is frequently mentioned is 50,000 transactions per second (TPS). According to the white paper, the Solana network could potentially handle 710,000 TPS using a 1-gigabit-per-second connection and today's hardware. Under certain circumstances, the network could potentially process millions, or even tens of millions, of transactions.
Proof-of-History (POH), a new consensus mechanism, helps Solana achieve this high capacity. The idea behind this new mechanism is that it provides each piece of information with a timestamp, and when it is used along with another mechanism like Proof-of-Stake (POS), it can obtain "sub-second finality times."
A major benefit of Solana's high throughput is that it allows this network to process transactions at a very low cost. At the time of this writing, the average cost of executing a transaction on the Solana network is less than a penny, at US$0.00025. This provides a stark contrast to the Bitcoin network, for example, where the average transaction fee surpassed US$60 in 2017.
Incentives For Developers
Because Solana has the capacity for high bandwidth and can provide users with low transaction fees, it provides significant incentives for developers to build apps on the platform. At the time of this writing, there were more than 400 projects on the Solana ecosystem.
More specifically, the Solana ecosystem had projects involving DeFi, NFTs and Web3. There are also several decentralised exchanges, or DEXes, on Solana.
The Solana project has a native token called sol, which is used for different purposes including making transfers and staking. To stake their tokens, an investor would need to have a certain type of wallet that supports such activities. After that, they could participate in staking by delegating their sol tokens to a validator.
Ethereum is another blockchain network where developers can build decentralised applications, or DApps. One major idea behind taking this approach is that decentralisation eliminates a single point of failure.
Reduced Risk For Users
One major benefit of eliminating single points of failure is that it helps reduce the risks incurred by users. Over the years, many major organisations have been hacked. A perfect example is Equifax, which was the victim of a hack in 2017 and managed to compromise the information of more than 140 million people. By holding all this information in one place, organisations are putting their users, and their data, at risk. Theoretically, holding info like this using a decentralised app would reduce this risk.
Developers have also used the Ethereum platform for other purposes, such as providing decentralised financial services or DeFi. The whole idea behind DeFi is that it allows crypto market participants to engage in different financial activities without relying on centralised authorities to do so. In other words, anyone has the ability to get involved and make use of these financial services, without being worried about being kept out by more traditional financial institutions like banks.
Ethereum uses Proof-of-Work (POW). This approach involves the nodes in the network reaching a consensus about key details, for example the order in which transactions took place. However, at the time of this writing, there were plans for the Ethereum network to move toward POS.
All transactions that take place on the Ethereum network are all included in a single state, giving Ethereum its "stateful" nature. Every time a transaction takes place, all the nodes that make up the Ethereum network must be updated. For example, if Jack sends Jill US$100 worth of ether, then every single node in the network will need to update its copy of the network.
As a result of this characteristic, Ethereum does not process transactions as quickly as other platforms that lack the "stateful" nature. At the time of this writing, Ethereum can handle 15 transactions per second. As a result, fees on this platform have become very high at some points, being as much as US$65 to process a single transaction.
How Solana And Ethereum Differ
Solana and Ethereum differ in several important ways. As this piece has reviewed, they use different consensus mechanisms. Solana uses POH and POS, while Ethereum uses POW. One striking contrast involves their transaction throughput. While Solana could potentially process millions of transactions per second, Ethereum has a slower transaction speed and can only handle 15.
However, there are other significant differences.
Ethereum Is More Mature
For example, Ethereum is far more mature, as the network went live in 2015. Solana, on the other hand, launched in 2020. Further, Ethereum has already gone through several forks, or updates to the platform's protocol.
Ethereum Has More Validators
When measured in terms of validators, Ethereum is far ahead of Solana. Earlier this year, it was reported that the former network had 90,000, while the latter had 1,000. Ethereum also had more than 10 times as many nodes as Solana.
Sol Vs Ether
Further, investors may want to review the key performance indicators of the sol and eth tokens. Sol climbed to more than US$260 in November 2021, compared to roughly US$1.51 at the start of the year, returning over 17,000%, Messari figures reveal. At the time of this writing (December 2021), the sol token was trading at roughly US$180 and had a total market value of more than US$55 billion.
Ether, on the other hand, reached an all-time high of almost US$4,850 in November, after opening the year below US$740, returning more than 500% so far in 2021, additional Messari data shows. At the time of this writing, ether was trading at roughly US$4,000 and had a total market capitalisation of roughly US$480 billion.
Both Solana and Ethereum hold significant promise, not only as platforms, but also in terms of the returns their native assets could experience going forward. Solana has generated significant visibility with its high transaction capacity, while Ethereum benefits from greater tenure and a more mature network.
While Solana's sol token has benefited from astronomical returns in 2021, rising more than 17,000%, no one knows what the future will hold. Further, while ether is the second-largest digital currency by market value behind BTC on Messari, it is impossible to know what will happen going forward.
Investors can benefit from looking at these digital currencies from all available angles, including how many nodes and validators they have, existing development and the performance of the sol and ether tokens.
FXCM Research Team
FXCM Research Team consists of a number of FXCM's Market and Product Specialists.
Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.