Why Solana Was Facing a Major Challenge Today

What happened

The world's fifth-largest cryptocurrency by market capitalization, Solana (CRYPTO: SOL), has fallen by 12% over the past 24 hours, according to CoinMarketCap.com. Some readers might rightly point out that the cryptocurrency market broadly declined during that period -- and that's true. But Solana is also facing a performance issue that is contributing to its slide.

So what

Ethereum is a blockchain that has use cases (like smart contracts) that many other blockchains don't have. But it's not very fast at processing transactions. That's why Solana was created -- it was meant to be a faster competitor to Ethereum. But it's not living up to those expectations right now, and that's why its price fell so sharply.

A visibly tired investor rubs their eyes with a down stock chart on a computer screen in the background.

Image source: Getty Images.

A new non-fungible token (NFT) project called SolChicks (CRYPTO: CHICKS) that was built natively on the Solana blockchain launched Monday. But shortly after launch, the SolChicks team shared on social media (caps theirs) "CHICKS HAVE TAKEN SOLANA DOWN." That isn't exactly the kind of news that investors want to hear about a blockchain that's supposed to hold up to heavy usage.

Now what

Blockchains like Ethereum and Solana are called Layer-1 solutions, meaning they aren't built on top of other blockchains. However, it should be noted that scalability problems don't have to be solved on the Layer-1 level. Layer-2 blockchain protocols are being built on top of Layer-1 blockchains to help with issues related to scale. Therefore, investors need to carefully consider possible outcomes. One possible outcome is that a single Layer-1 blockchain will be able to do everything. But another possible outcome is that Layer-1 blockchain challenges will be dealt with using Layer-2 solutions.

Moreover, it's also possible that people will in time come to use Ethereum and Solana for different purposes, allowing both blockchains to be adopted long term. It remains to be seen what the ultimate outcome will be with Solana. However, if Monday's challenges are any indication, it probably won't be the one Layer-1 blockchain that displaces all others.

10 stocks we like better than Solana
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Solana wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 10, 2021

Jon Quast owns Ethereum. The Motley Fool owns and recommends Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.