Solana has recently received a lot of attention as a possible “Ethereum killer.” It has low transaction fees and lots of transactions per second, what’s not to like about the blockchain?
Now, a true Ethereum killer would overtake the market cap of Ethereum. This goal might sound easy, but it’s really not. This article will offer an in-depth analysis of the odds of Solana surpassing Ethereum.
Ethereum’s Market Cap vs Solana’s Market Cap
First of all, the market cap is calculated by multiplying the total number of coins by the price of each coin. For example, if there are 1,000 coins and each one is worth $1, then the market cap is $1,000.
It’s not a complicated formula, but it’s super useful for determining the total value of a company, blockchain, or project.
Anyway, Solana has a total supply of ~300 million with each $SOL costing $203. That gives it a market cap of $60 billion USD.
That’s a respectable market cap and gives Solana a rank as the fifth largest cryptocurrency by market cap.
Ethereum, however, has a significantly higher market cap. There are about 118,000 ETH in circulation with each ETH costing ~$4,400 USD. This gives Ethereum a market cap ~$526 billion.
To summarize, Solana’s market cap is $60 billion USD and Ethereum’s market cap is ~$525 billion.
Ethereum’s market cap is nine times larger than Solana’s market cap.
What is Solana?
Solana is a public blockchain that uses proof of stake consensus. Proof of stake consensus allows Solana to handle more transactions per second than a proof of work consensus blockchain (ie. Bitcoin or Ethereum).
Solana can handle ~40,000 transactions per second while Ethereum can handle 13 transactions per second. Proof of stake also makes the fees on Solana virtually free while being much better for the environment.
The successful implementation of proof of stake on Solana combined with its smart contract compatibility have led many to believe that the blockchain is a viable long term rival to Ethereum.
Can Solana Overtake Ethereum’s Market Cap?
To answer the question, we find it highly unlikely that Solana’s market cap will eclipse Ethereum’s. Here are our reasons for not buying into the narrative that Solana will eclipse Ethereum:
- Ethereum has a first mover advantage, which is huge.
- We can’t state enough times how important the first mover advantage is when it comes to smart contract development. Ethereum has a massive head start on developers building smart contracts on the blockchain.
- Solana is written in Rust.
- Rust is a programming language, and it’s not a particularly common one for blockchain projects to use. Ethereum is written in Solidity, which brings us back to the first mover advantage. Smart contract developers know Solidity very well – they don’t know Rust. This makes switching to Solana more cumbersome.
- Ethereum 2.0 will solve a lot of Ethereum’s problems.
- The main advantage Solana has over Ethereum is the low gas fees and fast transaction speeds. This is evidenced by the fact that an increase in Ethereum gas fees causes an increase in Solana users. The problem with this is that Ethereum will likely solve these problems when the blockchain switches to proof of stake with the launch of Ethereum 2.0.
- There are other layer 1s trying to topple Ethereum.
- Other layer 1 blockchains exist that are attempting to topple, or take market share from, Ethereum. A notable example that is flying under most people’s radar is Avalanche, but other examples include Cardano and Binance Smart Chain. Solana has to compete with Ethereum and those other competitors.
What Solana Must Do to Overtake Ethereum
While we are not sold on the narrative that Solana has a reasonable chance of overtaking Ethereum, we do see a potential route where Solana could overtake Ethereum. The following steps must occur in no particular order for that to happen.
- Ethereum majorly botches the Ethereum 2.0 rollout.
- People are getting a little annoyed at the high gas fees on Ethereum. It’s simply not going to work long term for Ethereum if they don’t innovate and figure a way out to lower gas fees while maintaining decentralization.
- Solana continues to nurture its DeFi community.
- Decentralized finance (DeFi) has been a major catalyst of the growth of Ethereum during this bull run. A large portion of financial services will move to the blockchain in the coming decade. The blockchain that properly positions itself with the most DeFi protocols will be well-suited to become a major player in the blockchain industry.
- Major NFT projects launch on Solana.
- Solana is the second most popular blockchain for NFTs, which is already a good sign. Again, NFTs will become increasingly popular over the next decade, so it’s wise for the blockchain to position itself as a blockchain that supports NFTs.
- Ethereum Virtual Machine compatibility.
- Solana is already EVM compatible, which is great to see. This allows smart contracts deployed on Ethereum to be launched on the EVM compatible blockchain. This allows blockchain interoperability and makes forking successful projects much easier.
Is Solana a Good Investment?
We take a slightly different approach to investing in cryptocurrencies than most people. It’s a higher risk strategy that leads to massive gains or massive losses. It’s similar to an investment strategy that a venture capitalist would take.
Basically, we look at the odds of the project 10x-ing in value and compare it to the market price. This is best done by looking at the market cap.
Solana’s market cap is $60 billion, so a 10x would result in a $600 billion market cap and a $2,000 token price. The market is giving the project a 10% chance of this occurring (future market cap / current market cap).
If we feel the odds of this occurring are larger than 10%, then the market is undervaluing the future value of the project and it’s a good investment due to the undervaluation by the market.
Now, we are not bullish on the chances of Solana overtaking Ethereum. However, we do believe there is a >10% chance of the project 10x-ing its current value based on developments from the Ethereum team combined with the work Solana has done so far at increasing its market share.
Due to that, we would classify Solana as a decent investment because the market greatly undervalues the future value of it.
That sums it up for whether or not Solana can overtake Ethereum. It seems unlikely that this will occur because Ethereum has a major first mover advantage combined with the launch of Ethereum 2.0 that should resolve most of the problems.
However, Solana still has merit as an investment because the market massively undervalues it as a viable competitor to Ethereum. That said, Solana is more of a long-term hold for those that have the vision to see the full potential of a system of fully interoperable blockchains.