Next to only Bitcoin, Ethereum (ETH) is the second most popular cryptocurrency in terms of market cap. It holds one of $470 billion, as of 10/27/2021, which is significantly larger than that of many Fortune 500 companies, including Netflix or Walt Disney Co. Vitalik Buterin
created ETH in July of 2015, and since then the coin has seen significant growth, with an active community and team of developers who continue to find and fix problems within the ETH blockchain. Solana (SOL) is a coin that has gained massive traction in 2021, founded by Anatoly Yakovenko in 2017, and many say that it will trump ETH in time because of how it processes transactions more cheaply and effectively. But is this really true?
ETH runs on a Proof-of-Work (POW) consensus protocol, meaning that different miners are all competing in order to create a new block of crypto transactions. Whoever ends up creating the block of the processed crypto transaction gets a reward in ETH, which is why the process is called “mining”. Essentially the miner’s computers need to link together the previous block with the one occurring after, by solving mathematical problems, and if they do that they are rewarded. This creates a secure network because each transaction and block is validated individually by different computers, which ensures financial safety and security for users of the coin.
In addition to ETH, many other popular coins also run on POW, like Bitcoin, Monero, and Doge. However, there is a big issue with POW. Many criticize the energy and time efficiency of the consensus protocol, saying it is environmentally unfriendly, as it requires computers a great amount of energy to process the smallest transactions, and has unnecessarily high gas fees.
SOL claims to fix the problems ETH brings with it. The coin runs on a Proof-of-Stake (POS) consensus protocol, which is more environmentally friendly and efficient than Proof-of-Work. With SOL, there is a computer program known as a validator which processes the information coming into the blockchain from users. The validators process transactions within the SOL network, are where users are able to stake their SOL, and finally where votes occur for amendments within the SOL blockchain, and this is where POS comes in.
The Proof-Of-Stake consensus mechanism enables validators to vote on which blocks they would like to add to the blockchain, which means they agree to confirm any transactions held within those blocks. However, not all validators receive the same amount of votes for the consensus, the more SOL a validator has staked, the more votes they get. If a validator has none staked, then they do not get to participate in the voting process at all. When someone who holds SOL stakes it, they are not relinquishing the ownership of their token at all, but they are staking it within the validator in order to further help expand the blockchain network of the coin and to receive the rewards that are given to those who stake the crypto. The holders choosing to trust the validator with their staked tokens is taken as proof by the SOL network that their votes can be trusted, and then the votes are calculated proportionally in comparison to the amount staked.
This allows for great security within the network, due to the fact that people only get a say in the network equivalent to the amount of SOL they have staked, so the chance of someone hacking into the network and messing with the transactions is practically impossible. The best part about POS is that as more people stake their SOL, the network becomes more secure, making it even harder to become compromised as it grows. This leads to the gas fees, the cost per transaction, being much lower for SOL than ETH. SOL fees are roughly $.00025 per transaction, while ETH fees are much higher and can be hundreds to thousands of dollars depending on how much ETH is being moved. Additionally, the time for the transactions to process is also significantly lower for SOL. At the moment, SOL has nearly 10 times less market cap than ETH, but as the network continues to grow, it will only become more secure and the gas fees shouldn’t change, while the ETH network is still working on how to solve problems with the unreasonably high fees.
Both networks are used for a variety of crypto projects and partnerships, NFTs and smart contracts, so from most perspectives it would seem more practical to use SOL for the benefits and extra guaranteed safety in comparison to ETH. However, ETH is more established and used widely, and the coins team is currently working on upgrading the coin to ETH 2.0, which will be proof-of-stake and fix many of the current problems the network has at the moment. This will obviously not be an immediate fix, it will take a long time to convert the entire network over. Exchanges like Coinbase are allowing users to stake their Ethereum in ETH 2.0 in order to receive up to 5% APR when 2.0 is officially released.
SOL is not without its problems, the network has had rare intermittent issues where no transactions have gone through for several hours and it has essentially been down. That being said, there is still plenty of hope for the fast-growing crypto, and while it may not be able to catch up to ETH completely, SOL has a very solid chance of seeing substantial growth in the coming years due to the benefits of the network.